Marshall Islands steps up state owned enterprise reform

9:36 am on 6 January 2019

The Marshall Islands government's Ministry of Finance is pushing stepped-up reform of the nation's state owned enterprises in 2019, following initial efforts with limited results last year.

Although Nitijela (parliament) adopted a law in 2015 aimed at reforming the 11 state owned enterprises (SOE), most SOE managers had not read the law.

This fact became evident during mid-2018 when the Ministry of Finance rolled out a series of workshops aimed at implementing reforms in the SOE sector.

"At our first meeting with SOE representatives, 90 percent of the managers had not read the act," said Finance Secretary May Bing.

"So we broke it down (by sections) and went through it - what's required, the deadlines."

She described reform efforts in the SOE sector as in their "infancy." But, Ms Bing added, "we need the improvement."

An Air Marshall Islands plane offloads passengers and cargo at Jaluit Atoll. Air Marshall Islands is one of 11 SOEs that are part of a major reform

An Air Marshall Islands plane offloads passengers and cargo at Jaluit Atoll. Air Marshall Islands is one of 11 SOEs that are part of a major reform Photo: RNZ Pacific / Giff Johnson

The SOE sector has been heavily subsidized by the national government over many years.

"With high levels of subsidies and capital transfers to the SOE sector, at an average of 10 percent of GDP over the last three years, the ailing sector remains a major issue of concern," said the Marshall Islands Economic Brief FY2017, issued in August 2018 by the Graduate School USA.

"While the law provides a sound basis for SOE management, the main challenge will be the lack of capacity and skilled management to implement the law both at the SOE level and in the new SOE monitoring unit," the Economic Brief pointed out. "Part of the ADB Public Financial Management project provides resources for the establishment of the monitoring unit, which commenced work in 2018."

Ms Bing is heading public financial management reform work at the Ministry of Finance, and overseeing reform in the SOE sector.

Of the 11 SOEs, Ms Bing said she has seen "a good response from four." These four have developed business plans required by the Nitijela SOE law adopted in 2015.

In initial meetings with SOE managers earlier in 2018, some SOE managers said they were "too busy" to do business plans or expressed other reservations about the reform plan.

Ms Bing's observation is simply this: "Operational business plans are the first step - and it's the law.

"It's a climb up the mountain for SOE reform," she added.

But Ms Bing is an experienced hand in the reform business, having moved the Ministry of Finance to a higher level of accountability since taking over the Secretary post in April 2015, which included getting national audits back on schedule after years of missing deadlines.

She said the Ministry of Finance is gearing up to sign contracts this year with several SOEs that are ready in order to fund "community service obligations." The business plans are essential to this process as they will spell out the services that the government - and the public - receive for the funding provided by the government.

She said part of the ongoing reform process is working with SOEs to work out the costs of the services they provide. "We're doing costing exercises with the SOEs."

While acknowledging that some SOE management "has missed a lot of deadlines" in the process begun this past year, Ms Bing expressed optimism about the reform moving ahead.