Regions and Countries

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p. 5 of 20 BACK | NEXT I. Country Performance Assessment A. Economic Performance Assessment B. Poverty Assessment C. Assessment of Socio-Environmental Performance D. Governance: Sound Development Management E. Implementation Assessment II. Country Operational Strategy III. Sector Strategies IV. Regional Cooperation V. Donor Activities and Aid Coordination VI. Cofinancing and Catalyzing External Resources VII. ADB’s Operational Program VIII. Economic and Sector Work Program IX. Local Cost Financing

Country Assistance Plans - Federated States of Micronesia : I. Country Performance Assessment

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D. Governance: Sound Development Management

15. The system of government is modelled on that of the United States. Each of the four States has a high degree of autonomy with its own constitution, limiting collective development objectives and consistent fiscal management. There are three layers of government with the legislative, executive, and judicial branches replicated at national and state levels. Traditional leaders in Pohnpei and Yap also continue to exert political influence. The current system of government may be considered to be excessive for a population of just over 100,000. The decision in January 1998 to reduce the National Government from 11 departments and offices to six is noteworthy and will hopefully lead to greater focus and prioritization of Government at the State level but this will need further encouragement. The Government has shown a notably increased awareness and commitment towards better governance. The task is complex, involving four states and one central government.

16. The major governance issues continue to be: (i) the large machinery of government; (ii) the legal and regulatory framework which tends to stifle private sector development; (iii) inadequate managerial and technical capacities affecting reform implementation and delivery of services; and (iv) continuing dependence on transfers from the US Compact agreement to finance a large government wage bill. The earlier reform actions (retrenchments and wage cuts) have reduced government expenditure, but still the public sector continues to account for 70 per cent of GDP. There is scope for improving efficiency and delivery of services. Also, public sector wages are almost double that of the private sector on average. Public enterprises, many of which suffer considerable losses and crowd out the private sector, account for approximately 14 per cent of GDP and employ about 1,400 persons (about 10 per cent of formal sector employment). Legal and regulatory frameworks, including those governing access to land, have also proven to be impediments to attracting and realizing new investment, and, in some cases, have driven away potential investors. Capacity building is a continuing challenge, given the inadequacy of skilled administrators and technical staff at national and local levels, and in part the open U.S. immigration window for FSM nationals. The uncertainty regarding future Compact payments has in some quarters dampened the will to push forward along the reform track. There remains hope that a "successful" Compact renegotiation will ease the economic and fiscal difficulties facing the Government and enable it to pursue a reform agenda.

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