September 1, 2006

Opening statement delivered by Chairman David B. Cohen at both the annual meeting of the Marshall Islands-U.S. Joint Economic Management and Financial Accountability Committee (JEMFAC), held in Honolulu on August 30, and the annual meeting of the Federated States of Micronesia-U.S. Joint Economic Management Committee (JEMCO), held in Honolulu on August 31.  Both committees are responsible for allocating U.S. grant assistance under the Compacts of Free Association. Honolulu, Hawaii, August 30 and 31, 2006

David B. Cohen

A Commitment to Sustained Economic Growth:  What Does That Really Mean?

Distinguished cabinet officers, members of the Committee and other dignitaries:

Good morning.  I welcome those of you who have traveled to Honolulu for our annual meeting today.  I deliver this opening statement not in my capacity as Chairman of this Committee, but as the head of the Department of the Interior's Office of Insular Affairs, the manager of the grants provided by the United States under the Compacts of Free Association.

This week, the United States has the honor of hosting the annual meetings of both the U.S.-Marshall Islands Joint Economic Management and Financial Accountability Committee, or JEMFAC, and the U.S.-Federated States of Micronesia Joint Economic Management Committee, or JEMCO.  In order to save paper, I have drafted a single opening statement to address both meetings. This is what we environmentalists call "recycling."

I will confine my remarks to what I believe to be the single most important issue that we face today:  How will the Marshall Islands and the Federated States of Micronesia achieve the type of private sector economic growth that will enable them to survive as economically viable nations after the Compact grants expire in 2023?

At the Third FSM Economic Summit, the nation's leaders committed to a strategy of sustained economic growth.  In fact, it does not appear that the FSM or the RMI have any choice but to commit themselves to the pursuit of sustained economic growth.  The amount of Compact grants in 2023 will be substantially less, in both nominal and real terms, than the amount of Compact grants today.  Even with today's level of Compact assistance, economic growth is negative in the FSM and stagnant in the RMI.  The standard of living in both the FSM and the RMI is determined almost entirely by the level of Compact grants and, to a much lesser extent, other aid from the U.S. and other donors.  Unless Compact funds are spent in a manner that promotes sustained economic growth, the economic viability of both the RMI and the FSM will be threatened as Compact grants continue to decline.

Both the RMI and the FSM will receive income from Compact trust funds after 2023, but those trust funds in no way alter the urgent need for sustained economic growth.  Even the most optimistic hopes for the trust funds would merely have them replace the level of grant assistance to be provided in 2023—a level of grant assistance that is much less than the levels that are producing stagnant to negative economic growth today.  There is simply no escaping the imperative for both the RMI and the FSM to do everything in their power to promote sustained economic growth.

Let us then take this opportunity to remind ourselves of what it means to commit to sustained economic growth.  First and foremost, sustained economic growth means sustained private sector economic growth.  The public sector-dominated economies of the RMI and the FSM are heavily dependent upon foreign aid.  A large public sector can only exist by draining wealth that is created elsewhere.  Only the private sector can create new wealth, and therefore only the private sector can provide the engine necessary for sustainable economic growth.  Additionally, in no particular order:

• A commitment to sustained economic growth means a commitment to identifying and fostering potential competitive advantages for the economy, and a recognition that the Compact itself is an important competitive advantage.
   
• A commitment to sustained economic growth means a commitment to making significant reforms to improve the business climate—not as an end in itself, but as a necessary means of building a stronger and more prosperous society for all of the people.
   
• A commitment to sustained economic growth means a commitment to getting government out of the business of competing with business—that is, getting the government out of commercial enterprise.
   
• A commitment to sustained economic growth means a commitment to privatizing services that can be provided more effectively by the private sector.
   
• A commitment to sustained economic growth means a commitment to nourishing, not stifling, the creative entrepreneurial spirit.
   
• A commitment to sustained economic growth means a commitment to opening up the economy to foreign investment, because in a closed economy, a few well-connected businessmen get rich while everyone else stays poor.  Indeed, a commitment to sustained economic growth means a commitment to proactively identifying and pursuing good outside businesses that can, together with local businesses, bring jobs, capital and opportunity to the islands.
   
• A commitment to sustained economic growth means a commitment to making the approval process for foreign investment transparent, objective, fair, simple and quick.
   
• A commitment to sustained economic growth means a commitment to streamlining the regulatory and permitting process.
   
• A commitment to sustained economic growth means a commitment to ensuring that all businesses can compete on a level playing field, free from government favoritism.
   
• A commitment to sustained economic growth means a commitment to tax reform—that is, designing a system that encourages growth and investment and yields sufficient revenue for the government to provide essential services.
   
• A commitment to sustained economic growth means a commitment to land reform—that is, designing a system that protects cultural values but that gives businesses, government and the donor community the protection they need to build the infrastructure that's necessary for economic growth.
   
• A commitment to sustained economic growth means a commitment to developing a legal system necessary to support commerce and finance, including comprehensive contract law, sales law, secured transactions law and bankruptcy law.
   
• A commitment to sustained economic growth means a commitment to true capacity building, so that government can develop the strong institutions necessary to protect the legitimate rights of those who engage in commerce and finance.
   
• A commitment to sustained economic growth means a commitment to true capacity building, so that government can generate and report the economic statistics necessary to enable both the public and private sectors to make informed decisions.
   
• A commitment to sustained economic growth means a commitment to public sector reform, so that the public sector can support, rather than get in the way of, the development of economic opportunity.
• A commitment to sustained economic growth means a commitment to good governance and good financial management.
   
• A commitment to sustained economic growth means a commitment to good infrastructure.
   
• A commitment to sustained economic growth means a commitment to developing a work force that is healthy, well trained and well educated.
   
• A commitment to sustained economic growth means a commitment to spending Compact funds not for short-term political gain, but to build the solid foundation necessary to give our children hope for the future.  A commitment to sustained economic growth means recognizing that there is not enough money in the Compact to do both.
   
• A commitment to sustained economic growth means having the wisdom and self-honesty to recognize that we are way behind schedule, and that further delay threatens the future of our children.
   
• Most of all, a commitment to sustained economic growth means having the courage and the political will to face reality and do what's right.

We now look forward to hearing your vision for fulfilling all of the commitments that are necessary to secure the future of your nation and its people.  I'm sure that we will have plenty of questions, but our main questions will be these:  What can we do to help?  How can Compact funds best be deployed to support your vision?  How can we work together to make your vision a reality? 

It is now up to you to articulate a credible vision for sustained economic growth, and to take ownership of that vision.  We are here to listen and to lend support.  The vision is yours.  The future is yours.  The floor is yours.

Thank you.