The economy contracted in 2004 because of delays in implementing an upgraded public works program and the closure of the single largest private sector employer. A large step-up in central government expenditures and net lending, funded through increased
A new financial agreement with the US Government under the Compact of Free Association was effected in FY2004 (ended 30 September 2004). This increased government allocations to additional recurrent and capital expenditures by 20%. The
The tuna loining plant closed in August 2004 because of financial difficulties. The plant had unsuccessfully pursued a switch from the production of tuna loins to tuna steaks, which would have reduced the workforce by about 50%. The closure will see the loss of annual exports that were worth $3.4 million in 2003, representing more than half of merchandise exports (excluding reexports). Employment at the plant ranged between 500 and 600 people, some 5% of the economically active population, most of whom were women. It is estimated that, once indirect linkages are taken into account, the plant contributed as much as 3% of GDP.
Action is being taken to reopen the tuna loining plant. As guarantor of a $2 million loan to the business, the Government acquired control of the plant after its closure and began investigating potential market interest in reopening it. The previous operator argued the plant was only commercially viable with tax concessions and a wage below the legislated minimum. If a prospective operator shares this assessment, it may take some time to negotiate a new commercial arrangement and recommence operations.