Independence For Real

And such a debut comes at a good time. Palau, all 188 square miles of it, is a convergence of attributes-a competitive culture, rich natural environment and good geography-that has some observers wondering whether the country can obtain that Holy Grail of resource-poor, self-governing islands: economic independence. Palau gained its political independence in 1994 after signing a Compact of Free Association with the United States that supplied Palau with 15 years of substantial, but tapering annual development assistance. For sure, Palau has a way to go with five years remaining in its Compact and funding diminishing each year.

The country now has an annual budget of more than US$50 million and local revenues fund about 60 percent of that amount, says Palau Minister of Finance Elbuchel Sadang. The trade balance is heavily skewed towards imports with $96 million coming in 2001 and $9 million going out, according to the latest report from Ministry of Administration.

The majority of the local revenue is raised through a tourism industry that is just starting to mature. Today, Palau gets about 60,000 visitors annually, but has great potential for much larger numbers with its mostly untapped, breathtaking natural beauty.

But despite series of international events that seriously impacted tourism, and despite delays on a major road component of its development, Palau has seen a modest gain of only1 percent in real growth in recent years, Sadang says, pausing to name a few prominent hitches along the way: the Asian market crisis, Sept. 11 terrorist attacks, the wars in Afghanistan and Iraq. In 2003, Palau closed its airport to then SARS-infected Taiwan-its second biggest tourism market-and further suffered the SARS-generated Japanese fear of flying. But Palau still bounced back enough to about equal 2002 visitor numbers. That 1 percent growth compares well with Palau's struggling neighbors.

Palau has an exceptional mix of ingredients for future development: A world renowned environment, proximity to Asia, an educated population and an aggressive culture. The challenge for Palau is how to control a potentially explosive pace of growth—particularly once the circle road around Babeldaob opens this large island to new opportunities. Photo: Scott Radway

All that is not to say that Palau does not experience jolts from the global market, or is without the challenges of old-style island politics-or at risk of environmental loss and unwanted social upheaval with globalization. And as the local Palauan newspaper Tia Belau noted, 2003 was "A Troubled Year."

There were plenty of political bouts, most prominently the ongoing battles between the Office of the Special Prosecutor and Palau National Congress over the elected officials' travel expenses. Palau was also touched by tension, unrest and tragedy. First, Palau's most powerful traditional leader, Ibedul Yutaka Gibbons, was charged with assault for striking an American attorney with a baseball bat in January when the attorney refused to obey his order to leave a government meeting. His staunch supporters maintained the Ibedul was justified under Palau traditional law. A smaller group of opponents called the attack abhorrent and an affront to the young democratic nation. The volatile debate ended when Gibbons had his one-year prison sentence commuted by President Tommy Remengesau, Jr. in August.

Then there was a riot as more than 200 mainland Chinese garment factory workers who found themselves marooned in Palau for several months without pay or contract-guaranteed plane tickets home when their financially-troubled employer skipped island. In April, the workers barricaded themselves inside a local restaurant they believed was owned by the man responsible for their plight. The stand ended with forcible arrests. The Chinese government eventually chartered a plane to fly them home.

As the year closed, a triple murder of a missionary family utterly shocked this young, peaceful nation. Seventh-day Adventist pastor Ruimar DePaiva, 42, his wife, Margareth, 37, and son, Larisson, 11, were killed in their home during an apparent burglary. Their 10-year-old daughter was the only survivor. (See Pacific Notes story on page 8.)

With deep sighs, leaders say they hope 2004 is a safe, prosperous year of growth that everyone has been waiting for in Palau. And it is clear Palau has some characteristics that are fueling the positive developments seen thus far and continue to maintain the interest for sustainable growth in these islands. Characteristics that appeal to foreign investors, governments and international organizations alike.

