VZCZCXRO7260
RR RUEHKN
DE RUEHKN #0108/01 2100059
ZNR UUUUU ZZH
R 280059Z JUL 08
FM AMEMBASSY KOLONIA
TO RUEHC/SECSTATE WASHDC 2078
INFO RUEHC/DEPT OF INTERIOR WASHINGTON DC
RHMFIUU/COMNAVMARIANAS GU
RHMFIUU/CDR USPACOM HONOLULU HI
RUEHBJ/AMEMBASSY BEIJING 0064
RUEHKN/AMEMBASSY KOLONIA 2425

UNCLAS SECTION 01 OF 03 KOLONIA 000108 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV EAID FM CH
SUBJECT: FSM GOVERNMENT RESPONDS TO COMPACT CRITICISM WITH HURT, 
EVASION AND A GLIMMER OF DIALOGUE 
 
REF: KOLONIA 104 
 
¶1.  (SBU) Summary.  Ambassador Hughes asked to call upon 
President Mori on July 25 to discuss shortcomings in 
implementation of requirements of the Amended Compact on the 
part of the Federated States of Micronesia (FSM).  With sorrow, 
Mori said he felt wounded by the tone of recent communications 
from the U.S. Department of the Interior, which had received 
broad distribution within his government and had undermined his 
political standing.  He asserted his ongoing commitment to the 
reform of Chuuk State.  The President asked for special help 
with fuel, as state utility corporations were running out of 
cash to import petroleum.  On all issues, he spoke in 
generalities, with no reference to specific performance plans or 
national strategies.  The President agreed to engage in more 
frequent dialogue on difficulties and progress with the Compact. 
 End Summary. 
 
TONE TRUMPS SUBSTANCE 
 
¶2.  In response to a request from Ambassador Hughes, President 
Emanuel Mori and key members of his Cabinet met on July 25 at 
FSM headquarters in Palikir to discuss U.S. concerns about FSM 
shortfalls in fulfilling requirements of the Amended Compact. 
The meeting lasted over an hour.  Also present were Chief of 
Staff Kasio Mida; Secretary of Finance Finley Perman and Finance 
Advisor Evelyn Adolph; Director of Statistics, Budget, Overseas 
Assistance and Compact Management Fabian Nimea; and Department 
of Foreign Affairs Assistant Secretary Jane Chigiyal. 
 
¶3.  (SBU) Quietly and sorrowfully, President Mori said the tone 
of recent communications from the U.S. Department of the 
Interior (DOI) had wounded him and his administration.  He 
referred to letters and e-mails that had received broad internal 
distribution in Palikir and among state governors.  Ambassador 
responded that DOI bore a major responsibility to the U.S. 
Congress and American taxpayers to ensure that our funds were 
administered accountably and in compliance with Compact terms. 
Lack of FSM responsiveness on such fundamentals as budget 
criteria and performance goals was a serious issue, particularly 
prior to the annual U.S.-FSM Joint Economic Management Committee 
(JEMCO) meeting at the end of August.  Time was running out, she 
said, and the FSM National Government (FSMNG) had failed to 
engage on key, ongoing objectives.  She expected the FSM to 
appreciate the gravity of anticipated Compact funding cuts and 
to understand U.S. frustration. 
 
¶4.  (SBU) Mori did not dispute the substance of U.S. concerns. 
Instead, he returned repeatedly to the style of recent DOI 
communications.  A letter of July 9 from DOI Office of Insular 
Affairs Director Nikolao Pula had reached the Governors, members 
of the FSM Congress and lower ranking FSM officials before he 
himself received the letter under cover of a diplomatic note. 
Mori protested what he construed as condescension from "a 
relatively low ranking U.S. official to the head of a sovereign 
nation."  Ambassador clarified that Pula was a senior U.S. 
executive who had signed the letter in his capacity as the DOI 
Director responsible for Compact implementation and as the 
distinguished Chairman of JEMCO.  Mori remarked that the tone of 
the letter was inappropriate; it had humiliated him and 
undermined his political standing with the FSM Congress, which 
was likely to demand that he answer questions on the perceived 
diminution of the stature of the Office of the President. 
 
