Pacific Magazine > Magazine > November 1, 2006

Palau

No Cookie Cutter Compact For Palau

‘We’re Not The FSM And Marshall Islands’

By Giff Johnson, KOROR

Three years before the funding package in its Compact of Free Association with the United States expires, Palau is already reviewing the new Compacts with the Marshall Islands and Federated States of Micronesia to prepare for its own “Compact II” negotiations.

A three-man team from Palau’s Compact Review Commission visited Majuro and Pohnpei in September, meeting with government officials and private sector leaders to get a first hand look at issues and problems with the second Compacts.

Even before the fact-finding visits, Palau leaders were making it clear they don’t want to be treated like the FSM and Marshall Islands, which were forced by unyielding U.S. State Department negotiators to accept what they say are punitive Compact II terms and then appeal to the U.S. Congress for mitigation.

Kuniwo Nakamura says U.S. and Palauan Compact II negotiators will “need to be exceptionally creative and very reasonable.” [Photo: Giff Johnson]

In this regard, Palau clearly has an edge. While the Marshall Islands and FSM economies are almost totally driven by funding from Washington, Palau has a budding economy of its own. Palau is taking full advantage of its proximity to Asia.

The current level of 70,000 tourists annually—which is about 30 times more than its Compact neighbors—developments such as the new Palau Royal Resort, and scheduled and charter flights from Guam, Tokyo, Manila and Taipei show that the economy is moving.

The nearly complete 53-mile “Compact Road,” which for the first time opens up largely untouched Babeldaob Island—presenting huge development opportunities as well as significant risks—will soon become Palau’s biggest economic ticket. How it is used will influence both Palau’s leverage in Compact funding talks with the U.S. in the short-term, and its long-term economic health.

“The first issue of concern for both parties is not to prejudge the negotiations,” Palau President Tommy Remengesau, Jr. said in a recent interview with Pacific Magazine. “Our hope is that we (U.S. and Palau) will talk with each other as friends and
allies, and as people who consistently support the U.S. in the United Nations, in the war on terrorism and in most international forums. We’re not adversaries.”

The fact that Remengesau has to make this explicit—and has been saying it since 2003—is indicative of how the three Compact partners perceive the changed attitude in Washington toward its long-time island allies since the 9/11 attacks in 2001.

Former two-term Palau President Kuniwo Nakamura is heading the Compact Review Commission. Victorio Uherbelau, a former director of the Forum Fisheries Agency, is its executive director. “Our mandate is broad,” Nakamura told Pacific Magazine in Palau recently. “We are reviewing the Compact and preparing recommendations to the negotiating team.”

The commission’s work is to be wrapped up by next July. The first 15 years of Palau’s Compact funding package ends in 2009, although the overall Compact continues for another 35 years.

“It’s not an easy task (Compact renegotiation) given that the FSM and Marshall Islands have Compact II already,” Nakamura says. “It has preempted us, making it more difficult to discuss issues on which the RMI and FSM have already agreed.” But, he added, “Palau is not the FSM or the RMI. We’re a sovereign country. Palau will be talking with the U.S. as a sovereign country, not like in the Trust Territory time. It’s a totally different situation.”

Remengesau says that he hopes that the negotiations will focus on “what went right and how to improve it—not, we did this to the FSM and Marshall Islands and now we have to do it to you, too.” The U.S. Government Accountability Office (GAO) never audited the FSM or Marshall Islands until the waning days of Compact I, when it arrived after a couple billion dollars had been spent to deliver several critical reports documenting mismanagement by Washington, the FSM and Marshall Islands, and in some cases, outright financial abuse in the islands. Those GAO reports provided ammunition that U.S. officials used to ratchet up accountability and performance controls in Compact II, and, as some critics maintain, to penalize the islands.

But Remengesau believes Palau’s situation does not mirror that of the FSM and Marshall Islands six years ago when their Compact II talks started. “Our Compact funding is regularly audited, and we have not been cited for unaccounted for money,” Remengesau says. “We’re very proud of how we’ve accounted for our Compact funding.”

Nakamura believes that the U.S. and Palau negotiators will “need to be exceptionally creative and very reasonable.”

The aim, he says, is for the next Compact to “dovetail with Compact I” so there is a smooth transition so that program assistance doesn’t dramatically interrupt progress made over the last 15 years.” Nakamura says that he is sure that “the U.S. will understand Palau’s uniqueness and deal with us fairly. The U.S. has always been a wonderful partner.”

The basis for Palau’s forward development is its strong democracy, Nakamura points out. “The best thing to happen in Palau is the democratic system,” he says. “From this wonderful system comes economic development, preservation of the environment, etc.”

There is a lot of confidence in Palau today, Nakamura says. “Sure, we have power problems now,” Nakamura said in September while Palau was on power rationing after generators broke down in its two power plants. “But that is a short-term problem. The economy is moving. We’re making progress and that’s the key. It doesn’t mean that there aren’t a lot of challenges. (But) it’s much better than Trust Territory times and the future is good.”