Micronesian Security Study 2004

Graham Hassall
Pacific Institute of Advanced Studies in Development and Governance.
University of the South Pacific

30 April 2004

In March-April 2004 a security assessment of the three Micronesian states – Federated

States of Micronesia, the Republic of the Marshall Islands, and the Republic of Palau -
was undertaken for the Pacific Islands Forum Secretariat. In each of these states key
personnel in state agencies and departments, political offices, NGOs, the media, and the
private sector, were interviewed concerning their thoughts on the security of their
country, and the prospects for stability. While each of the states has unique
circumstances a number of common themes emerged:

• The economic development of these states is hindered by their geographic

isolation, their geographic distribution (ie very small islands scattered across
a vast area of ocean), and their small resource base. These physical
circumstances suggest that threats to human security (food, shelter, healthy
environment) are greater than the threats to geo-political security.
• While the political systems currently in place are conducting basic functions
of government, they have not been able to foster economic growth and
continue to rely heavily on foreign assistance for delivery of new
infrastructure, and in some instances for operational support.
• A sense of frustration is building in some sections of their communities
(particularly amongst the young) as a consequence of the lack of
opportunities for progress.
• Major threats to political stability will therefore emerge from internal
dynamics rather than from an external source. They could relate to
frustration at lack of service delivery or disillusion with political leaders.
• Discomfort over the presence and activities of migrants, whether from
another country or from another island – particularly when combined with
concerns over land use and access to the economy, has the potential to
escalate into ethnic conflict and separatist sentiments.
• Natural disaster, whether flooding or typhoon, is an ever-present possibility,
and requires considerable response mechanisms.
• As committed allies of the United States, each of the countries is a potential
target for global terrorism. Whilst admirable efforts are being made to
ensure border security, the human and technical resources are insufficient to
ensure the policing of all arrivals by air and sea, and leave open the
possibility of exposure to a terrorist event.
REPUBLIC OF THE MARSHALL ISLANDS
Security Study 2004

Pacific Institute of Advanced Studies in Development and Governance.

University of the South Pacific

Graham Hassall
30 April 2004

This paper provides the findings of a security assessment of the Republic of the
Marshall Islands. It relies on interviews in Majuro over five days in March 2004, as
well as consideration of supporting literature. A limited range of official documents
was made available to the researchers, and this was supplemented with secondary
literature.

Prospects for political stability

Although some Pacific states have experienced civil war and unrest in recent times,
security is no longer to be viewed in the narrow sense of merely defending a state
from external or internal threats of a military nature. Rather, it is now realized that
security is closely linked with generating conditions that free people from fear, and
misery arising from various causes. This is particularly the case for security
assessments of Pacific states, where current threats to stability are more often linked
to domestic failures of governance and inabilities to meet aspirations for development
and economic advance. ‘Security assessments’ therefore continue to be interested in
external threats of a military, political, social, or economic nature, but are equally
interested in the capacity of states to implement effective, efficient and equitable
economic and political governance at all levels, and to handle conflicts as they arise –
or preferably, prevent the emergence of conflicts by forestalling the conditions in
which they arise.

Political stability is part of a larger concept of “comprehensive security”, which the

Council on Security Cooperation in the Asia Pacific defines in the following way:

Comprehensive security posits that a security of person,

community and state is multifaceted and multidimensional in
character. Ultimately security encompasses the security of all the
fundamental needs, core values and vital interests of the individual
and society in every field – economic, social, political, cultural,
environmental and military. Any significant threat to the
comprehensive well-being of man, society and state, whether
emanating from external sources or from within a state, is deemed
a threat to security.” 1

1
CSCAP Memorandum No. 3.
Recent global conferences held under the auspices of the United Nations have
articulated a series of ‘common themes’ that currently constitute the challenges to
human well-being on a global scale - poverty eradication, gender mainstreaming,
access to and transfer of knowledge of technology, especially information and
communication technology, fostering an enabling environment for development,
improving market access, creating employment, and human resource development –
which are all therefore important to any security assessment.2

Security analysis in the RMI takes place within the context of recent security policy
initiatives by the Pacific Forum. At its 33rd meeting in Suva in 2002, the Pacific
Forum outlined the features of its regional security plan in its Nasonini Declaration. 1
A year later, consequent to its 2003 meeting, the Forum’s Communiqué included a
section on “Regional Security and Governance”. 2

In adopting the notion of comprehensive security, and mindful of existing security

concerns in the Pacific region, this report seeks to present an all-encompassing
impression of the security and stability situation in RMI at the present time. It offers
the following findings:

• Some of the major problems confronting the RMI are unemployment,

overcrowding, alcoholism, poor health, and quality of life issues such
as sanitation.
• Emerging social problems include the breakdown of law and order, and
the emergence of youth gangs.
• The failure by the government and the Kwajalein landowners to reach
agreement on the terms of compensation for use of the latter’s land by
the US military under the Compact of Free Association has the
potential to escalate.
• The insufficiency of the Nuclear Claims Tribunal’s resources to satisfy
the expectations of nuclear-affected Marshall Islands citizens has the
potential to raise considerable resentment and instability within
Marshall Islands’ social and political life.
• The shortfall in employment opportunities that can be anticipated from
current projections of population growth (rapid) combined with
economic growth (slow) will create ever increasing levels of
dissatisfaction and disillusionment amongst the younger generation,
and this in turn will threaten the social fabric of RMI society.
• The RMI’s environmental problems, if not addressed urgently, will
compound the nation’s existing health problems, and thus pose high
risks to human security.
• Major threats to political stability will come from internal dynamics:
frustration at lack of service delivery and disillusion with political
leaders.

2
United Nations. Open-ended ad hoc working group of the general assembly on the integrated
and coordinated implementation of and follow-up to the outcomes of the major united nations
conferences and summits in the economic and social fields, 2002.
(http://www.un.org/esa/coordination/ecosoc/wgga/Non-paper%201%20-
%20common%20themes.pdf)

2
 • Stability of both state and society will be enhanced by focusing on
provision of appropriate education, and adequate health services.
• Stability of the democratic process will be consolidated by educating
the next generation in the values of extensive public dialogue in which
diverse opinions are freely shared and in which challenging
information is not ignored or rejected.
• Remedies include strengthening “public service” values and
strengthening agencies of civil society.
• Stability will be enhanced through closer alignment of RMI’s
education system with the peoples’ social and economic needs.
• The RMI’s fragile economy and financial institutions require
responsible stewardship to ensure that remaining opportunities for
capital accumulation under the terms of Compact II are not dissipated.
• Prospects for political stability in the RMI require an expanded
application of the principles of good governance: good governance
requires not only adherence to the highest ethical principles by those
entrusted with public power; it also requires the strengthening of bonds
of trust and communication between government, civil society, and the
private sector.

People and Environment

Prospects for political stability in the Republic of the Marshall Islands depend greatly
on the extent to which the citizens of the Republic perceive that it is able to meet their
individual and collective needs. The Marshall Islands comprise181 sq. km. (about 70
sq. mi.) of land area (29 low-lying coral atolls and five islands) scattered over 500,000
sq. mi. of the Western Pacific.

The national population was estimated in 2002 at 56,639. The annual population
growth rate in 1999 was 1.5%. Around 90% of the population is ethnically
Marshallese, with the remainder comprising U.S., Filipino, Chinese, New Zealand,
Australian, other Micronesian (FSM), Kiribati, Korean, and Fijian citizens. The
population of the Capital, Majuro, is estimated at 23,676, while other urban
concentrations are at Ebeye and Jaluit. 3 The populations of outer islands are also
rising, and this will have implications for the necessary infrastructure for outer-island
communities. The population would be considerably higher were it not for the
constant emigration – principally to other US territories or to the US mainland. At
one time the population growth rate reached 4%. It is estimated that 10,000 RMI
citizens moved to the USA in the 1990s. Hidden within population statistics is the
increase in teenage mothers and low birth-weight babies. About 50% of the
population is under 15 years of age, and three-quarters of these will likely not
graduate from high school.

In general terms the health of the Marshall Islands population is poor. A recent report
by the Asian Development Bank states that progress toward meeting the Millennium
Development Goals in the RMI is ‘slow’. 4 Approximately 20% of the population are

3
Data from US Department of State website.
4
Asian Development Bank, Millennium Development Goals in the Pacific: Relevance and
Progress, March 2003.

3
regarded as living below the poverty line; enrolment in primary school is an estimated
84%; life-style diseases are increasingly becoming a major cause of morbidity and
mortality. Access to improved water and sanitation facilities is ‘very low’. The
health situation continues to be affected by the “after-effects of U.S. nuclear testing”. 5

Respiratory infection is the most prevalent disease, followed by diabetes. HIV/AIDS

is a problem in the Marshall Islands as in FSM and Kiribati. Diabetes is, of course, a
“life-style” disease, which results from the prevalent diet of imported foods, including
rice. There is a high suicide rate, and a high incidence of teenage pregnancy. In 2003
the number of suicides reached a high of 23, compared to 14 in 2002.

The International Dimension

Marshall Islands’ geo-political relationships are shaped by three significant factors:

the legacy of nuclear testing on Bikini Atoll (the United States conducted 67
atmospheric nuclear tests in the Marshall Islands between 1946 and 1958); the
operation of a US military base on ten leased islands at Kwajalein Atoll; and the
conclusion of a “Compact of Free Association” with the United States.

In 1985 the US Senate approved a Compact of Free Association negotiated between

the US and the Republic of the Marshall Islands and the Federated States of
Micronesia. The Compact provided a large amount of self-rule but reserved
responsibility for defense to the US, and granted the US the right to maintain a missile
testing facility at Kwajalein. The Compact also provided for the establishment of a
$150 million trust fund to settle claims against the US arising out of nuclear weapons
tests in the Marshall Islands in the 1940s and 1950s. 6

The end of the “Cold War” has had significant repercussions for the way the US
interacts with its Micronesian client states. Whereas under “Cold War” conditions the
US paid large sums of money in order to ensure ‘strategic denial’ of the North Pacific
to other significant regional powers, post-war conditions have reduced this
imperative. At the same time, the US has become more interested in how its money is
being used, and is more willing to reduce its contributions to the minimum amounts
that the Micronesian states indicate is necessary to their functioning. In this context,
the RMI negotiators felt they had to conclude the Compact II treaty or be told by US
congress to ‘take it or leave it’. While it is an international treaty, it is at the same time
a US domestic law.

In 1988 RMI shifted allegiance from the Peoples’ Republic of China to the Republic
of China (Taiwan). While this shift has led to benefits such as Taiwan’s agricultural-
technical mission, which Taiwan claims has significantly improved Marshallese
capacity to grow fresh foods,7 it also implicates the Republic in the Republic of
China’s complicated relationship with the People’s Republic of China.