¶5.  Ambassador Hughes agreed that tone and protocol were very 
important to the success of diplomatic and inter-governmental 
relationships.  In particular, the U.S. Embassy had a role to 
play to ensure that respectful communication was directed 
through appropriate channels, and we would redouble our efforts 
to do this, she said.  Difficulties sometimes arose because of 
the legacy of our Trust Territory history.  As a consequence, 
even after 22 years of FSM independence, some U.S. Government 
agencies remained used to pursuing their objectives through 
informal channels.  The Embassy and Washington were working hard 
to try to improve coordination. 
 
¶6.  Mori reminded that when Ambassador had presented her 
credentials last September, he had emphasized that he sought "to 
elevate the tone of our relationship with the United States." 
In general, he felt the two nations had made significant 
strides.  In the case of letters from DOI to himself, however, 
the President suggested that Secretary Kempthorne would be a 
more appropriate signatory.  He praised the support and 
relationship he had with the Secretary of the Interior.  In 
general, he said the FSM relationship with DOI was valuable and 
vital.  Ambassador reminded that we were all one U.S. 
Government, and the Embassy would seek to ensure that all 
communication was coordinated and satisfactory. 
 
 
KOLONIA 00000108  002 OF 003 
 
 
¶7.  Mori then produced another letter from the U.S. Congress 
dated July 22, which Ambassador and the U.S. Embassy had 
unfortunately not received.  Ten Congressional representatives 
had signed the letter, which urged progress in five Compact 
areas.  Mori said simply that he appreciated the eloquent style 
and usefulness of this letter.  He anticipated the FSM could 
"easily" address all five areas of concern pertaining to the 
startup of infrastructure construction projects; commitment to 
maintaining balanced budgets; production of a narrative on how 
to address the Compact decrement; adherence to Compact reporting 
deadlines; improvement of performance indicators in health and 
education; and development of a coherent strategy to promote 
private sector investment.  No one at the meeting offered any 
information on how the FSM would achieve all these objectives. 
Mori was apparently referring to the ease of responding to the 
Congressional letter, rather than satisfying all the contents. 
 
MORI REAFFIRMS CHUUK REFORM BUT LACKS A PLAN 
 
¶8.  Regarding the deepening crisis in Chuuk State, President 
Mori indicated his "serious concern" following Governor Simina's 
firing of Director of Administrative Services Gillian Doone on 
July 11.  Ambassador referred to an egregious history of fiscal 
irresponsibility in Chuuk and stated DOI's intention to shortly 
cease delivery of funds in three sectors (Capacity Building, 
Private Sector Development and Environment), unless the FSMNG 
could restore close and constant supervision of Chuuk finances. 
 
 
¶9.  (SBU) Mori said he would not try to block DOI's plan.  He 
said he was angry that the Governor had not consulted with him 
about firing an official whom they had both agreed to appoint. 
The Governor had subsequently failed to respond to two strong 
Presidential letters.  In his letters, Mori said he had 
threatened to cut off all FSMNG support to Chuuk unless the 
Governor identified a capable replacement for Doone and/or 
provided a stabilization plan.  Governor Simina subsequently 
agreed to meet the President in Chuuk on July 26 and to travel 
with him by boat the next day to a Mortlocks island leadership 
conference. 
 
¶10.  Mori said he had two possible candidates in mind to replace 
Doone.  Recalling how Simina had agreed to appoint and support 
Doone, Mori said that in his opinion, the Governor was capable 
of upholding his commitment to fiscal responsibility, even 
though he had succumbed to undisclosed political pressure to 
dismiss Doone.  The firing was "a political act," Mori 
commented.  Meantime, he concurred with Ambassador that 
conditions in Chuuk were deteriorating dangerously.  Electricity 
blackouts of five days running, which further degraded water and 
sewage, indicated the severity of cash flow and humanitarian 
problems. 
 
