Virtually all of the Pacific Island nations, including the Federated States of Micronesia (FSM) and the Republic of the Marshall Islands (RMI), receive development assistance. The Major Donors

Five bilateral donors—Australia, Japan, New Zealand, the United Kingdom, and the United States—and two multilateral donors— the Asian Development Bank (ADB) and the European Union (EU)—provided about $11 billion in official development assistance to Pacific Island nations between 1987 and 1999, according to our review of data from the OECD and annual financial audits of the FSM, the RMI, and Palau. Within this environment, the donors have tried several strategies to achieve their development objectives, such as incorporating flexibility and relying on trust funds. According to the ADB’s strategy, the implementation of its previous strategy in 1996 provided several lessons, including the need (1) for the Pacific Island nations to have stronger ownership of policy and reform programs and (2) to design development strategies that take account of local cultures and capacities. Approaches to Future Assistance

Our review of the lessons learned from the major donors’ experiences in the Pacific could provide some guidance to the United States as it negotiates further economic assistance to the FSM and the RMI. These lessons deserve attention because the current U.S. assistance to the two countries and the proposed approach for future assistance through the Compact of Free Association often contrast with the other major donors’ experiences, as discussed in the following points:   Assistance Strategies May Involve Trade-offs in Expectations of Aid Effectiveness If the Main Motivation for Assistance Is Not Development. Assistance Strategies Involve Trade-offs Between Cost, Effectiveness, and Accountability. Effective Assistance Depends on a Good Policy Environment in the Recipient Country. Flexible Strategies Are Important to Adapt Assistance to Changing Circumstances and Needs. Well-designed Trust Funds Can Provide a Sustainable Source of Assistance and Reduce Long-term Aid Dependence. Sectorwide Approaches Depend on Recipient Governments’ Commitment and Ability. 3. 4.
What GAO Found

Australia, Japan, New Zealand, the United Kingdom, and the United States have been the major providers of bilateral development assistance to the Pacific Island nations since 1987. The Asian Development Bank and the European Union have been the major multilateral donors. The donors' main development objectives, according to the planning documents, have been to alleviate poverty and to set the Pacific Island nations on the path to economic self-sufficiency. To achieve these objectives, these donors focus their assistance in key areas, such as education, policy reform, and infrastructure. The United States could draw several lessons from the donors' experiences for providing assistance as well as the strategies and approaches the donors have adopted. These lessons could provide valuable insights for the United States as it negotiates additional economic assistance to the Federal States of Micronesia and the Republic of the Marshall Islands. On the basis of the donors' experiences, GAO observed that (1) assistance strategies may involve trade-offs in expectations of aid effectiveness if other objectives for providing assistance take priority over development objectives; (2) assistance strategies may involve trade-offs between effectiveness and accountability, on the one hand, and administrative costs, on the other hand; (3) effective assistance depends on a good policy environment in the recipient country to create the conditions for sustainable development; (4) strategies tailored to the individual needs of the recipient country might have greater chances of succeeding because they offer recipients opportunities for stronger ownership of the program; (5) flexible strategies enable donors to adapt their assistance to changing circumstances and provide incentives for development achievements; (6) well-designed trust funds can provide sustainable sources of assistance to Pacific Island nations with limited growth options; and (7) sectorwide approaches, although generally untested in the Pacific, depend on recipient government commitment and ability.