After Uncle Sam Goes Home: Trouble in Paradise

End of US aid to ex- territories forces three new Pacific nations to boost their economies.

The tropical sun was setting over the Pacific Ocean, casting reds and oranges across the reefs, beaches, and volcanic cones of the island. And, under a tent on the lawn of the normally quiet Sandy Beach Hotel, a big party was just beginning.

The guests of honor, the governor of China's Shandong Province and a dozen of his Cabinet members, had come for business, seeking increased fishing privileges in Micronesian waters. Kosrae's leaders were eager to fete them, since aggressive development of the island's economy is a key to its future.

"The ocean is one of the only resources we have out here, and one of the few ways to earn revenue," says Likiak Wesley, head of the planning office of Kosrae, one of the four Federated States of Micronesia (FSM). "The US may be reducing its role here, so we need to find new ways to support ourselves."

Micronesians have reason to worry. Small and resource-poor, three independent nations were formed out of the former US Trust Territory of the Pacific Islands - the FSM, Marshall Islands, and Palau. They lost much of their strategic importance for the US military with the end of the cold war.

Their governments worry that US assistance may fade when key treaty agreements come up for renewal in 2001. "The US is likely to remain involved and interested, but with a significantly reduced level of direct support," says a Western diplomat in Majuro, the Marshall Islands capital, where China has established a large embassy.

That's likely to result in big changes for Micronesians. The United States has long been the region's unquestioned overlord and benefactor, and local economies depend on US assistance. Now they're trying to revive the private sector and are looking for new business partners.

"We have grown together with and under the US and want to continue that relationship," says Epel Ilon, foreign secretary of the FSM. "We're doing everything we can to survive without [US] help, but 15 years is not enough time to build a self-sufficient economy from scratch."

US troops captured these idyllic island chains from the Japanese during World War II. After the war the United Nations awarded them to the US as the world's first and only "strategic trust territory," a status that allowed the Pentagon to operate it as a vast militarized zone and placed the region's inhabitants under US protection and care.

Atomic weapons were tested in the Marshalls. And the US base on Kwajalein, also in the Marshalls, remains important for testing ballistic missiles and "star wars" strategic-defense components.

US payments to islands

In exchange for renting out their military sovereignty to the Pentagon, the three nations have received annual cash grants and development aid. But, more than a decade after independence, the FSM and Marshall Islands aren't just dependent on US grants and assistance - the assistance essentially is the economy. It accounts for more than two-thirds of the Marshallese gross domestic product and a majority of the FSM's.

"The islands are totally dependent on this money, and now its going to start running out," says Francis Hezel, a Jesuit missionary and scholar who has lived in the region for nearly three decades. "That money has disrupted the old subsistence economy and the traditional family and political structure, but it hasn't built a viable alternative. We're in a real crunch, and there's no easy solution."

Palau, which became independent in 1994, will continue to receive previously negotiated levels of US assistance for another decade. But for the FSM and the Marshalls, the tens of millions in annual block grants each receives must be renegotiated in 2001.

Congress appears poorly disposed. The House has passed legislation that removes the countries' eligibility for Pell Grants, a move that Micronesians say would trigger the collapse of their higher- education system. A congressional staffer who helped draft the changes says the money has been largely wasted. Instead of investing in the future, much of the US grant money was until recently spent on white- elephant government projects and importing junk food, cars, and other US consumer goods.

Money in the wrong places

While hospitals and primary schools deteriorated for lack of maintenance, the FSM and Marshalls both invested millions in state fishing fleets that promptly collapsed for lack of experience and marketing savvy, industry experts say. Air Marshall Islands lost huge quantities of money competing with Continental Airlines for direct Honolulu service.

Now the FSM and Marshalls governments are cutting back on personnel and services and encouraging the growth of the long-neglected private sector - especially tourism and fish processing. But both nations have few resources and rapidly growing populations. The Marshallese population is growing by a 4.2 percent a year. Providing basic services or even jobs for expanding populations is a staggering task.

"We made many mistakes, but we've become much more experienced in the process," says Joseph Bigler of the Marshalls Foreign Ministry. "We don't want to keep the US money faucet running and running - we want to find ways to work with the US to develop a stable economy."