FSM NEEDS HELP WITH ENERGY 
 
¶11.  In addition to Chuuk, Mori said the FSM states of Pohnpei 
and Yap faced crises with fuel payments.  He lamented that 
rising costs associated with fuel were likely to unbalance 
budgets and push back financial targets across the board.  FSM 
leaders were exploring all options to cope with shortfalls.  At 
a recent Chief Executive Council meeting in Kosrae, President 
Mori and the Governors agreed to set up one emergency task force 
on fuel and another on food.  However, the chairs of these 
so-called task forces have not yet been named, Mori said in 
response to a question from the Ambassador.  He asked if the 
United States could please try to assist with the energy crisis. 
 
¶12.  Ambassador responded that the U.S. would certainly consider 
this emergent need.  In addition, she advised that the Chinese 
Ambassador, who is the dean of the small diplomatic corps in the 
FSM, had enthusiastically agreed with a suggestion of the U.S. 
Ambassador to convene monthly meetings with the U.S., Australia 
and Japan to discuss our assistance programs and encourage donor 
coordination.  China planned to convene the first meeting soon, 
and would probably be amenable to putting energy at the top of 
the agenda, Ambassador Hughes said.  President Mori and SBOC 
Director Nimea warmly welcomed the notion of this type 
coordination. 
 
COMMENT - CRITICISM OPENS A CRACK OF DIALOGUE 
 
¶13.  (SBU)  Respectful communication is, of course, a 
fundamental mode of operation wherever Americans  serve.  In the 
case of a transitional society, such as the FSM, where 
traditional values and hypersensitivity to so-called 'colonial' 
overtones permeate politics, we will need to tread firmly but 
very carefully at a time of deepening economic and governance 
challenges.  Ambassador explained to President Mori the valid 
 
KOLONIA 00000108  003 OF 003 
 
 
reasons for intense U.S. frustration with poor FSM Compact 
performance, particularly the growing concerns of the U.S. 
Congress. 
 
¶14.  (SBU)  However, Mori's attention was focused elsewhere and 
he declined to engage on specifics.  He said he was proud of 
Compact progress, and he could not afford further problems with 
the FSM Congress, which elected him and will determine whether 
he gets a second term of office in three years.  His Cabinet 
appears to be fractured, particularly along lines of FSM state 
affiliations.  Vice President Alik (Kosrae) is rarely seen with 
the President.  When Mori asked why the Vice President was not 
present at this meeting, no one in the room seemed to know where 
Alik was.  The Finance Secretary (Pohnpei) showed up a half hour 
late.  In the meantime, Mori and a small inner circle of 
advisors from Chuuk appear to be concentrating their priorities 
on such ambitious projects as construction of submarine fiber 
optic cable linkages to Chuuk and Kosrae (estimated cost of USD 
40 million); decentralization of FSM passport processing to all 
four states and FSM diplomatic missions in Washington, Guam and 
Honolulu (estimated USD 800,000); startup of a national fuel 
corporation; and purchase of small, Chinese manufactured 
aircraft to launch a new outer island transportation company 
(estimated USD 9 million purchase).  Communication on these and 
other issues is confined to a small FSM executive circle. 
 
¶15.  (SBU) In the midst of these competing FSM priorities, U.S. 
Congressional testimony and follow-up correspondence has focused 
a small but important spotlight on the program that delivers 
most FSM income and sustains some 65 percent of their government 
operations.  The FSM Congress and the four states have begun to 
demand a dialogue with the executive branch on Compact 
implementation.  The challenge on the U.S. side will be to 
continue to press for an examination of Compact issues without 
fanning nationalist sentiment on the part of the states, which 
are dissatisfied with Palikir, or fostering passive resistance 
to well intentioned U.S. guidance, which is a typical FSM 
reaction to perceptions of foreign intervention.  It also 
behooves the U.S. side to try to analyze, perhaps in dialogue 
with the Micronesians, the root causes of a failure to absorb 
more effectively our generous aid and to comply with terms of 
the Amended Compact.  We have a timely opportunity to think 
outside the box in terms of improving Compact implementation and 
our partnership with this remote island developing nation. 
SIGNATURE