Marshall Islands - Economic development

The first five-year national development plan (1985–89), which was rephased to 1986/87–1990/91 to meet the requirements of the Compact of Free Association with the United States, constituted the first phase of a 15-year development program. The plan focused on economic development, with emphasis on private-sector expansion, personnel development and employment creation, regional development, population planning and social development, and cultural and environmental preservation. Total funding across the 15 year span of the agreement was envisioned at about to $1 billion, or about $65 million dollars per year in financial aid from the United States. Aid was gradually decreased across the 15 year period, and a down-step in 1996 caused a budget deficit that the government filled with debt financing. Paying off the bond obligations kept government expenditures and investment strapped until they were paid off in 2001. By that time, the size of the government had been significantly reduced. Compared to 1994/95, 2002 expenditures were 25% less in current dollar terms. Also, US aid had dropped to an estimated $39 million. Under Title 11 of the Compact of Free Association, funding was scheduled to expire in 2001, with provision of a two year extension equal to the average level of assistance over the last 15 years. This increased US grant aid to almost $60 million for 2001, above the average of $45.33 million for 1997 to 2001.

Tourism was under development in the late 1990s with the opening of a first-calls resort hotel, the first in the Marshall Islands.

In 2001 the government paid off all commercial debt but usable fiscal resources remained short because of a need to set aside about $30 million in 2001 and 2002 for the initial capitalization of the Marshall Islands Intergenerational Trust Fund (MIITF). The MIITF is the government's long-term solution to the island's public finance needs, but is not projected to provide substantial yearly dividends until at least 2024. In the meantime, the government renegotiated the terms of Title II of the Compact. In an agreement signed 23 April 2002 to go into effect in 2004, US aid is extended for 20 years, to 2024, with a base grant of $37 million. The base grant is to be reduced by $500,000 each year with the decrement to be deposited in the MIITF, which is also to receive an initial $8 million contribution from the United States. Inflation indexation was set with a cap of 5%, down from 7% under the old agreement. It also agreed to establish a RMI-US Joint Economic Review Board (JERB) to monitor and oversee the spending of the grant money. The priority targets set for spending are education, health, and infrastructure. The agreement requires amendment to the Compact of Free Association, which requires passage by both houses of the US Congress.

Another agreement reached in April 2003 was a 50-year extension of the US lease of land on the Kwajalein atoll as a defense site, with an option to extend an additional 20 years. As the current lease expires in 2016, this means an extension to 2066. In calculating its assistance to the Marshall Islands, the US includes not only the $13 million a year paid for the Kwajalein lease under the Military Use and Operating Rights Agreement (MUORA) but also an estimated $21 million in tax dollars that are infused through salaries, tax payments and telecom services, plus an estimated $10 million worth of federal programs, like the postal service. The RMI government expressed concerns that the assistance is insufficient to prevent economic stagnation, and social and infrastructure deterioration and/or prevent recourse to debt financing to fill revenue shortfalls.