Regions and Countries

	Table of Contents
p. 7 of 20 BACK | NEXT I. Country Performance 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

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II Country Operational Strategy

A. The COS

22. ADB's strategy in FSM reflects the government's development strategy aimed at implementing the economic reforms which was presented to the Fourth Consultative Group (CG) Meeting in Manila in February 2000. It is consistent with ADB's Poverty Reduction Strategy. To effectively implement the ADB's strategy in FSM, emphasis will be put on the needs of individual states, and stronger linkages will be established with the states' performance, commitment to reform and related policy dialogue. The priorities for FSM include the following:

• consolidate progress of public sector reforms
• increased targeted attention to fostering the growth of the private sector;
• provide direct assistance to the social sectors; and
• due attention to developing the overall economic and policy management capacity of both the national and state governments

B. Progress in Implementation

23. ADB financed PSRP has succeeded in bringing about required fiscal adjustments in all five governments¹². FSM is continuing to downsize government, restructure the economy, and pursue public sector and economic reforms. However, as observed at the national economic summit in September 1999, more policy formulation remains to be done, and implementation will have to be effective. Particularly in regard to attracting foreign investment, there is a need to make the application of regulations non-discriminatory, transparent, and faster. Other loans are progressing satisfactorily. However, the Fisheries Development Project has experienced delays and implementation problems due to external factors and dependence on various government agencies for operational requirements.

24. The renegotiations of the current Compact agreement with the US may lead to further decline in government revenues. Whatever the result the Compact renegotiations, FSM will have to stay the course of the reforms aimed at improving the performance of the public sector and, equally important, developing the private sector. The national and state governments are working on a comprehensive development strategy which will enable the FSM economy to develop in a more sustainable way with less reliance on external assistance. This needs to be based on a broad consensus of the population and should start its implementation before the end of the current Compact.

25. ADB's strategy and program continues to focus on policy and institutional reform, sound macroeconomic policies, and improved performance of both national and state governments. To more effectively implement ADB's strategy, more emphasis will be put on individual states' needs, and stronger linkages will be established with the states' performance, including their commitment to reform and related policy dialogue under proposed ADB interventions. This approach will be applied to future country programming as well as to future individual project designs. The need to maintain equity between the four states in terms of ADB assistance will, however, also be kept in mind. Both the national and state governments have fully supported increased focus on specific state operations and requirements.

C. Poverty Partnership Agreement

26. The preparatory work for developing a country specific Poverty Alleviation Strategy for FSM leading to a partnership agreement has been initiated under TA 3258¹³. Household income and other relevant data required for poverty assessment is currently being compiled. The objective is to undertake a preliminary analysis of poverty and inequality and to further examine and define the particular nature and extent of poverty and inequality in FSM. The concepts of economic and social opportunity as it may apply to FSM will be examined with also the importance of vulnerability as a factor impacting the economy and society of FSM. This would lead to a Poverty Partnership Agreement between FSM and ADB.

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