5
ADB, Millennium Development Goals in the Pacific: Relevance and Progress, March 2003,
p.35.
6
“Senate Votes to Terminate Pacific Islands Trusteeship”, Wall Street Journal, Nov 15, 1985,
1.
7
“Taiwan helps ally with agricultural technology mission”, Taipei Times, Jan 26, 2004.

4
Concern is being expressed in different sectors of Marshallese society about the
emergence of Chinese interests in the country. Whereas some Chinese nationals have
entered on legitimate passports and have established legitimate businesses, others are
found to have no record of date of entry and their status and activities in country are
unclear.

The RMI participates in various UN agency programs, including UNDP, UNDA,

ESCAP, and SREP. It is currently looking into an application to the ILO. The
European Union has recently given development funds for a two year period.

The State and its capacities for governance

The Constitution

At independence on May 1, 1979, the Marshall Island’s Constitution established a

parliamentary democracy, with power divided principally between an executive
president, a unicameral parliament (Nitijela), a consultative Council of Iroij
(traditional leaders), and the Judicial branch (comprising a Supreme Court, a High
Court, district and community courts, and a Traditional Rights Court). There are 24
local governments in addition to the national government.

At independence the Marshal Islands adopted a very liberal constitution despite being
a somewhat conservative society. This difference between constitutional values and
prevailing social mores most probably derives from the fact that the constitution was
drafted by external advisors. Despite this foreign origin, however, the legitimacy of
the Constitution is being entrenched over a period of time through lack of change at
Constitutional Conventions (“concons”). The Marshall Islands has convened three
constitutional conventions and is planning to hold a fourth sometime in January-
February 2005. 8 Proposals that result from the concon are put to the people at
plebiscite (few of which have succeeded). At the current time proposals, for reform
include changing the composition of cabinet, so that cabinet members are appointed
from outside the government (as part of an effort to remove partisan approaches to
development). There may well be discussion about whether the House of Iroij should
continue to have constitutional recognition.

The Iroij

Chiefs play a significant role in Marshall Islands society, although there appears to be
a reduction in their authority in the urban areas. One feature of the past two national
elections has been a clash between commoners and traditional leaders. The Kabua
presidents were paramount chiefs who conducted government differently to the
current government, which does not have an Iroij base. There is a perception that
Western influence has somehow eroded the position of chiefs, and that in some senses
they are ‘fighting for survival’; in many instances lacking the expertise to protect and
promote tradition. An alternative view is that the House of Iroij continues to be

8
A committee has been appointed to make preparations for the 2005 Constitutional
Convention.

5
respected by government but that as currently composed it is not playing a leadership
role to the extent possible.

The Compact of Free Association

The Compact of Free Association between the Marshall Islands and the United States
of America, signed in 1983 and in force from October 21, 1986, is as significant to the
governance frame as the national constitution. The Compact provides the Republic
with capital grants and access to numerous benefits of association with the United
States, while granting the US access to land, and giving it responsibility for defense.
It gives the United States continued use of the U.S. Army Kwajalein Atoll (USAKA)
missile test range until 2016. A subsidiary government-to-government agreement
grants the US Department of Defense exclusive use of the lagoon and several islands
of the Atoll (which consists of approximately 90 islets).

The Compact provides the Marshall Islands with access to the services of more than
40 US Government agencies such as the Federal Aviation Administration, US Postal
Service, the Small Business Administration, and the Federal Emergency Management
Agency. Another major subsidiary agreement of the original Compact provides for
settlement of all claims arising from the US nuclear tests conducted at Bikini and
Enewetak Atolls from 1946 to 1958.

Compact II

The amended Compact, which was signed on 30th April 2003, became effective on
May 1st. Whereas the RMI based its first bid on a 15-year period, the US countered
with a 20-year bid. In the concluded agreement, grant payments will decrease each
successive year, and the amount of this decrement will be contributed to an
intergenerational trust fund that was established in 1999 with the assistance of the
ADB. The Fund’s board includes the Minister of Finance and the Minister of Justice.
Funds are currently held at the First Hawaiian Bank, although the Fund managers are
yet to be selected.

The second compact focuses on public investment in education and health. The
Compact negotiations provoked discussions within government as to whether to focus
on investment in fisheries, tourism, etc, or in human development, as there is
uncertainty amongst some as to how investment in the latter translates into economic
returns.

The renegotiated Compact requires increased accountability for expenditure. This

move to performance-based budgeting has required technical assistance from the US
Department of the Interior and many Departments are still under-prepared for meeting
the more stringent accounting procedures that have been put in place.

Whereas Compact negotiations between the RMI and the US have been exhaustive,
there has not been full consultation within RMI itself. Some significant constitutional
offices such as the Auditor General, for instance, have not been involved in the
process, despite the fact that compliance with the new provisions is based to such a
great extent on good fiscal practices. While the Compact’s formula is meant to

6
establish financial security for the RMI, the RMI estimates there will be significant
budget deficits at the expiration of the second Compact.

The RMI negotiating team was directly responsible to a Commission of four RMI
ministers (Finance, Health, Education, and Foreign Affairs). It is reported that both
the US and RMI were unfamiliar with the negotiation process, since the
administration of President George W. Bush administration was only recently in
place. When negotiations commenced in 2000 the RMI was behind schedule in its
planning process by two years, and took a year and a half to appoint a negotiating
team.

Whereas nuclear-affected families and Kwajalein landowners were opposed to early

conclusion of negotiations for Compact II – they felt that negotiations about their
situation were not complete – the RMI could literally not afford to prolong the
negotiations. Unfortunately, this inability to wait until the interests of all parties had
been negotiated to their satisfaction has created a breach in the social and political
fabric of the Republic.

Nuclear-Affected Marshall Islands – unresolved issues

The Bikini people had voted against the first Compact settlement, and especially
against article 177, which provided US $150 million for the settlement of all nuclear
claims. Nonetheless, the Marshall Islands government agreed to this amount without
analysing whether or not it satisfied the claims that would be made on it. A
subsequent consolidated claim for compensation made before a Washington Court by
Bikini, Enewetak and 12 other atolls was not heard by that court on the basis that
these parties had access to the settlement process established by article 177 of the
Compact. Using standards adopted for measuring radiation exposure of citizens
surrounding the Nevada test site, the Nuclear Claims Tribunal has determined that
anyone living in the Marshall Islands at the time of testing was exposed. To date,
however, the US has not admitted to liability for nuclear impact beyond the four
atolls.

Procedures have commenced for recognition of ‘changed circumstances’ as provided

for by the Compact. The Petition submitted in September 2000 and updated in 2001
seeks payment of compensation to the RMI government for unforseen medical costs,
and for wider consideration of personal and property damage. The 400 people of
Ailup, for example, now have declassified reports indicating that the US knew that
their island was exposed to fallout equal to that experienced by the people of Utrik,
but that it did not inform them or attempt to move them. The US Congress has
indicated that it is committed to hold a hearing.

In July 2003 the peoples of Bikini, Enewetak, Rongelap and Utrik made a statement
to the US Senate Energy and Natural Resources Committee, outlining the history of
the US nuclear testing program in the Marshall Islands, the impact on the people of
their islands, the extent of the remedies made available under Article 177 of the
Compact, the limitations to these remedies, and some proposed solutions based on an
amendment to the Compact of Free Association to grant “narrowly defined
jurisdiction to the U.S. Court of Appeals for the Federal Circuit to review the
judgments of the Nuclear Claims Tribunal and to order the United States to pay these

7
judgments”. 9 The US administration has yet to give its own views, and RMI is
seeking to pressure the administration to respond. 10

The subject of compensation is extremely complicated and will not be discussed in

detail here. Suffice to say there were vastly different levels of exposure to radiation,
and there is therefore a range of compensation issues. In 1998 a Nuclear Claims
Tribunal was established in the RMI to process claims for use of land, and damages
from citizens of four atolls in the Marshall Islands who have been adversely affected
by nuclear tests undertaken by the US. Some 30 medical conditions have a
probability of being caused by exposure. Given that the original agreement does not
specify the term of the Nuclear Claims Tribunal, that the Tribunal costs approximately
one million dollars to operate per year, and that the fund is all but depleted, the future
of the Tribunal beyond 2004 looks uncertain.

In January 1987 the first quarterly distributions were made under the terms of
compensation set out in the Compact. The compensation fund was established at
US$150 million. Although the intention was to preserve this amount and make
compensation payments from interest (the fund was originally projected to grow at
14%), the fund was fully invested in US equities, which were adversely affected by
downturns in the US economy. In the crash of October 1987, for instance, the fund is
said to have been reduced by 12% and 15 years after its establishment stood at 40% of
its original value. The Tribunal, on the other hand, continued to make awards on their
merits, and by 2004 has awarded compensation amounting to $30 million more than
what is available. In a tragic twist, the Tribunal faxed the Bank of New York a
request to draw down $16 million on September 11, 2001. At the current time the
fund stands at about US$25 million.

Although the four original atolls have received all of the payments allocated to them
under the original compensation package, the Bikini and Enewetak people continue to
have huge expectations of the fund. To determine the value of compensation owed by
the US for “loss of use” of land on these atolls, the Tribunal obtained appraisals from
land value experts. The rental cost of an acre of land on Bikini Atoll in 1946 was
valued at US$39 per year. However, since rents were not paid, they have been
calculated at compound interest. The fund has also sought to make awards for
consequential damages in terms of hardship and suffering. The Tribunal is expected
to make damages awards for the communities of Rongelap and Utrik atoll by the end
of 2004, the size of which is expected to be larger than the damages awarded to Bikini
and Enewetak. On March 2nd 2004 a new claim was lodged by Ailup. The Tribunal
is only now beginning to assess the property damage awards. In the face of current
expectations, there is little prospect of stability unless the US Congress finds a way to
make additional compensation funds available.

The issue of nuclear contamination and compensation for the damage that this
contamination has caused continues to be of concern to neighbouring states. The
Pacific Forum, in its 2002 communiqué, referred to “Republic of Marshall Islands
Radioactive Contamination”:

9
Statement of the Peoples of Bikini, Enewetak, Rongelap and Utrik before the Senate Energy
and Natural Resources Committee, July 15, 2003.
10
As at April 2004 the US government had not made its response.

8
 39. The Forum recognized the special circumstances pertaining to the continued
presence of radioactive contaminants in the Republic of the Marshall Islands, and
reaffirmed the existence of a special responsibility by the United States towards
the people of the Marshall Islands, who had been, and continue to be adversely
affected as a direct result of nuclear weapons test conducted by the United States
of America during its administration of the islands under the UN Trusteeship
mandate.