"I think we certainly have the potential to move forward and thus achieve economic independence. And size is really not a matter here, nor population, nor abundance of resources, it's the will and the desire of the people and the proper economic climate that has to be there in order to move forward," says Pres. Remengesau. "We must never lose sight of that goal that Palau has to move forward for its economic independence, because only by making that a priority can you really improve yourself as a nation and as a people."

Much still needs to be mapped out on how to get there. The debate remains hot about how much development is too much, whether high-end or low-end tourism is better, about the need to diversify both its tourism sector, which so far caters mostly to divers, and then its economic base in general needs diversification to better withstand downturns in the global marketplace.

In the past year, there also have been raucous debates about banking law changes and whether to legalize casino gambling on a small southern island. The banking law changes were proposed by some lawmakers to enable two local banks to reopen their doors. Delegate Joel Toribiong says the changes were meant to "lower the bar" for the two local banks-the Palau Central Bank and Melekeok Government Bank-because they were unfairly being asked to meet banking standards dictated by wealthy, developed nations. The standards have the net effect of strangling Palauan-owned banks struggling to come of age in a young economy, Toribiong says.

But Remengesau opposed the changes saying they would create money-laundering loopholes for illegitimate banks that Palau kicked out of the republic several years back. He feared the crackdown of the international community and sanctions that would severely set back Palau's push to develop. A failed override of a presidential veto eventually settled the issue.

Similarly, the debate for casino gambling in Angaur ended without enough votes to override Remengesau's veto. But then the administration and Congress did agree to move forward on a Free Trade Zone law aimed at attracting light industry in Ngardmau State, an undeveloped area on Babeldaob Island.

This being an election year should further fuel the debate on development. And the dialogue will surely center on the coming completion of the Compact Road, a U.S.- funded, 53-mile ring road for Babeldaob Island, long anticipated as the key infrastructure addition to the greater economic development of Palau. The road is believed to be less than two years from completion. Babeldaob is the second largest island in Micronesia. Palau's population, government and private sector are packed into the much smaller island of Koror.

The road and how to handle development there is the most important question for Palau in years to come. With a strong environmental bent, Palau has talked much about how to achieve sustainable development in a fragile, island ecosystem. As well, Palauans say they put a high value on cultural preservation and don't want to sacrifice their identity for the sake of westernization. At the same time, people are pushing hard for development.

Delegate Noah Idechong, an environmentalist renowned for his work in Palau, has continually put the issue for Palau in the simplest terms: "How much does 16,000 people need?" Referring to the number of Palauans in Palau, Idechong has called for a clear definition of what Palau wants to achieve.

Three Palau traits stood out most prominently in interviews about Palau's success so far. Each trait builds on the other.

First and foremost, there is Palauan culture. Anyone stepping off the plane in Palau for an extended stay often notices first that Palauans are prideful and highly competitive. The word Palauans often choose to describe themselves, often with relish, is aggressive. "We are proud. We don't like to lose, although we don't like to say that," says Sadang. Palauans say that rooted deep in the culture is the desire to compete, to achieve, to obtain status, often for the family, the clan or the village and, these days, also for the country. The desire to achieve is instilled from a young age.

In the modern era that desire has translated into some positives as Palauans strive to compete in the global village. It has meant accepting change more readily than some other island cultures. Early on, during the U.S.-administered Trust Territory days, Palauans sought out higher, western education more than any other regional island group. At the same time, Palauans were more aggressive in seeking out leadership positions in the Trust Territory. The same drive has characterized Palau's post-independence era.

Consider, for example, the Festival of Pacific Arts. This July marks the first time the festival in its 32-year history will be held in Micronesia. Out of all the Micronesian island nations, Palau is the smallest by population. Just 20,000 people live here, foreign workers included. Estimates of festival participants run to more than 2,000. Though Palau has just 1,000 hotel rooms, leadership here seized the opportunity to showcase the island nation. Schools will be converted into dormitories. There will be home stays, transport boats and yachts to sleep on.

