Countries and Regions

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p. 5 of 5 BACK | NEXT I. Country Strategy II. Current Development Trends and Issues III. Implementation of the Country Strategy and Program IV. Portfolio Management Issues V. Country Performance and Lending Levels

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

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V. Country Performance and Assistance Levels

A. Lending Level Proposed

43. Based on recent evaluation and assuming a base-case performance, the 3-year rolling performance-based allocation for the FSM is $10.2 million for 2003–2005. The final allocation of Asian Development Fund resources will depend on performance against agreed-upon triggers. The key areas for improved performance will be (i) public sector governance and management, (ii) public enterprise reform, (iii) trust fund management, and (iv) ADB portfolio management. The triggers that were agreed with the Government are in Appendix 2, Table A2.8.

44. The Government asked ADB to confirm the OID loan in 2003 to address urgent infrastructure needs of the four states. Based on the preliminary assessment, the $8.0 million 10 OID loan may not be adequate to meet the immediate infrastructure needs of the four states. Discussions were held with USDOI for possible cofinancing of the project. USDOI may cofinance up to $3.0 million primarily for the power project in Chuuk, if the same institutional changes and concept of the Ebeye infrastructure9 loan are followed. ADB’s 2003–2005 lending program therefore includes an $8.0 million OID loan in 2003 and a BITS loan in 2005. The proposed assistance pipeline for lending products is in Appendix 2, Table A2.9, and the project concept papers in Appendix 3.

B. Nonlending Program

45. Some changes were made in the TA pipeline to reflect changing priorities and to ensure that the annual TA allocations are within budget. The TA, Strengthening and Capacity Building of Public Sector Finance Management, is included in 2002, and the TA, Public Enterprise Privatization and Corporate Governance II, is in 2004. The second phase of the ERCAP is in 2003 with a TA for preparation of an economic report. Economic and sector work will be carried out by the state and national economic management advisory team under the ongoing ERCAP I and II and the IPBM TAs. Project preparatory TAs for the OID and BITS loans remain in 2002 and 2004. As part of improving good governance, the TA, Streamlining and Strengthening Public Sector Audit Function, is in 2005. The assistance pipeline for nonlending products and services is in Appendix 2, Table A2.10. The TA concept papers are in Appendix 4.

C. Summary of Changes to Lending and Nonlending Program

46. The program for the FSM reflects the priorities of the Government, takes into account the anticipated outcome of the Compact negotiations, and is consistent with the main thrust of ADB’s strategy for countries grouped with the FSM. The Government reiterated the need for the OID loan in 2003 to meet urgent needs, including power, sewerage, and sanitation requirements of various states. The Basic Skills Development Project has been modified to address the vocational education needs of the private sector and the growing demands for information technology skills. While this seems to be the most appropriate program at this time, the urgent social infrastructure needs of the FSM may not be entirely met under the OID loan, and the sector remains underfunded in the Compact. The BITS loan may then have to be replaced by a 2nd OID loan. The second project will address environment-related infrastructure needs, including solid waste management, marine resource, and lagoon protection components. The TA program was changed to accommodate mutually agreed upon priority areas. Accordingly, the TA, Public Enterprise Privatization and Corporate Governance II, has been moved to 2004, replaced by a TA for training and capacity building for the new FMIS. The TA, Improving Economic Management and Policy Formulation (economic report), remains in 2003. These changes have the full concurrence of the Government.

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