U.S. big bucks

Relying on the U.S. big bucks

THE prospect of a rapid change in the Federated States of Micronesia

from a dependent consumption

driven economy to a self-sufficient pro duction economy is not bright, according to the Bank of Hawaii’s report on the country. The nation is too dependent on funds from the United States, and most attempts at encouraging private enter prise have failed.

The Federated States of Micronesia (FSM) is comprised of four states: Pohn pei, Yap, Truk and Kosrae. In 1986 the country had 95,000 people, almost a half of whom are under the age of 15 years.

Population is growing rapidly, at the rate of about 3.5 per cent.

The FSM is a unique development economy, says the Bank of Hawaii. In exchange for allowing the United States exclusive access to its million square miles of ocean economic zone, the coun try received guaranteed funds, now run ning at about US$lOO million a year.

“Any substantial decline in the US pay ments to the FSM would have an im mediate impact on the nation’s economy and, therefore, on the living standards of its people,” said the bank’s report.

Those US payments are essential to the FSM’s economic survival.

The government is the only major em ployer. Excepting trade and a few ser vice industries, there is practically no pri

vate sector. About two-thirds of the em ployed labour force works for the gov ernment at one level or another, and the state administration controls utilities, communications and other services

usually provided by private firms.

In the hope of encouraging a bigger private sector, the government had sub sidised a wide range of economic activi ties. But most had been unsuccessful.

“Lack of management experience, en trepreneurial drive and institutions con ducive to a viable market economy has so far made most of these ventures wasteful undertakings,” the bank report said.

The most recent figure available 1983 showed the FSM had a gross national product of US$lO million, with per capita GNP of US$l3Ol, a figure which places the country amongst the “lower-middle income” nations according to the World Bank classification. But it is not a poor country, and the FSM

population enjoys an adequate standard

of living which should be helpful in the country’s quest for foreign capital to de velop a production economy, the Bank of Hawaii said.

The major problems is the FSM being made up of small isolated markets fewer than 100,000 people scattered over a vast expanse of ocean, far away from major markets.

The bank report said there was some

potential for economic development.

The major prospect was tourism. The FSM is too far away from either the US or Japan to be developed into a mass

tourist destination like Hawaii or Guam.

But the various states all have regular air connections, and each has unique attrac tions. The trend is already encouraging: between 1980 and 1987, visitor arrivals increased by 34 per cent, although the -total numbers are still small.

Fish and fish products offer potential for development. The FSM would like to compete with American Samoa in estab

lishing large-scale fish processing plants,

but there are handicaps; there is a lack of capital and infrastructure, and the FSM does not have a deep-water har bour like that at Pago Pago. The bank sees a better strategy as being the export of fresh fish, an activity which involves only small amounts of capital and a small labour force the obvious markets would be Guam, Hawaii and east Asia.

Agriculture could also be developed for import substitution, and there could be some light manufacturing there is the potential for manufacturing or assembling goods for sale in the US. But labour is a problem: a company which

recently opened a garment factory on

Yap to take advantage of free access to the American mainland market found the local population not keen to take up fulltime employment and had to import 250 women workers from Sri Lanka.

The Bank of Hawaii said another obsta cle was that goods made in US territories and sold on the mainland could provoke resentment and retaliation among US domestic producers, especially in the case of goods already made in the Un ited States. □