Or consider the new national Capitol being built in Melekeok State in Babeldaob. It looks like a medium-sized Washington, D.C. dropped into a rain forest. Although some Palauans today question whether the architecture is congruent with Palau's vision of maintaining its traditional culture and identity, the Capitol is another clear manifestation of the Palauan drive for recognition. Palau really wants to compete in the global marketplace.

The second trait that stands out when looking at Palau's situation, says Leilani Ngirturong, executive director of the Palau Chamber of Commerce is: "As always, it's location, location, location." Palau is only 500 miles from the Philippines and Papua New Guinea. There are relatively short flights today to both Taipei and Tokyo. Hong Kong is 1,700 miles away. As far as Pacific Islands geography goes, that is not a bad draw.

The Philippines and Palau just signed an agreement that clears the way for new air carriers to Palau from four cities in the Philippines. Vice President Sandra Pierantozzi says Palau views the Philippines as a "gateway into Asia and Europe." In April this year, Palau Micronesia Air, a homegrown airline supported by the region, is scheduled to start flying routes within Micronesia and Manila and Tokyo, and also wants to fly to Darwin, Australia, a mere three-hour jaunt.

Finally, Palau has a one of the most diverse marine environments in the world. Marine biologists draw a ring around an area that covers parts of Indonesia, the Philippines, Papua New Guinea and the fringe of Palau. That means both the scientific community and tourism industry see great value in the waters of Palau. That means conservationists are willing to put money into preserving it and tourists will pay real money to see it-if this fragile environment remains intact.

There are many countries with unique environments, but what the other biodiverse countries don't have is the political stability present in Palau. As well, Palauans have also been adamant, both on the governmental level and community level, to preserve that environment, tying environmental conservation tightly to cultural preservation.

Palau is often held up as an example of successful conservation work in developing countries. The passage of a law that sets up the framework to build the world's first nationwide network of conservation areas based on cutting-edge science is just one recent example.

Ngirturong says that biodiversity matched with Palau's environmental consciousness and its relative proximity to Japan and Taiwan is the major reason why those countries are pumping money into infrastructure projects. The bridge that spans the two main islands and the new airport terminal are the most prominent Japanese projects. Statistics show that Palau received more of Japanese aid to the Pacific than any country except Papua New Guinea. Even more than Fiji, which has population of more than 800,000. Palau's historical connections with Japan likely also played a part in its aid relationship with Japan. And Taiwanese government fingerprints are all over the island in projects such as the new museum going up in Koror.

"They look at it as a good investment. Palau is not a lost cause," Ngirturong says.

Sadang says under the Remengesau administration, which began in 2001, Palau has received upwards of US$50 million in aid primarily from Japan and Taiwan, in addition to the Compact money already received annually from the United States. Sadang says Palau's aggressive pursuit of bettering the nation and what he believes is a higher accountability for the funds Palau spends than other developing nations also has played a role in the large amount of aid received.

All things considered, things look good in Palau in years to come. The country is at the doorstep of Southeast Asia. It has an environment that rivals any for biodiversity and has plain-old postcard beauty. A writer once described Palau as the place where "Heaven fell into the Sea." That wasn't overwriting.

But a lot can still go awry. One of the first anthropologists to visit Palau noted, "Money makes Palau go round." It still does, Ngirturong says.

So as the Compact Road is completed, the aggressiveness and competitiveness of Palau could as easily bring about its fall as its rise. In the case of Babeldaob, perhaps most of all, Ngirturong says states need to put in place zoning master plans to control development before it can sprawl. Remengesau maintains a similar line, saying that if zoning plans are not there before the race starts, the political will is not likely be there to stop it when development hits full throttle.

"People will try to make what they have profitable to them," Ngirturong says. And overdevelopment will creep up quietly. "I don't think it will be big buildings, not sky-scrapers, but like Koror, just a lot of concrete and we will not notice it until its half way there.