40. The Forum again reiterated its call on the United States of America to live up
to its full obligations on the provision of adequate and fair compensation and the
commitment to its responsibility for the safe resettlement of displaced
populations, including the full and final restoration to economic productivity of
all affected areas. 11

Kwajalein

The Kwajalein landowners have a history of direct action. They have seen their
payments for use of their land rise from US$7000 per year to millions of dollars per
year. While US use of the atoll is secure through to 2016, current negotiations
concern use of the land after that date. The underlying threat is that if the land owners
do not agree, there is a power of eminent domain that the Marshall Islands
government has not drawn on to date.

The US Congress has given the RMI government five years to work out its issues with
the Kwajalein land-owners. The Kwajalein Atoll Development Authority did not
work out as envisaged and so the government has taken on the role of negotiating with
the Kwajalein land owners directly. The Development Authority will become focused
on health, education and housing programs.

The Legislature

The Nitijela has 33 members from 24 districts elected for concurrent 4-year terms.
Members are called senators. The president is elected by the Nitijela from among its
members and has the power to select cabinet members from the Nitijela. The Nitijela
sits for 50 days per year, with its first session in January and second (the budget
session) in August.

A legislative needs assessment was recently completed as part of a regional UNDP

program to strengthen good governance, but the findings of the report are yet to be
considered and acted on. The legislature has not been playing a sufficiently active
role in oversight of the executive branch of government. Whereas, for instance, the
Auditor-General’s Reports are sent to the Nitijela and to the US Congress as required
under the Compact, the Public Accounts Committee (PAC) has not examined them to
the extent constitutionally required. Some respondents suggested that the PAC’s
performance could be improved by changing its membership. The current chair of the
Committee has acknowledged the need for training. The PAC itself is not well
established, being articulated only in the Rules of the Nitijela and not in the
Constitution. The work of the Auditor General can only be consummated through

11
Thirty-Third Pacific Islands Forum, Suva, Fiji Islands, 15 - 17 August 2002, Forum
Communiqué.

9
effective follow up of its submitted reports by the president, the speaker, the PAC and
the attorney general.

The Executive

Since independence the presidency has been held Amata Kabua (elected 1979, 1983,
1987, 1991, and 1996); Imata Kabua (1997); and Kessie Note (1999). One indicator
of the stability of the republic is the smooth transition between governments following
elections for president and the legislature. In small states such as the Marshall Islands
there is tendency toward politicisation of the public service, and political activism
amongst senior public officials in particular. Senior posts are often occupied by
figures who have left their positions to contest elections, and in some cases have
sought to return to their posts when their bids for representative office have failed.
Whilst this is a legitimate aspiration in a democracy, it has at the same time the effect
of identifying particular officials with one or other political party or affiliation.

From the point of view of the Ministry of Finance, the challenges of fiscal
responsibility, in terms of maximizing revenue collection and proper and timely
auditing of accounts, is a matter of adequate training and facilities. A new accounting
system required by the enhanced reporting requirements of Compact II will include
health, education, public service commission, and procurement. The Ministry is
currently receiving technical assistance from ADB and USAid. The goal is to collect
more revenues from fishing rights, licenses, and revenue taxes, but at the present time
the Ministry is not necessarily able to secure the transfer into general fund all of the
revenues collected by government departments and agencies.

Accountability

It is generally accepted that corruption has occurred at many levels of public life in
the Marshall Islands. There have been periods in some past administrations when
government ministers obtained contracts for businesses directly related to their
ministries. That there have been few prosecutions was suggested to be more an
indicator of the lack of capacity to enforce the laws and to prosecute transgressions of
the law, than a lack of corrupt practices. Ministries have been collecting revenues and
establishing their own accounts. This has meant that the Department of Finance has
not yet been able to force all government departments and agencies to transfer these
monies into the government’s consolidated revenue.

During the first years of the Compact, neither the RMI nor the US governments
fulfilled their responsibilities with regard to accounting for the use of Compact-related
funds. As explained by Susan Westin, Associate Director, International Relations and
Trade Issues, National Security and International Affairs Division, United States
General Accounting Office:

The governments of the Federated States of Micronesia, the Republic of the

Marshall Islands, and the United States have provided limited accountability
over Compact expenditures. Although the Compact established accountability
requirements for all 3 countries, none of the governments fully used these
mechanisms to ensure that Compact funds were spent effectively or efficiently.
While the Federated States of Micronesia and the Republic of the Marshall
Islands generally prepared planning and reporting documents required under

10
 the Compact, most of these documents could not be used to determine if
Compact funds were being spent to promote economic development.
Furthermore, neither nation provided adequate financial or programmatic
control over Compact funds, as documented in audit reports since 1987. In
addition, the U.S. government did not meet many of its oversight obligations.
For example, it did not hold required annual consultations to assess progress
under the Compact until 1994, losing a valuable opportunity to provide
guidance on the goals and uses of Compact funds. Moreover, disagreements
between the Departments of State and the Interior over Compact
responsibilities, as well as Interior’s view that the Compact contained
restrictive provisions that impaired its ability to act, further limited oversight. 12

There are a number of instances in the recent past that suggest a culture of fiscal
irresponsibility prevailed through the 1990s. To cite one example, a 1999 report by
the Office of the Inspector General (United States Department of the Interior) found in
a review of the Marshall Islands Development Bank that it “did not comply with
provisions of the Compact of Free Association, Federal and Republic laws, Bank
policies and guidelines, and operating procedures applicable to the Bank’s operations
and the use of funds provided by the United States” in the period between 1996 and
1999. 13 In short, the Bank had issued loans “based on political considerations and
without adequate financial analyses of the projects’ financial viability and the
borrowers’ ability to repay” and had, as a result, deprived the bank of almost $14
million in capital and management fees.

There has been improvement in reporting performance, and this has been brought
about by the Appropriations Acts of 2003, which condition provision of funds to
departments on the basis of satisfactory compliance. This performance measure was
introduced by the current government. Whereas Government cannot touch the
Compact funds because they are earmarked for specific projects such as those in
health and education projects, their use of non-Compact funds does not have the same
standards of regulation. One major challenge to promoting more financially
responsible governance is a lack of accounting capacity in the country – there are no
qualified RMI accountants. In the absence of sufficient qualified staff, performance
audits are contracted to outside accounting firms.

The position of the Auditor is established in the Constitution but the appropriation for
the office comes through the cabinet, which gives the cabinet the opportunity to
control the resources made available. There is a provision in the appropriation act
allowing 0.5% of certain schedules of general funds and Compact funds for auditing.
But this is not guaranteed under the Constitution and the Nitijela has reduced or
withheld the funding in previous years. Most audits are contracted out, as there are
only eight auditors in the office. From 1995 to 2000 the government eliminated

12
Susan Westin (Associate Director, International Relations and Trade Issues, National
Security and International Affairs Division), United States General Accounting Office,
Testimony Before the Subcommittee on Asia and the Pacific, Committee on International
Relations, House of Representatives, FOREIGN ASSISTANCE. U.S. Funds to Two
Micronesian Nations Had Little Impact on Economic Development and Accountability Over
Funds Was Limited.
13
U.S. Department of the Interior, Office of Inspector General, Audit Report, Marshall
Islands Development Bank, Republic of the Marshall Islands, Report NO. 99-I-952,
September 1999.

11
training workshops. New hirings have commenced. The ADB has undertaken a study
of accounting and auditing in the RMI – the final report is yet to be published.

Land

The Marshall Islands occupies an extremely small area of land, and consequently land
ownership, tenure, and use, are highly contested. As with other Pacific jurisdictions
of small size, land disputes are common, but not sufficient in number to warrant the
establishment of a dedicated court. In March 2004, to cite one instance of a current
dispute, the Alaps stopped construction on a project behind the new government
buildings because they claimed they did not know the conditions of the lease. On
Majuro, landowners have been refusing to renew leases to the government unless
payments are doubled. There is also a question as to whether the government has
been giving adequate compensation for use of land on outer islands. The argument by
government is that if it had to pay for schools, dispensaries and runways on outer
islands, there would far fewer of these services available. If it is the case that
government is only using some 10 acres of land on the various atolls, then the costs of
adequate compensation may not be too great.

The ADB has initiated a land registry project, which allows for voluntary registration.
Although the new land mortgage and registration act is seen by the business
community as one of the best acts passed by the Nitijela in recent times, because it
allows land-owners the option to register their land should they wish to undertake
some form of capital project, it is still regarded as controversial by some, who view it
as an effort by the government to wrest control over prize land from traditional
owners. Others say that it is the landowners who have benefited from lack of clarity
of land title. Either way, it can be said that in recent times most new infrastructural or
other development projects have been closely contested, pointing to the need for
clarification of the system of land tenure.

Policy Planning

The RMI has a vigorous Economic Policy and Planning Office (EPPSO), which is
able to provide policy advice directly to cabinet. The Office is coordinating several
socio-economic surveys that are seeking to depict the reality of socio-economic
conditions. A Generic socioeconomic survey – Jenrok started in March 2004. The
Household Economic Survey of c.2002 was the first of its kind. 14 While statistics on
the RMI appear in a range of publications and studies, there has not been an economic
census or an agricultural census since the early 1980s

There are at the current time some significant gaps in the statistical information
available to government, and this lack of information must have an impact on the
ability to plan. There is little or no capacity, for instance, to provide accurate data on
progress toward fulfillment of the Millennium Development Goals; nor could the
government give accurate figures on the number of ships traveling between the
various islands, the number of trips they are making, or the number of passengers they
are conveying.

14
Republic of the Marshall Islands, Household Income& Expenditure Survey, Economic
Policy Planning and Statistics Office, Majuro, 2002.

12
RMI is one of many countries that experience a constant flow of consultants, making
suggestions about how to make social, political and economic progress. There is a
tendency for the results of this expert opinion to remain unread or otherwise
unheeded. This may be due to a ‘lack of ownership’ of expert findings by their
Marshallese counterparts. If this is found to be the case, more attention should be paid
to establishing partnerships in development planning, to ensure that following the
departure of the foreign expert, someone in the relevant office has a sense of the
report’s findings and implications. RMI personnel must become more intellectually
engaged in the development process and this can only happen through change to the
pattern of expert consultancy.

Population and Health

The Department of Health is attempting to address areas of health care. Emphasis is

being placed on improving primary and secondary care, while tertiary health
requirements are increasingly being met by referring patients offshore.

Training of health professionals is a pressing issue. Mental health is a problem, but

there are no resident psychiatrists. There are no Marshallese students currently
training as medical doctors. There are two or three studying dentistry in Fiji. One
hindrance to getting students into medicine is the poor quality of their high school
education. There were just seven Marshallese graduates of the Pacific Basin Medical
School that operated in Pohnpei for 10 years. A Health Planning and Statistics office
collects data from various Bureaus but the data often remains incomplete or under-
reported.

