Bikini’s

Investment

By David North

BIKINI and Nauru have a lot in common. Both have a long series of colonial masters, both islands were severely damaged to serve colonial inter ests, and both received a great deal of money to remedy the damage. Further, both sets of islanders are largely depen dent on these payments for their day-to day livelihood.

The difference is that the Bikinians (residents of the Marshall Islands) are quietly building its investments while Nauru has lost much money to con artists, bad real estate investments, and, most recently, a failed fling in the London theatre.

Further, Bikini’s finances are an open book while those of Nauru are shrouded in self-imposed mystery (see PI M’s cover story, August, 1993).

Bikini benefits from three principal trust funds (and some lesser ones) and all are doing quite well. But, unlike Nauru’s financial ventures, Bikini has chosen a

supremely dull approach working

through corporate money managers, and banks, and lawyers, and putting every thing in writing.

Bikini also chooses dull investments, no Broadway shows, no skyscrapers, just a solid collection of stocks and bonds.

But dull means that there will be money for Bikinians or decades to come.

The finances work as follows I. The first of the three funds is the Marshall Islands Nuclear Claims Fund, a master fund established by the US

Congress to take care of various damages done to the Marshall Islands by the US military when it tested its atomic weapons there between 1946 and 1958.

Established with a grant of $150,000,000 in 1986, and told to disburse $18,000,000 every year to various organisations coping with the atomic damage, it has been able to meet its obligations largely out of its earnings, and still has $126,000,000 in its coffers at last report.

Or, stated another way; • the fund started with $150,000,000; • it spent $112,000,000, and; • it still has $126,000 remaining.

The US Congress set this money aside under the Compact of Free Association in 1986 to take care of the claims arising out of the atomic damage in the Marshalls. The fund is managed by Smith Barney, Shearson, a major Wall Street firm, and the moneys are invested in stocks and bonds, with quarterly reports issued on profits and losses.

Of the $18,000,000 paid out by this fund annually, $5,000,000 comes to the Bikini Claims Trust Fund. Other signifi cant annual payments are made to: • the Eniwetok trust fund, $3.2 million; • the Rongelop trust fund, $2.5 million; • the Utrik trust fund, $1.5 million; and; • the RMI government, $3.25 million.

Some other smaller payments are also made annually.

Eniwetok and Bikini, both outlying atolls in the Marshalls, were sites of atomic bomb blasts 23 in the case of Bikini, while Rongelop and Utrik are populated islands on which atomic debris fell, particularly after a hydrogen bomb,

175 times as deadly as the one dropped on Hiroshima, was exploded in Oper ation Bravo in 1954.

The damage to the islands and their people was monumental and about a generation later the US Congress de cided to make amends through the payment of federal funds. 2. What has happened to the $5.0 million a year that has gone to the Bikini Claims Trust Fund? The Bikinians’

Washington-based lawyer, Jonathan M.

Weisgall, worked out a deal between the islanders and the US government that $2.4 million is paid annually to the islanders for community expenses, and $2.6 million is invested for future use in the Bikini Claims Trust Fund.

In the seven years that the latter fund has been in operation, it has received about $18.2 million (seven x $2.6 million) in payments from the master fund, and, as of September 30, 1993, had a total of $21,795,000 in holdings. There will be eight more annual payments into the fund of $2.6 million each. 3. Meanwhile the island leaders and Weisgall have convinced congress that it was not enough to just compensate the islanders for the taking of their land

to which they have not returned because of continuing radiation but Congress should pay for the restoration of the land to something like its prior condition.

Bikini Atoll surrounds what had been a large, fish-filled lagoon, which histori cally was the source of most of the residents’ protein; the islands around the fringe were rich in coconut palms and breadfruit trees, allowing the residents a healthy subsistence economy, without the need for cash crops.

Congress made a series of annual payments, in recent years, totalling $100,000,000, to restore the island to its prior condition; this sum was in addition to an earlier fund of $20,000,000 for a total of $120,000,000. Moneys from this, the third fund, are to be used for the benefit of Bikinians only, not the resi dents of the other atomically-effected islands.

This fund, the Resettlement Trust Fund, pays out $8,000,000 a year to meet the current needs of the islanders (it essentially supports the community) and to restore Bikini to its pre-bomb status.

The Bikini Council, not the Republic of Marshall Islands, manages both the Resettlement Trust Fund and the Bikini Claims Trust Fund.

