Countries and Regions

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Country Strategy and Program Update 2003-2005: Federated States of Micronesia

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I. Country Strategy

1. The operational strategy of the Asian Development Bank (ADB) in the Federated States of Micronesia (FSM) is consistent with ADB’s overall Pacific Strategy for the New Millennium.¹ It recognizes the FSM’s moderate resource potential and good long-term growth prospects. The current strategy for 2003–2005 takes into account the sector priorities and goals of the Government, and the latest anticipated outcome of the ongoing Compact of Free Association (Compact)² negotiations with the United States (US), and the anticipated outcome based on the latest available update. It continues to support the private sector-led economic growth strategy of the Government as outlined during the Consultative Group Meeting in February 2000.

2. The immediate challenge for the FSM is to ensure strong growth in the private sector. The Government needs to divest itself of certain commercially oriented activities, to allow the private sector to identify opportunities and take commercial risks, and to create an enabling environment that is conducive to private sector development that will create additional jobs and opportunities. This objective will be supported by the approved Private Sector Development Program (PSDP)³ and reinforced by ongoing policy dialogue. The proposed Business and Information Technology Skills Development Project (BITS) will address the vocational education needs of the private sector, while preparing the nation for the technology demands of the future.

3. Social sector development and reforms will continue to play an important role in the overall development of the FSM, with emphasis on the outer islands to help improve basic social services delivery. This is consistent with ADB’s poverty reduction strategy. Increased allocation and better utilization of resources will be an important factor in expanding access to essential services. The approved Basic Social Services (BSS) Project⁴ provides the start in improving quality and efficiency of pro-poor health and education service delivery, while the proposed Omnibus Infrastructure Development Project (OID) will address immediate social infrastructure needs that enhance access to water, sanitation, and sewerage. Subsequently, the recurrent funding needs of these sectors will be met by the new economic assistance provisions of the Compact.

4. Finally, continued support for good governance will underpin ADB’s overall strategy for the FSM. Improved planning and budgeting systems, more effective and efficient utilization of resources, transparent and uniformly consistent rules and regulations between and within the national and state governments, and improved financial accountability and reporting are essential requirements for the successful implementation of the ADB strategy. ADB support in this area will be through its nonlending program and is built into the conditions of both the PSDP and BSS loans, as well as the proposed OID loan.

5. The country strategy will therefore focus on improving accountability and efficiency of the public sector, increasing access to basic social services through better utilization of state and national resources, and private sector development. A summary statement of the strategy is in Appendix 1.

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