Under Section 177 of the Compact, the government is responsible for giving special
assistance to victims of the nuclear programs. The Health Department completed a
study of islands further from the nuclear program and found nuclear impacts. As
well, a study by the US-based Centres for Disease Control found, similarly, that at
least eleven islands were affected – a finding backed up by declassified information.
Instances of birth defects are increasingly being reported on other islands, and the
Marshall Islands has high rates for of all types of cancer, especially cancer of the
thyroid. 15

On Ebeye the Ministry of Health is trying to improve local capacities at the 35-bed
hospital. Patients are being referred to Ebeye rather than to Majuro but the hospital
has limited staff and their housing is not adequate. On the outer islands there is one
health care assistant per community. The Health Department’s goal to have these
health assistants attend nursing school. However, there are gender issues related to
education. Most health assistants are males and this brings difficulties in the
treatment of female patients (for example, in small communities, females may be
reluctant to seek medical assistance from a male health worker who may be related, or
live in close proximity). Consequently, the Health Department commenced a program
of female health assistant training but then faced other constraints – such as females

15
A chronology of the nuclear test program, as well as a map of nuclear fall-out in the region,
are located on the RMI’s U.S. Embassy website.

13
having to interrupt studies or work through pregnancy, or discontinuing service or
restricting travel patterns as a consequence of early marriage.

One of the barriers to the improvement of health services is a lack of students

interested in the health field, so there are not many students enrolled in the nursing
school. In response, the Ministry has started a six-month nurse aid training program
within the Ministry. Successful graduates are then channelled into the nursing college.

There are reports that gangs are now forming along the main road of Majuro. Such
phenomena should be seen in the context of a breakdown in the extended family
system, lack of access to subsistence agriculture for those who come to the urban
centres, and the consequent poverty and other social problems that follow. The
consequences of severe overcrowding on Ebeye are a particular problem.

Education

The Department of Education is seeking improvements at all levels, from

kindergarten to post-school levels. Basic education at early childhood level includes
implementing the well-known US “Headstart”program, which currently reaches some
1200 students. The Department is also seeking to improve secondary education.
Whereas there are approximately 75 public schools in RMI, including four secondary
schools, some 30% of all students cannot get a place in a high school. The physical
condition of schools in the RMI is poor. On the outer islands it is estimated that a
third of all schools are in poor shape and should be replaced. A new high school is
opening on Ebaye in the fall of 2004.

The Education Department has established a national vocational training institute with
ADB support. This comprises a three-tier program commencing with basic English
and math skills and computer literacy, then high school equivalency training, followed
by an apprenticeship in fields identified as required through a labour survey
undertaken by the National Training Council. It also includes an innovative program
for canoe building that commenced as a program for ‘at-risk’ youth but which has
potential as an alternative model of education. It takes education out of the classroom
and incorporates aspects of custom and tradition as parts of the learning process.

The education system experiences a large truancy problem – estimated at 20% of all
students. Truancy is particularly bad in some locations. Circumstances on Ebeye, for
instance, are particularly difficult. Many parents travel daily to work on Kwajalein,
leaving children unattended each afternoon. Another social factor is the young age of
many parents, who are not necessarily well-placed to supervise and encourage their
children’s education.

The low quality of teacher training is a major constraint on improving the education
service as a whole. 45% of teachers have only a high-school education, and there is
minimal supervision of how schools are performing. A teacher test is to be
implemented and then assessed, and a teacher-training plan will be devised on the
basis of the results. Teachers can take the test several times and if there is no
improvement some hard decisions will have to be made as to whether they remain as
teachers with the department.

14
Management of teachers has been a difficult issue. Contracts are handled through the
Public Service Commission, but this has created tensions due to lack of cooperative
relations between the Commission and the Department of Education. The Department
has little influence, for instance, over the hiring or dismissal of teachers. Vacant
positions are not filled in a timely way, and administrative procedures are slow and
convoluted. Efforts to discipline teachers for failing to complete their duties are
thwarted when the PSC fails to carry through any disciplinary action. The
Department feels that teachers should be accountable to it.

The College of the Marshall Islands offers training in such fields as IT and
aquaculture. There is also a DFL Centre of the University of the South Pacific on
Majuro, which allows students to take degree programs of the USP using distance
technologies.

The Economy and Infrastructural Development

The first Compact presumed the government would be an engine of economic

development but this did not prove to be the case. The economy combines a small
subsistence sector (fishing and breadfruit, banana, taro, copra, handicrafts, and
pandanus cultivation), a modern urban sector (on Majuro and Ebeye), together with
US aid and remittances from Marshall Islanders working overseas. The Government
obtains approximately one million dollars per annum from a ship registry, which is
now the ninth largest fleet (over 600 vessels) in the world. Other income derives from
sale of fishing rights. Tourism has the potential to become a significant sector of the
economy but remains underdeveloped.

The US Department of State has described the economy as follows: “The modern
sector consists of wholesale and retail trade; restaurants; banking and insurance;
construction, repair, and professional services; and copra processing. Copra cake and
oil are the nation's largest exports. A tuna loining plant employs 580 workers, mostly
women, starting at $1.50 per hour. Copra production, the most important single
commercial activity for the past 100 years, now depends on government subsidies.
The subsidies, more a social policy than an economic strategy, help reduce migration
from outer atolls to densely populated Majuro and Ebeye.” 16

Outer islands have minimal or no revenue generating capacity. All government

services are provided to the islands from the centre. The mayors of islands are
reportedly not currently looking at methods of income generation. The Government
has initiated programs designed to encourage people to return to their islands,
including one program that focused on copra production. In general, however,
migration has continued apace to the main urban centres.

There are insufficient jobs in the country and there are few signs of the economy
growing. There is a high dropout rate from school, and a lack of employment
opportunities. A study by EPPSO has shown a net increase of just fifty jobs across
the economic in a multi-year period. There were some reports that young Marshallese

16
US Department of State. Bureau of East Asian and Pacific Affairs, November 2003,
Background Note: Marshall Islands.

15
who returned to the country with an overseas education had trouble obtaining a
suitable appointment through the Public Service Commission.

The government employs 64% of the salaried work force while unemployment stands
at approximately 40%. Ironically, the lack of skilled labour in the RMI has seen a
dramatic increase in imported labour. Many of these are employed as carpenters and
masons, suggesting that the issue is one of availability of technical training.
Development of the private sector is inhibited by the participation of government in
business enterprises. The government continues to have extensive influence in the
economy – in shipping, aviation, and hotels – and thus sees the private sector as its
competitor.

The business community has some indications that cash is being withdrawn from the
Marshalls economy, and possibly leaving the islands on ships. Although there has
been a dramatic improvement in tax revenues in recent times, the Chamber of
Commerce has had a specific concern about fair collection of taxes, and would like to
see the government improve its capacity to collect current taxes rather than avoid the
issue by raising taxes to make up the shortfalls – a remedy that has further impact on
law-abiding businesses that are already meeting their tax obligations. Economic
conditions may be responsible for the high incidence of failure to pay utilities bills -
85% of homes are more than 30 days overdue with their payments.

The RMI government recently commissioned a private company, Beca International

Consultants Ltd, to prepare an Infrastructure Development and Maintenance Plan
(IDMP) for the Marshall Islands. The assessment, covering Schools, Hospitals,
Health Centers, the Airport, Airstrips, Solid Waste, and Water Supply, submitted to
the government in August 2003, outlines costs for maintenance of existing
infrastructure, as well as for construction and management of new assets over a
twenty-year period. 17 Government departments and agencies have been asked to make
capital expenditure decisions on the basis of the recommendations submitted in the
report.

In recent years the US Government has provided half of the funds required for the
establishment of water catchment systems on each of the islands. The RMI is
benefiting from Asian Development Bank loan programs across a range of sectors and
infrastructural development programs. 18 The unique archipelagic nature of the
Marshall Islands makes transport a particular challenge.

Civil Society
Marshall Islands law protects freedom of speech and freedom of expression. As with
a number of newspapers in the region, the Marshall Islands Journal is edited by an
expatriate and produced by an expatriate. The Journal has been criticizing the

17
Beca International Consultants Ltd, Republic of The Marshall Islands. Infrastructure
Development and Maintenance Plan (IDMP). Volume 1: Maintenance Plan For Education &
Health Sectors, 2003.
18
See Asian Development Bank, Country Assistance Plan, 2001 – 2003, Republic Of The
Marshall Islands, December 2000.

16
Attorney General in recent months for failing to prosecute public officials for
corruption. The Auditor has reported anomalies in the public accounts to the
Attorney-General, as required by law, but these anomalies have not resulted in
prosecution of any kind.

The concept of the “Non-governmental organization” (NGO) is yet to take firm root
in the Marshall Islands. The term itself, NGO, translates into Marshallese as ‘not with
the government’ so there is clearly need to use different terminology. A range of
NGOs are operating in the country, some based in churches, others in youth
organizations (eg, Youth to youth). The five-member Marshall Islands Council of
NGOs was established October 2003.

The women’s organization WUTMI (Women United Together in the Marshall

Islands) was established in 1987 to strengthen the voice of women in claiming a better
quality of life for themselves and their families, and to promote cultural values. The
organization has 24 chapters, comprising memberships between one and 35 (on
Majuro). A Board comprising a President, Vice president, traditional women leaders,
and founding members, meets twice yearly, and every two years a general assembly is
held that attracts up to 500 women. 19 Until 2000 the organization was under the
Women’s section of the Ministry of Internal Affairs. It is now housed at a site funded
by two chiefs, and administers several projects aided by large grants: a $50,000
planning grant for a project on violence against women, sub-contracted from the
Ministry of Health; $97,000 over three years, to Pacific Resources for Education and
Learning for counselling of parents of children aged up to 3 years; a Canadian-funded
project to assess skill building programs in governance and organizational
development for outer islands; and a federal grant subcontracted from the Ministry of
Finance relating to substance abuse treatment.

NGOs have identified a number of concerns with government services, including:

lack of consultation; lack of services – especially transportation and communication;
and lack of availability of information about government programs, and the
availability of services and sources of funding.

Challenge to Security
Border Security

For the first three months of 2004 the computerised ‘border management system’ was
off-line, which meant that the Department of Immigration was not in a position to
complete security checks on any travellers into or out of the county. The Department
simply had no resources to fix the problem. There were several instances in early
2004 in which efforts to deport foreigners who were found to be in the country on
expired permits, or without permits, failed at the last minute because they were able to
show the court permits which had somehow been granted just prior to the hearing.
Due to such practices, there have not been any successful deportations in recent times.

Like its neighbouring states, the Marshall Islands maintains an Australian-donated

patrol boat, which operates under the control of the Chief Secretary. Although no

19
The next General Assembly is scheduled for October 2004.

17
specific threats to infrastructure have been recorded, it should be noted that sabotage
at fuel storage sites, fuel boats; power plants, seaports, bridges, and airports, would be
relatively easy, and would have a significant impact on the national economy and
society. None of these facilities have special anti-terrorism measures in place, apart
from the searching of persons and baggage entering and existing by air or by sea.