Despite the drain of $8,000,000 a year, the Resettlement Trust Fund was worth $107,771,000 on September 30, 1993.

How do the leaders of the Bikini islanders, notably the mayor, Tomaki Juda, and the members of the council, manage to have so much money left after so much has been spent on their behalf?

The answer is a textbook example of careful management, -and, as suggested, a basic decision to follow the plodding course of sensible investments made through sensible channels. In addition, the US Department of Interior looks at the books from time to time.

“Sure we have suggestions that all the money should be divided among all the residents, and the trusts closed out; sure there’s the guy who says ‘let’s invest in

my brother-in-law’s business’,” Weisgall

told PIM, “but that’s not how it is done.”

Mayor Juda and the council sits atop a complicated mainland financial struc ture which is full of checks and balances.

The peak of this structure is Wm. M.

Mercer & Co., of Denver, the investment adviser. The organisation figures out an appropriate balance between bonds (safe

but usually incapable of growth) and

stocks (less safe, but capable of growth.) Mercer also helps the island leaders

choose its money manager (more on this later) and audits all the books. Mercer handles NO money directly, and make no decisions on specific investments.

Then there are the two trustees, both old established American financial insti tutions, Naitonsßank for the Resettle ment Trust Fund and Signet Trust Company for the Bikini Claims Trust Fund. Their role, when everything is in order, is to write out cheques for investments and disbursements. With Mercer’s help, the island leaders have

The answer is a textbook example of careful management, and, as suggested, a basic decision to follow the plodding course of sensible investments made through sensible channels

chosen seven money managers, each given responsibility for between $6.5 million and $35 million. These are the people skilled at making investment decisions but, to avoid conflict of interest, again, most are not stock dealers, and they do not consummate the stock sales and purchases they recommend and thus they can not generate excessive com missions for themselves at the islanders’ expense.

Mercer keeps track of how well each of the money managers do on a quarterly basis, and compares these track records to standard Wall Street indices, such as the changes in the Dow Jones index or that of the Standard and Poor’s 500.

Every quarter Mercer sends the island leaders and Weisgall a report, showing how everyone is doing. In the most recent report, for example, using two year averages, one of the money man agers (GAMCO) had an average return of 23.8 per cent, while another, at the other end of the spectrum, came in with only a 4.3 per cent return.

On average, for the two years ending September 30, 1993, the Resettlement Trust Fund showed a return of 13.3 per

cent per year, while the Bikini Claims Trust Fund did less well, at 11.0 per cent per year.

If a money manager does badly over a substantial period of time, it can be fired. For example, Morgan Stanley & Co., one of the financial institutions established by America’s ranking tycoon of 100 years ago, J P Morgan, did not perform well for Bikini so it was fired by the mayor and the council. (Unfortu nately no Stateside writers or social critics knew about the decision at the time they would have had a field day with the implicit real estate investments.

Of the 5100,000,000 plus in its various portfolios, there is S 3 70,000 invested in one real estate venture, an apartment complex in the American Middlewest (which has worked out well, according to

Weisgall.)

Given the formal financial structures devised by Bikini’s leaders and Weisgall, and what in money circles is called the “fiduciary relationships,” Bikini not only does not get taken by con artists, or invest in dubious ventures, it virtually can not do so.

This makes life dull for journalists like me, but keeps the money flowing to where it should flow, to the islanders. ■ BIKINI remains largely unin habited. There are a few Bikini males on the island now, working on its rehabilitation. The bulk of the population remains on another Marshalls island, Kili. Bikini was cleared of people in 1946 by the US; there was a movement back to the island in the ’7os (in the wake of inaccurate news about its safety) and then the Bikinians left again shortly afterwards. Bikini’s 36 islands are six times larger than Kili in land area; rat-infested Kili doesn’t even have a protective la goon, and fishing is often imposs ible because of weather conditions.

Other Bikinians live on Ejit Island, near Majuro.

When the bikini was invented in 1946, it took the name of the de nuded island, an apt choice con

sidering the garment’s explosive

effect on men. From 1946-1958, 23 nuclear blasts in the atmosphere shook Bikini Atoll, at a cost of $9l billion in today’s dollars. They'are feared to have left behind a legacy of contamination, cancer, leukaemia, thyroid problems, miscarriages, “jellyfish” babies, and irreversible genetic damage. □