Nationhood: Palau enters brave new world

Under US authority for five decades, the string of Pacific islands known as Palau gained independence on Oct. 1. Located close to the boom economies of East Asia, the new state has excellent prospects. But sovereignty also poses new challenges to the environment and national identity.

LAPSES in protocol began almost immediately.

In the days before independence, honored guests arriving to witness the dawning of Palau's sovereignty were duly met and escorted to their hotels.

But when the Oct. 1 independence celebrations were over, officials of the new island-nation scattered, leaving diplomatic delegations to make their way back to the airport, passing unescorted beneath a sign stretched across the road reading ``Palau Welcomes Its Honored Guests.''

Representatives of some leading Pacific nations, some of which had immediately sought to establish diplomatic relations with Palau, were forced to stand in line with ordinary passengers.

The mannerisms of nationhood do not necessarily come with the raising of the flag when the newly independent country has been governed from Washington, two oceans away, for nearly five decades. Indeed, unescorted VIPs aside, Palau faces daunting challenges in making its way as a sovereign state.

Located just east of the Philippines, south of the US territory of Guam and north of Papua New Guinea, Palau has been under varying degrees of US supervision since the United Nations established the Trust Territory of the Pacific Islands in 1947. With all the other fragments of the vast Trust Territory having chosen their final political status by the mid-1980s, only Palau remained under US administration.

Now, as a sovereign island state, Palau must balance its need to integrate with the Pacific economy while preserving its environmental integrity and national identity.

Major budgetary decisions await on how to spend the $200 million that Palau immediately received from the United States. It is the biggest slice of a 15-year aid package worth $500 million as part of Palau's Compact of Free Association with the United States. Palauans try to find new role for their state in Pacific region

Most Compact money is already allocated by agreement between the US and Palau governments to long overdue improvements in Palau's creaky water, sewerage, power, and telecommunications services.

But the Palau government faces major financial management tasks if it is to retain significant financial reserves by the end of the decade, when Compact funding declines fast and deficit budgets will threaten.

Right now Palauans are debating how far they should upgrade the utilities of their crowded capital, Koror, or how much they should spend on opening up the largely inaccessible, depopulated island of Babelthuap, the largest in the Palau archipelago. Babelthuap is the key to relieving overcrowding in Koror and realizing Palau's agricultural potential.

Apart from tourism, Palau's only major source of foreign currency is its rich tuna exports to Japan.

The other burning issue is how to protect Palau's precious marine ecosystems from tourism, the big growth industry here. Last year Palau received 40,000 tourists from Japan and other East Asian nations.

Influx of foreign workers

Like its neighbors - Guam and the Commonwealth of the Northern Mariana Islands - Palau is fast becoming a magnet for foreign workers, especially Filipinos, who now dominate the construction, hotel, and domestic service sectors. With big Compact-inspired development projects such as hotels and road building in the wind, more alien workers will be needed.

Palau achieved its ``independence in free association'' with the US eight years after its neighbors the Federated States of Micronesia (FSM) and the Republic of the Marshall Islands, but the model is not inspiring. A 1993 Asian Development Bank report on FSM says much of that country's Compact funding has been wasted on excessive government spending and bloated public-sector employment.

Palauans, whose $5,000 per capita income is among the highest of Pacific island-states, would have much to lose by similiar habits.

There is something anticlimactic about Palau achieving a status negotiated in the mid-1980s with the Reagan administration, and then delayed by internal Palauan wrangling over how to reconcile the US military-access provisions of the Compact with the strong antinuclear clauses of the 1979 Palau Constitution.

Conscious of the harmful effects of US nuclear testing in Bikini and other Pacific islands after World War II, the authors of Palau's Constitution were determined to protect their islands from nuclearization, but they also wanted a Compact with the US.

Their constitutional conflict was finally resolved in a referendum last November, following assurances that the US would not exercise its rights under the Compact to train and maneuver in Palau.

Relics of the cold war, the Micronesian compacts were meant to afford the US ``strategic denial'' - to deny any potentially hostile military power access to this vast region. But with the US now downsizing its military bases, the logic of the Palau Compact seems increasingly anachronistic.

``If Palau had delayed implementation ... much longer, we probably would have withdrawn the deal,'' said one US official here on condition of anonymity.

Still, the Compact is a financial boon and its funds will be used to ``jump-start the economy,'' Palau's President Nakamura said during the celebrations.

A new rivalry

Rather than military rivalry, Palau is now the center of geo-economic rivalry, with East Asian firms angling for Palauan development projects and challenging the US's economic hegemony in Micronesia.

As the Pacific island state located closest to the boom economies of East Asia, Palau has excellent prospects. But critics, including the Australian consultants SAGRIC International Pty. Ltd., who wrote Palau's National Master Development Plan that was commissioned by UN and US, say it lacks the policymaking apparatus needed for independence.

``No framework exists in Palau for the development of macroeconomic policy, including the planning and utilization of Compact funds and funding when Compact funds are gone,'' the plan says. It also suggests drastic reforms are needed in the collection of local revenues, noting that presently, tax avoidance was common.

There is also a ``lack of action'' against what the Master Plan describes as ``official corruption,'' a well-known preindependence problem documented in two 1989 reports by the US General Accounting Office.

In a country of only 15,000 (including 6,000 resident foreign workers), where all Palauans can seem to be relatives in one degree or another, suspicions of nepotism are hard to avoid. And most elected politicians are also entrepreneurs. Palau's President Nakamura runs the country's major port services firm, and Alan Seid, Chairman of the House Ways and Means Committee, is the local partner in plans to construct a Palau Hilton.

Ties with Washington

The Clinton administration might imagine it no longer need worry about an independent Palau.

But as a site of US economic competition with Japan and the three Chinas, it is more likely to seek its economic salvation in East Asia than through sentimental ties with the US.

US Drug Enforcement Administration officials based in Guam have long been concerned about the use of Palau as a transit point for illegal drug shipments from Southeast Asia to the US.

Given the right of Palauans to ``unhindered'' access to reside and work in the US, Palauan authorities will need to be vigilant to ensure their virtually unrestricted welcome to short-stay foreign workers from the Philippines and mainland China is not exploited for illegal immigration to neighboring US territories.

Bound together by complex preferential access agreements, the three Compact states and the two direct US territories in Micronesia form a highly interdependent social and economic unit. The region seems certain to remain a serious US concern for many years to come.

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