Natural Disaster preparedness

There appears to be little administrative capacity for disaster preparedness. The Chief
Secretary is responsible for disaster management, but for this purpose has a staff of
only one. Two temporary staff were involved in distributing water catchment
systems, a belated response to drought that was attributed to the el Niño effect in the
Pacific.

Recommendations

Within the time frame of this review exercise, the consultants asked as many informed
persons as possible about the social, political, environmental, or other issues that
might be the cause of current or future instability in the Republic of the Marshall
Islands. On the basis of the information received, we offer the following
recommendations:

• The greatest threats to the security of the Republic of the Marshall

Islands are internal, not external. While there are environmental
threats and geo-political tensions, these do not have the potential to
have as significant an impact on the security of the population as the
performance of their duties by key government agencies.
• Accordingly, the main recommendation is that the Government of the
Republic of the Marshall Islands strengthen its commitment to a
human development approach to governance – to a focus, that is, on
the development of human capacities as the gateway to stability and
prosperity for the Marshallese people.
• This approach requires the maintenance of an attitude, as much as the
application of a set of policies. It is not (for the most part) a call for
additional organisations, or for additional funding, since these are not
the problem. It calls for an expansion of thought and action by public
leaders in the Marshall Islands – whether in government, civil society,
or the private sector—to focus on the human dimensions of the
county’s current social, economic and political problems.
• The necessary funds and technical expertise are available to tackle the
country’s economic and social challenges. But the challenge of
providing “good governance” can only be addressed locally. Good
governance is not merely sound financial management but a set of
relationships through which those in government and in society more
generally take joint responsibility for tackling the difficult
development tasks confronting the nation.
• Negotiations with Marshallese citizens affected by the US nuclear
testing program, or by the continued use of Kwajalein Atoll, should be
addressed as matters of justice rather than matters of financial

18
 settlement. If a legacy of suffering and displacement is not addressed
at its core, the whole nation will fail to achieve resolution. In political
terms, these grievances will not go away if they are not settled to the
satisfaction of all parties, and will burden the entire nation for
generations; they will become the main source of instability.
• The government should initiate plans to divest itself of activities best
left to the private sector. An investigation into how to proceed will
naturally have to take into consideration both the Marshall Islands’
unique geography and circumstances, and the best interests of the
people as a whole.
• An Office of Independent Prosecutor should be established to enhance
the justice system’s capacity to uphold the rule of law. Since
corruption in public office is widely recognised as being a major cause
of disillusion with public officials, a concerted effort to punish or
otherwise end abuses of power is needed to prevent further
undermining of the legitimacy of the Constitution and its offices.
• A review should be instigated to ensure that the Public Service
Commission functions fairly and impartially.

ENDNOTES
1
Thirty-Third Pacific Islands Forum, Suva, Fiji Islands, 15 - 17 August 2002, Forum
Communiqué:

1. Forum Leaders recalled their commitment in the 1992 Honiara Declaration on Law
Enforcement Cooperation, the 1997 Aitutaki Declaration and the Biketawa Declaration
adopted in 2000 to act collectively in response to security challenges including the
adverse effects of globalisation such as transnational crimes, and unlawful challenges to
national integrity and independence.
2. In this regard, Leaders recalled their commitment to good governance practices at all
levels as a key fundamental strategy for addressing some of the difficult and sensitive
issues underlying the causes of tension and conflict in the region.
3. Leaders expressed their concern about the recent heightened threat to global and
regional security following the events of September 11th 2001, in particular, those posed
by international terrorism and transnational crime.
4. Recognising the need for immediate and sustained regional action in response to the
current regional security environment, Forum Leaders affirmed the importance of the
Honiara Declaration, in particular, as providing a firm foundation for action to address
these new and heightened threats to security in the region.
5. Forum Leaders underlined their commitment to the importance of global efforts to
combat terrorism and to implement internationally agreed anti-terrorism measures, such
as the United Nations Security Council Resolution 1373 and the Financial Action Task
Force Special Recommendations, including associated reporting requirements.
6. The Forum Leaders reaffirmed that law enforcement cooperation, backed by a strong
common legislative base, should remain an important focus for the region and
welcomed progress which has been made in regional law enforcement cooperation
under the auspices of the relevant regional bodies.
7 Forum Leaders noted however, that, while some progress had been made in the
implementation of the Honiara Declaration, further urgent action was required of some
member states and recommitted to full implementation of relevant legislation under the
Honiara Declaration by the end of 2003.

19
 8. Leaders underlined the importance to Members of introducing legislation and
developing national strategies to combat serious crime including money laundering,
drug trafficking, terrorism and terrorist financing, people smuggling, and people
trafficking in accordance with international requirements in these areas, taking into
account work undertaken by other bodies including the UN and the Commonwealth
Secretariat.
9. Forum Leaders tasked the Forum Regional Security Committee to review regional
implementation of UNSCR 1373, the FATF Special Recommendations and the Honiara
Declaration and report back to the Forum at next year's meeting on these subjects.
2
Implementation of the Honiara and Nasonini Declarations

16. Leaders noted the progress that was being made in the enactment of the
legislative priorities of the 1992 Honiara Declaration on Law Enforcement Cooperation
and urged Forum Island Countries to fully to enact the relevant legislation under the
Honiara Declaration by the end of 2003, in accordance with the Leaders’ commitment
under the 2002 Nasonini Declaration.
17. Leaders commended the work undertaken by the Expert Working Group to
Coordinate the Development of a Regional Framework Including Model Legislative
Provisions to Address Terrorism and Transnational Organised Crime, convened under
the Nasonini Declaration, and urged speedy passage of the legislation once it was
finalised and adapted.

Biketawa Declaration

18. Leaders noted the various activities the Secretariat had undertaken in
implementing the Biketawa Declaration which included monitoring regional political
and security developments, post-Forum consultation visits, national security studies and
national security workshops.
19. Leaders also noted the establishment of the Regional Security Fund to cover
the Secretariat’s costs in implementing the Biketawa Declaration and encouraged
donors to contribute to the Fund.

20
FEDERATED STATES OF MICRONESIA

Security Study 2004

Pacific Institute of Advanced Studies in Development and Governance.
University of the South Pacific

Graham Hassall
30 April 2004

This paper provides the findings of a security assessment of the Federated States of
Micronesia. It relies on interviews undertaken in Pohnpei, Kosrae and Chuuk over ten
days in March 2004, as well as consideration of supporting literature. A limited range
of official documents was made available to the researchers, and this was
supplemented with secondary literature.

Prospects for political stability

Although some Pacific states have experienced civil war and unrest in recent times,
security is no longer to be viewed in the narrow sense of merely defending a state
from external or internal threats of a military nature. Rather, it is now realised that
security is closely linked with generating conditions that free people from fear, and
misery arising from various causes. This is particularly the case for security
assessments of Pacific states, where current threats to stability are more often linked
to domestic failures of governance and inabilities to meet aspirations for development
and economic advance. ‘Security assessments’ therefore continue to be interested in
external threats of a military, political, social, or economic nature, but are equally
interested in the capacity of states to implement effective, efficient and equitable
economic and political governance at all levels, and to handle conflicts as they arise –
or preferably, prevent the emergence of conflicts by forestalling the conditions in
which they arise.

Prospects for political stability in the Federated States of Micronesia depend greatly
on the extent to which the citizens of the Federation perceive that it is able to meet
their individual and collective needs. Political stability is part of a larger concept of
‘comprehensive security’, which the Council on Security Cooperation in the Asia
Pacific defines as:

Comprehensive security posits that a security of person, community and state is

multifaceted and multidimensional in character. Ultimately security
encompasses the security of all the fundamental needs, core values and vital
interests of the individual and society in every field – economic, social, political,
cultural, environmental and military. Any significant threat to the
comprehensive well-being of man, society and state, whether emanating from
external sources or from within a state, is deemed a threat to security.” 1

1
CSCAP Memorandum No. 3.
Recent global conferences held under the auspices of the United Nations have
articulated a series of ‘common themes’ that currently constitute the challenges to
human well-being on a global scale - poverty eradication, gender mainstreaming,
access to and transfer of knowledge of technology, especially information and
communication technology, fostering an enabling environment for development,
improving market access, creating employment, and human resource development –
which are all therefore important to any security assessment. 2

Security analysis in FSM takes place within the context of recent security policy
initiatives by the Pacific Forum. At its 33rd meeting in Suva in 2002, the Pacific
Forum outlined the features of its regional security plan in its Nasonini Declaration. 1
A year later, consequent to its 2003 meeting, the Forum’s Communiqué included a
section on “Regional Security and Governance”. 2

In adopting such a notion of comprehensive security, this report seeks to present an

all-encompassing impression of the security and stability situation in the FSM at the
current time. It offers the following findings:

• Major threats to political stability will come from internal dynamics:

relations between states; relations between migrant groups; frustration at
lack of service delivery; disillusion with political leaders; attempts by
regional political elites to take control of a portion of the federation.
• Other challenges include large-scale unemployment, over-fishing, political
rivalry between the states, and overdependence on US aid.
• Stability of both state and society will be enhanced by focusing on provision
of appropriate education and adequate health services.
• Stability of the democratic process will be consolidated by educating the
next generation in the values of extensive public dialogue in which diverse
opinions are freely shared and in which challenging information is not
ignored or rejected.
• Remedies include strengthening of the notion of “public service” and
strengthening agencies of civil society.
• Stability will be enhanced through closer alignment of the FSM’s education
system with the peoples’ social and economic needs.
• The Federation’s fragile economy and financial institutions require
responsible stewardship to ensure that remaining opportunities for capital
accumulation under the terms of Compact II are not dissipated.
• The Islands’ physical vulnerability to the forces of nature require that greater
attention be paid to disaster preparedness, and to the establishment of
infrastructure in accordance with standards and codes.
• Stability will be enhanced through stronger application of the rule of law to
minimise incidences of unsanctioned corruption in public office, and through
closer adherence to the principles and practices of good governance.

2
United Nations. Open-ended ad hoc working group of the general assembly on the integrated and
coordinated implementation of and follow-up to the outcomes of the major united nations conferences
and summits in the economic and social fields, 2002.
(http://www.un.org/esa/coordination/ecosoc/wgga/Non-paper%201%20-%20common%20themes.pdf)

2
 • Prospects for political stability in the FSM require an expanded application
of the principles of good governance: governance requires not only
adherence to the highest ethical principles by those entrusted with public
power; it requires the strengthening of bonds of trust and communication
between the government, civil society, and the private sector.

People and Environment

The Federated States of Micronesia (FSM) include the islands known at one time as
the Eastern and Western Caroline Islands. The FSM became an independent sovereign
state on May 10, 1979. It is a Federation comprising approximately 607 small islands
organized into four states: Pohnpei, Chuuk, Kosrae, and Yap. The islands are
scattered over one million square kilometers of ocean.

The FSM population is estimated at 108,143 (July 2003).3 The rate of population
growth is slow (2%),4 and approximately 38% of the population is under 14 years of
age. 5 Life expectancy at birth is 69.13 years (male: 67.39 years, female: 70.95 years
(2003 est.).6 There are immigrants from other parts of the Pacific as well as from
Asia. It is estimated that 26.7% of the population are living below the poverty line. 7

Out-migration, principally to the US mainland but also to US territories in the Pacific

such as Guam, provides a “safety-valve’ for aspirations of the young, but at the same
time forms a significant “brain drain”, taking the nation’s best and brightest. There
are FSM communities employed at “Sea World” in Florida, at geriatric facilities
across the USA, and on the strawberry farms of Oregon. While a large number of
FSM citizens undertake only menial jobs in the US, there are also an increasing
number of professionals abroad.

FSM's total land area is quite small and amounts to approximately 270 square miles
(of which just 5% is arable). Chuuk has a land area of about 49.2 square miles and
includes seven major island groups. Pohnpei (approx. 133.4 square miles of land)
includes the outlying island groups of Pingelap, Mokil, Nukuoro, and
Kapingamarangi. Yap is made up of four relatively large islands, seven small islands,
and 134 atolls, with a total land area of about 45 square miles. Kosrae is one high
island of 42.3 square miles. The main natural resources are forests, marine products,
and deep-seabed minerals. At present the islands have few mineral deposits worth
exploiting, except for high-grade phosphate.

The FSM is one of the world’s newest nation-states, and as such, one in which people
understandably continue to identify more with their own island and culture than with
the nation-state as a whole. There are nine ethnic Micronesian and Polynesian groups.
This is not generally reported as being a source of tension, apart from incidents

3
CIA World Factbook.
4
Asian Development Bank, “Key Indicators of Developing Asian and Pacific Countries”.
5
CIA World Factbook. 0-14 years: 38.4% (male 21,163; female 20,335); 15-64 years: 58.5% (male
31,746; female 31,477); 65 years and over: 3.2% (male 1,558; female 1,864) (2003 est.). The high
proportion of young people and the low population growth rate implies that there is a high rate of
emigration.
6
CIA World Factbook.
7
CIA World Factbook.

3
resulting from clashes relating to occupation of land by migrants. Although sharing
mutual sea-space and recent history, the four states that comprise the federation
nonetheless express different cultural characteristics, which in part reflect their
particular geographies, contact-period and colonial histories.

Traditional leadership

The Constitution does not recognize specific roles of traditional leaders. This may
have to be reconsidered, as these leaders continue to play a role in steering their
communities. Chiefs from FSM participate in a Micronesian traditional leaders
conference that meets every four years. 8

The Pohnpei Constitution upholds, respects, and protects the customs and traditions of
the traditional kingdoms of Pohnpei (Art. 5 of the Pohnpei Constitution). In Yap, “the
courts are presided over by judges knowledgeable in custom with an aim to settle
minor disputes arising in the municipality before it gets to the State Courts. The Trial
Division of the State Court can order a case to be transferred to it if it considers the
municipal court incapable of handling it.” 9 Custom plays roles in dispute settlement,
and in reconciliation. In homicide cases both civil code and custom can be used to
settle matters. In some instances, restitution is based on the family of the perpetrator
making a formal apology to the family of the victim. Atonement, the traditional
means of conflict resolution, is still working effectively, but this does not work cross-
culturally.

An alternative view is that the power of tradition leaders is decreasing, and that only
‘respect’ for their office remains. This view suggests that few chiefs continue to hold
all the requisite blood lines, through intermarriage, to validly hold their titles. Each
society within the Federation has customary leadership, except for Kosrae and Chuuk,
where as a consequence leadership tends to change rather quickly. There are no
individual leaders on Chuuk. There are five traditional leaders (nammaki) on
Pohnpei, each of whom has a “prime minister” (nahnken) who acts as a balance on the
leader’s power. Partly in response to these different cultural styles there is some talk
on Pohnpei of “getting away from” the reportedly “less responsible” Chuukese. The
people of Yap have a reputation for being the best-organised society and the best
money managers. They have strong culture of which they are proud, and a clear sense
of ethics and social responsibility.

Not all FSM citizens possess land, and on Pohnpei the number of squatters is rising.
Recently, a court order for the removal of squatters was vigorously resisted, and the
order was not implemented. There is also a rising proportion of non-FSM citizens
who are endeavoring to find a place for themselves in the economy. There are
variations between the islands. On Yap, chiefs continue to control the land, and
failure of development plans to meet their approval will have an impact on economic
growth and development.

8
“Pohnpei Hosts 2nd Micronesian Traditional Leaders Conference”,
http://www.fsmgov.org/press/pr071202.html
9
“Pacific Courts - Federated State of Micronesia”, Micronesia Courts System Information”
http://paclii.org.vu/

4
Migration from outer islands into Pohnpei, and the resulting land-use and population
issues, is one of the most pressing concerns in the FSM. A large number of Chuukese
have migrated. It has been suggested that if the Chuukese migrate to Pohnpei in
larger numbers and take public office, there may be discontent. The municipality of
Sokehs typifies a region in which cultural tensions are mounting. The issue originated
several decades ago, after a typhoon devastated the Mortlocks region of Chuuk state,
and the survivors were resettled at Sokehs. In the intervening years family
reunification increased the numbers of immigrant settlers in the region, and
contributed to steadily rising resentment amongst the surrounding population.

Some question whether it is possible for an individual to hold a high customary rank
and a high position in the public service at the same time. 10 At the beginning of 2004,
senior Pohnpeian Senator, Recio Moses, who is third in line for the throne in the
region called ‘U’ (and who was recently a member of the ‘reflection group’ in the
Pacific Forum review process) was prominent in rallying members of the public to fill
the legislative chamber during debates on the proposed Amnesty bill. Concern at
combining customary and state offices is not to be confused with cooperation between
customary leaders and state leaders. On Yap and in the neighboring Republic of
Palau, in particular, there is close collaboration between state and traditional leaders.

Traditionally, politicians have engaged in the distribution of goods at appropriate

times in the political calendar, in order to sustain their positions. Any changes to
these practices may, ironically, create some forms of political instability. Politicians
continue to control sizeable discretionary or constituency funds, which they are
constantly under pressure from constituents to disperse to assist with such social
occasions as weddings and funerals.

The church and the family remain the key institutions in the various cultures that
make up the FSM. In some places the church is so strong as to exert considerable
influence on the state; also, there are some instances reported of secular leaders co-
opting religious leaders quite closely into their management teams.

The International Dimension

The FSM emerged out of the US-administered “Trust Territory of the Pacific Islands”
and has thus traditionally had a close relationship with the USA. At the same time,
the peoples of the islands comprising the Federation also bear the influence of the
periods of German and Japanese rule.

The end of the “cold war” has had significant repercussions for the way the US
interacts with its Micronesian client states. Whereas under “cold war” conditions the
US paid large sums of money in order to ensure ‘strategic denial’ of the North Pacific
to other significant regional powers, post-war conditions have reduced this
imperative. At the same time, the US has become more interested in how its money is

10
Reference was made in interviews to one person who holds a responsible position in the public
service as well as a high chiefly rank: most felt that it was not right to occupy both positions at once,
and that this individual should resign from government service.

5
being used, and is more willing to reduce its contributions to the minimum amounts
that the Micronesian states indicate is necessary to their functioning.

In 1985 the US Senate approved a Compact of Free Association negotiated between

the U.S. and the Republic of the Marshall Islands and the Federated States of
Micronesia. It is said that the FSM leaders wanted the first compact to be about 15
years in duration, so that lessons could be learnt before further commitments made.
The Compact, which came into force on November 3, 1986 (U.S. Public Law 99-
239), provided a significant degree of self-rule to the Federation.

The Compact allocated responsibility for defense to the US (it gave the US the right to
maintain a Coast Guard facility on Yap), and granted the Federation considerable
financial assistance (the US pledged $1.3 billion in grant aid during the 15 years
1986-2001). The Compact also treated the Federation as U.S. possessions for tax and
trade purposes. FSM has benefited from the programs of numerous US government
agencies. Those with a presence in Pohnpei have included USDA Rural Development,
USDA Natural Resources and Conservation, Peace Corps Micronesia and the Civic
Action Team (the presence of the latter terminated under Compact II). The Compact
granted FSM citizens entitlement to reside, travel, study and work in the US without
need for a Green Card. It also entitled FSM citizens access to a number of US grant,
welfare, and social security programs. An FSM citizen convicted of a felony in the US
loses these privileges and is deported from the country.

Throughout the first Compact, and at the commencement of negotiations of the

second, the FSM government made clear to the US the extent of its agreement to US
defense and security policy and access. Speaking before the US House of
Representatives Committee on Resources October 1, 1998, the executive director of
the FSM’s Joint Committee on Compact Economic Negotiations, Asterio R. Takesy,
said:

“We are keenly aware that strategic and security considerations are the
cornerstone of our free association relationship with the United States. Thus, we
have worked hard to give more than just lip service to the responsibilities we
assumed in the Compact. The FSM has been strictly supportive of United States
defense and security policy in the Region, such as, for example, by refraining
from joining its neighboring island countries in the South Pacific Nuclear Free
Zone Treaty (SPNFZ), and by refraining from signing the Convention against
Land Mines. Our consistent support for the State of Israel, while motivated in
part by internal considerations, has also been with an eye toward supporting US
policy in this important security area.
… As you know, Mr. Chairman, the Compact as a whole has no termination
date, and was envisioned to create a long-term relationship. However, Section
354 of the Compact says that the defense provisions are "binding" for 15 years
and thereafter as mutually agreed. This provides the opportunity during our
renegotiations for any needed readjustment. For its part, the FSM remains
satisfied with and committed to Title Three and to that end would like to remind
the United States of the availability of locations within the FSM for Defense
activities such as the prepositioning of forward deployment supply ships (a
matter that was reiterated by President Nena with Assistant Secretary Kramer at
the Department of Defense during his Washington visit).

6
 It is the FSM's view that despite the end of the Cold War the uncertainties in
Asia necessitate a long-term U.S. security umbrella throughout the former
Trusteeship area. It was the consensus view of the original Compact negotiators,
and remains our view, that continued economic progress and stability within
Micronesia serves that security interest.”11

Constitutional Structure and Operation

The Congress is a unicameral law making body with 14 Senators - one from each state
elected for a four-year term, and ten who serve two-year terms, whose seats are
apportioned by population. Chuuk has six seats, Pohnpei four and Yap and Kosrae
each have two seats. The Congress’s rules of procedure are being followed strictly by
the Speaker.

Each State also has its own constitutional government with three co-equal branches of
government consisting of the executive, legislative, and judicial branches. Although
the FSM national government handles some affairs on behalf of the states, the states
are fairly autonomous. The Pohnpei Legislature is composed of 23 Senators. Art. 8
of the Pohnpei Constitution provides for the election by voters from the electoral
districts of Kapingamarangi, Mwokil, Ngetik, Nukuoro, Pingelap, Kolonia Town, Net,
Uh, Kitti, Madolenihmw, Sokehs. The constitution contains a Declaration of Rights
and provisions recognizing and protecting traditional rights.

The President and Vice President, who head the Executive Branch, are elected by the
members of the FSM Congress, from among the four-year Senators, and the vacant
seats are then filled in special elections. Following the most recent General Election,
for example, on March 4th 2003, a Special Election was held July 1st to fill the
vacancies created by the election of the President and Vice President.

The Governor and Lt. Governor appoint their own cabinet members and are primarily
responsible for executing the laws and administering state government services (Art. 9
of the Pohnpei Constitution). The Executive Branch has the duty to execute the laws
and administer national government services (Art. X of the FSM Constitution).

The judicial branch interprets the constitution and laws of the nation. Justices (a
Chief Justice and three Associate Justices) are nominated by the President for a
lifetime appointment and confirmed by the Congress. 12

Three Constitutional Conventions have been held in the Federated States of

Micronesia, where the constitution (Section 2 of Article XIV) requires that voters are
asked the following question at least once every ten years: "Shall there be a
convention to revise or amend the (FSM) Constitution?" The second constitutional
convention, held in 1990, adopted 25 proposed amendments, of which three were
ratified in a 1991 referendum. The third and most recent Convention, held in

11
http://www.fm/jcn/statements/hcrhear.html
12
See, Art. XI of the FSM Constitution.

7
November 2001, proposed 14 amendments, none of which passed at a referendum
held the following year. 13

Debate on possible changes to the constitution has included a referendum seeking to

reduce the size of government by eliminating the national congress. Whereas this was
unsuccessful there is still public discussion as to whether such a small state and
population requires so much government – in the sense of having all three branches of
government at both federal and state levels.

On Chuuk, a Constitutional Convention commenced on 30th January 2004, the same

day that harsh weather knocked out the state’s radio facilities; a poor omen for the fate
of a constitutional exercise that may be taking place at an inopportune time.

The current structure, which has the Congress electing the President, gives power to
the legislative body. A proposed constitutional amendment to establish popular
elections for president and vice president was unsuccessful. Francis Hezel has
recently commented:

For those who have believed all along that Congress, ever encroaching
on the property lines dividing the legislative from the executive and
judicial branches, has accumulated far too much power, this bill
offered compelling evidence for their position. The FSM President,
who is chosen from Congress, has always been beholden to his former
colleagues for his position and so is all the more susceptible to their
influence. Now Congress wants to hold the court system captive, at
least where its own conduct is concerned. 14

FSM is a federation of small states, with each having a small population and
economic base. The four state governments exercise considerable autonomy, with the
major constraint being lack of resources for either infrastructural development or
recurrent expenditure. With the implementation of a tighter budget under Compact II,
Khosrae’s budget for 2004 was $9,415,636, a six percent decrease from the previous
year. The budgets of all government agencies were reduced by 20% and the
legislature’s budget, while still 9% of the total budget, was two-thirds of that for the
previous year. In sum, the new budgetary environment has placed new constraints on
government service delivery at state level. 15 In 1995 the national government had to
bail Chuuk state out of a precarious financial situation.

While there are no political parties and all 14 members of the legislature are therefore
“independents”, there is considerable political activity in the legislature, on the basis
of ethnicity. To date there has been an understanding, for instance, that each state
should take turns in holding the position of President. At the present time the

13
John Haglelgam, Analysis of the Fourteen Proposed Amendments to the Federated States of
Micronesia Constitution (as amended)
14
Francis X. Hezel, SJ, “The FSM Amnesty Bill, Micronesian Counselor #49 (January 2004.
http://www.micsem.org/pubs/counselor/frames/amnestyfr.htm?http&&&www.micsem.org/pubs/couns
elor/amnesty.htm
15
By Olivier Wortel, “Kosrae proposes slim $9.4 million operating budget”, Marianas Variety, July 2,
2003, Pacific Islands Report

8
representatives from Kosrae feel that it has been treated unfairly and that Chuuk has
had more than its share of incumbents in the position.

Some suggest that the absence of political parties removes any incentive for a member
of the legislature to address difficult subjects, and that the Governor becomes the
“opposition” to the legislature. Another view is that the absence of parties frees the
FSM of the confrontational style of partisan politics that is practiced in other Pacific
Island states. The most recent General Election took place on March 4th 2003.

Executive Capacity

It might be said that, following independence, the US was not interested in good
governance, and that the current challenges facing the FSM are a result of this lack of
interest, oversight, and training. A development plan was encouraged but not required
under Compact 1. Although, as has been noted, the states are quite autonomous, their
actions are inhibited by their financial constraints. Lack of good governance in
Chuuk State carries implications for the rest of the states. Although the difficulties are
being addressed at national level, and there is a desire to see Chuuk politics and
governance stabilized, this may not be the view of the average person, who only sees
a procession of political scandals emanating from Chuuk. Ironically, Chuuk has
produced some of Micronesia’s best political leadership. At state level, however, a
combination of factors appears to have aligned to inhibit the emergence of similar
capacities.

In 1996 the FSM commenced a structural adjustment program to bring its public
expenditure into closer alignment with revenues. The Government workforce was
reduced by 20% (approximately 1,200 positions) and salaries of most government
employees were reduced by10-20%. All public utilities and many former government
activities were commercialised or privatised, and attention was paid to tax reforms
leading to increased revenue collection. 16

During the first years of the Compact, neither the FSM nor the US government
fulfilled their responsibilities with regard to accounting for the use of Compact-related
funds. As explained by Susan Westin, Associate Director, International Relations and
Trade Issues, National Security and International Affairs Division, United States
General Accounting Office:

The governments of the Federated States of Micronesia, the Republic of the

Marshall Islands, and the United States have provided limited accountability
over Compact expenditures. Although the Compact established accountability
requirements for all 3 countries, none of the governments fully used these
mechanisms to ensure that Compact funds were spent effectively or efficiently.
While the Federated States of Micronesia and the Republic of the Marshall
Islands generally prepared planning and reporting documents required under
the Compact, most of these documents could not be used to determine if
Compact funds were being spent to promote economic development.
Furthermore, neither nation provided adequate financial or programmatic
control over Compact funds, as documented in audit reports since 1987. In
addition, the U.S. government did not meet many of its oversight obligations.

16
http://www.fm/jcn/statements/hcrhear.html

9
 For example, it did not hold required annual consultations to assess progress
under the Compact until 1994, losing a valuable opportunity to provide
guidance on the goals and uses of Compact funds. Moreover, disagreements
between the Departments of State and the Interior over Compact
responsibilities, as well as Interior’s view that the Compact contained
restrictive provisions that impaired its ability to act, further limited oversight. 17

In June 2000 an Economic Policy Implementation Council was established,

comprising the president, vice-president and speaker of the FSM Congress, and
governors and speakers of the state legislatures, to oversee the fiscal and tax reform
process.

Members of congress receive significant “Representation funds” to apply directly to

their constituencies. While members may say that they need such funds to meet the
expectations of their constituents, continuation of these practices opens opportunities
for corruption through lack of oversight and accountability of expenditure of public
funds, and confuses the role of the legislator who should be occupied with oversight
of executive acts, rather than petty-dispenser of them.

Legislative Capacity

The federal nature of the state means that legislation is created at both federal and
state levels. At the federal level, the FSM Congress has six standing committees, of
which the most important is the Ways and Means committee. Other significant
committees include those for Health Education and Social Affairs, and Resources and
Development, which oversees activities in fisheries, tourism, and banking.

At state level, the legislative codes are not extensive, and it remains to be seen
whether states of such small size have the capacities and resources to deliver the range
of legislation expected of contemporary states, irrespective of their size. In the case
of Kosrae, the legislature meets in January and August, and members have a three-
term limit. Although the legislature is currently operating five standing committees
(governmental operations; educational and cultural affairs; health and social affairs;
resources and development; and ways and means), there is an awareness of the need
to downsize the legislature to align it with the realities of resource availability.
Downsizing could see responsibility for education and health transferred back to the
federal level.

The Rule of Law

The problem of corruption in public office has long been of concern in the FSM. A
2000 report concerning activities during the 1980s provides the following description:

… the FSM and the RMI have failed to adequately control and account for
Compact expenditures. According to their annual financial audits, the FSM and
the RMI did not maintain or provide sufficient financial records to effectively

17
Susan Westin (Associate Director, International Relations and Trade Issues, National Security and
International Affairs Division), United States General Accounting Office, Testimony Before the
Subcommittee on Asia and the Pacific, Committee on International Relations, House of
Representatives, FOREIGN ASSISTANCE. U.S. Funds to Two Micronesian Nations Had Little Impact
on Economic Development and Accountability Over Funds Was Limited.

10
 audit Compact funds. Further, program audits by the FSM Public Auditor found
inappropriate use of Compact funds and extensive management weaknesses in
accounting for Compact funds. For example, an audit of Compact-funded
projects for fiscal years 1997 and 1998 found that 37 of 42 project examined
were not properly managed and had deficiencies such as improperly
documented payments. An audit of Compact-funded projects for fiscal years
1992-96 found problems related to misuse of funds, as mentioned earlier. For
example, the audit found that nearly $600,000 of heavy equipment purchased
for a $1.3- million road improvement project in Tolensome, Chuuk was being
used at a former mayor’s personal dock for activities not related to road
improvement. Finally, the independent audits showed that the two countries
have taken little action to address management weaknesses and resolve
questioned uses of Compact funds. For example, by fiscal year 1998, the two
countries wrote off over $50 million in questioned uses of Compact and other
program assistance that had been unresolved since the 1980s. 18

There are currently some seven senators under indictment. In November 2003, 14
people were named in an indictment for the theft of $1.2 million in government funds.
At the beginning of 2004 the issue of corruption came sharply into focus when a
group of legislators from Chuuk introduced Congressional Bill 13-76, seeking to grant
amnesty to "certain classes who are being accused, or yet to be accused, or who have
been prosecuted of certain types of crimes." It alleged that the national government
had "singled out certain classes of people for investigation and prosecution," and
proposed that amnesty be offered to any citizens of FSM, whether government
officials or not, charged with the misuse or misappropriation of any government funds
over the last 17 years. The wide scope of the proposed amnesty, and the implications
it appeared to hold for the devaluing of notions of good governance at both national
and state levels, brought civil society actors into the public arena to an unprecedented
degree. For the first time members of the public used new technologies, such as fax
and email, to communicate their concerns to members of the legislature.

In December 2003 retired Supreme Court Justice Richard Benson was contracted by
the FSM Supreme Court to preside as a Specially Appointed Justice over a criminal
case involving several former and seated members of the FSM Congress. The
following January the Congress (in Resolution no. 13-69) succeeded in overturning
the judge’s appointment on the grounds that his service to the court had accumulated
to more than three months, which was the limit for a temporary judge.

Francis Hezel wrote in January 2004:

National unity, which is justly described as fragile in the best of times, is

being severely tested by this congressional bill. To compound the
problem, the bill threatens to provoke a constitutional crisis. The
legislature is, in effect, declaring itself immune from prosecution
initiated by the executive branch and carried out by the judiciary. In
other words, Congress appears to want to position itself beyond the reach

18
Susan Westin (Associate Director, International Relations and Trade Issues, National Security and
International Affairs Division), United States General Accounting Office, Testimony Before the
Subcommittee on Asia and the Pacific, Committee on International Relations, House of
Representatives, FOREIGN ASSISTANCE. U.S. Funds to Two Micronesian Nations Had Little Impact
on Economic Development and Accountability Over Funds Was Limited.

11
 of the other two branches. The bill is certain to be challenged by the
Attorney General. 19

Although the FSM is generally free of violence there have been reports of
confrontations between rival police agencies on Chuuk, where hand-guns are
reportedly more prominent. This may point to a lack of trust in the police. In small
communities, those who enforce the law must work closely with those in authority,
and there can be difficulties in preventing political interference in police work.
Chuuk has a large police force, reportedly 200 strong and far more than required for
the policing needs of the state. There are also reports of individuals having little or no
training being hired to the police force.

Judicial capacity

Whereas judicial independence is secure in a formal, constitutional sense, it is an issue

in practice, since a lack of financial resources for judicial administration acts to inhibit
the operation of the court. On the other hand, the National court has been able to
check the Congress on occasions when the Congress attempted to go beyond its
power. Some Public Safety officials reported problems with the justice system,
including insufficient penalties for certain crimes, and court delays that adversely
affected the trial process. The need for effective methods for resolution of disputes
over land ownership and use is critical in most parts of the Federation.

Communicative capacity

The Government of the FSM has a well-developed communicative capacity. The

Office of Public Information, which reports to the President, maintains a website with
updated press releases. 20 Although there is freedom of expression and association,
the majority of the people are not necessarily aware of their rights or of the value of
their voice. Politics is often influenced by kin ties, and even by religious affiliation,
and given this lack of sophistication in the public sphere there is always the possibility
of manipulation.

Compact II

At the time of negotiation of the first Compact, the US was engaged in the ‘cold war’
with Communism. With the end of this ideological contest, the small states lost their
major card – the value of strategic denial. Now, with few cards available, states such
as FSM realize that the US will always be a major donor and that given that they have
little or nothing to bargain with, they have achieved the best deal that was open to
them.

Negotiation of the renewed Compact took four years to complete. The terms of the
Compact allow FSM citizens continued access to a number of US services and

19
Francis X. Hezel, SJ, “The FSM Amnesty Bill, Micronesian Counselor #49 (January 2004.
http://www.micsem.org/pubs/counselor/frames/amnestyfr.htm?http&&&www.micsem.org/pubs/couns
elor/amnesty.htm
20
FSM Government News and Public Statements, http://www.fsmgov.org/press.html

12
programs, each in accordance with a subsidiary agreement. 21 It also allows them visa-
free access to the U.S.

The renewed Compact provides funds for six of the FSM government’s key sectors:
health, education, infrastructure, governance and capacity building, private sector
development, and environment. The implementation of Compact II will be more
closely monitored by both FSM and US governments than was Compact I. Under the
new arrangements a Joint Economic Management Committee (JEMCO), comprising
three American and two FSM members, will have responsibility for oversight of how
Compact money is dispersed, and to what effect. The enhanced financial
conditionalities include stronger reporting; targeted budgeting, and deadlines for
reporting. Under these arrangements the US dictates the amounts of funds, and the
sectoral priorities.

Under the new requirements for approved and prudent planning, government must
forward programs for approval by both FSM and US agencies before funding is
released. While the preponderance of US representatives on the committee may raise
some concerns about FSM sovereignty, it is generally felt that such oversight is the
necessary price that must be paid in order to obtain the Compact’s much needed
financial assistance. Indeed, there is an awareness that sovereign elements are traded
off when financial assistance is obtained. On the other hand, under Compact II the
US will no longer provide funds for some of the foundational institutions of
governance, such as the judicial system, or for the maintenance of public order.

Joint Committee on Compact Economic Negotiations

Negotiation of the terms of the new Compact took five years. The FSM Joint
Committee on Compact Economic Negotiations (JCN) was created by the FSM
Congress in 1997 and in the next two years undertook a comprehensive study of the
developmental needs of the FSM economy. The public was engaged in the process
through the convening of public meetings, and there was of course much sensitivity
about the negotiating positions. 22

The goal of the US negotiation team appears to have been to have the FSM agree to
its already determined financial settlement. The FSM, on the other hand, sought to
negotiate an amount based on a costing of programs related to the provision of
adequate programs for human and social development. According to FSM
informants, the US negotiating team did not include a single international economic
advisor, and all meetings were held in Hawaii, which would have further prevented
the US negotiators from gaining a sense of the socio-economic realities on the

21
U.S. Postal Service (USPS), Department of Transportation (DOT), including the Federal Aviation
Administration (FAA), Department of Defense Humanitarian Assistance Projects (CHAP) on a
reimbursable basis from Compact assistance, Federal Deposit Insurance Corporation, and
Telecommunications Services, National Weather Service, Natural Disaster Assistance, Status of
Forces Agreement, Mutual Assistance on Law Enforcement Matters, Federal Programs and Services,
Fiscal Procedures Agreement: US State Department Website at
http://www.state.gov/p/eap/rls/9656.htm
22
A description of the negotiations is given in a statement by Peter Christian, FSM Chief Negotiator,
Joint Committee on Compact Economic Negotiations, before the Committee on Resources, United
States House of Representatives, Washington, D.C. July 17, 2002: Pacific Islands Report.

13
ground.23 The JCN is to be phased out by June 30th 2004. The method of monitoring
the Compact is not determined. It remains to be seen whether the perceived
inadequacies of the renewed Compact will become the focus of agitators.

Trust Fund

The Compact requires establishment of a Trust Fund capable of generating a yearly

revenue stream that can replace US federal grants by 2024. 24 The Fund is modeled on
The Tuvalu Trust Fund, which is in turn modeled on that of Kiribati. Calculations
showing the new fund’s capacity to maintain per capita aid equivalent to current
levels are contested. In June 2003 the United States General Accounting office's
managing director of international affairs and trade, Susan S. Westin told U.S.
Congress' Subcommittee on Asia and the Pacific that, as presently designed, the trust
fund would not generate sufficient income to compensate for the loss of direct federal
funding after 2023.25

The FSM government also admitted to concerns about the level of funding support
offered in the Compact, even though it agreed to sign. Ambassador Jesse B.
Marehalau stated in his remarks at the signing of Documents Amending the Compact
of Free Association in Palikir, Pohnpei, on May 14, 2003:

“It is no secret that there are several areas of the documents which we hope
can be improved upon by the US Congress. As we have stated many times
in the past, our economic analyses unequivocally show that the reduced
levels of assistance in the document as signed severely jeopardize our
chances for continued economic growth and development. Similarly we
have concerns over the level of funding of the trust fund, the mechanism
used for inflation adjustment, and the discontinuation of FEMA disaster
assistance.” 26

In testimony before the US Senate’s Committee on Energy and Natural Resources on

July 15th 2003, FSM Secretary for Economic Affairs, and Chairman of the Interim
Delegation of the FSM to the Joint Economic Management Committee, Sebastian
Anefal, stated:

“…on numerous occasions we presented our economic reasoning to the US

negotiator, and at no time were they met with countering arguments. Neither has
there ever been any dispute with the analysis or the anticipated outcomes based
on economic modeling. Instead, we were told that the US assistance proposal
was simply the maximum that the US could offer—in essence, the result of a

23
The US agreed to a third round of negotiations to be held in Yap in September 2000 but withdrew,
stating it was not ready to present its counterproposal.
24
The trust fund will receive an initial U.S. contribution of $19 million in FY 2004 and increasing U.S.
annual contributions as described in Tab 1 from FY 2005 through FY 2023. (“U.S. Proposes Amended
Compact of Free Association Funding for the Federated States of Micronesia”, US Department of
State. Bureau of East Asian and Pacific Affairs, Fact Sheet, April 23, 2002. US Department of State
website.
25
U.S. Agency Says Pacific Compacts Fall Short, Radio Australia.
http://www.fsmgov.org/press/nw062503.html
26
http://www.fsmgov.org/comp_sig.html

14
 political decision rather than being based on sound and responsible economic
analysis.”

Secretary Anefal noted several specific issues of concern:

• The inadequacy of the inflation adjustment.

• The loss of FEMA disaster relief assistance. 27
• Threats to the continuation of important and successful federal programs
under the Compact as amended.
• Concerns about conditions of FSM citizen’s entry and residence in the
United States 28

Additionally, Secretary Anefal noted concern at several elements of the legislation

that were changed without consultation:

“We wish the Committee to be aware that the FSM was not consulted in the
drafting of these Compact Act proposals by the Administration. We were
assured that any changes from the existing language in PL 99-239, would be
solely to update existing of language. When we finally had the opportunity to
review the proposal transmitted by the Administration, we found that the
changes went far beyond a simple ’updating’.”

The Secretary noted three major problems in particular:

• The issue of transition to a machine-readable passport scheme through

unilaterally setting aside Compact funds to fund it.
• Insistence on mandating the FSM’s development of a more effective
immigrant screening system within one year
• Changes to language concerning provision of compensatory federal
programs. 29

Should future developments bear out the FSM’s concerns about the negative impact
of the US’s unilateral reduction of budgetary support under the revised Compact, the
possibility of increased discontent amongst the coming generation of FSM citizens
cannot be dismissed. Whilst it would be impossible to pre-determine the form any
potential discontent could take, the increased exposure to FSM youth to weaponry
through US military service should be noted.

27
The FSM government has indicated that FEMA subsequently continued to be available to the FSM
under Compact II)
28
Secretary Anefal stated that: “The FSM fully understands the US concerns over security, and we
support the US in all its positions against terrorism and transnational crime. But the FSM and our
citizens are not a threat to the United States. We have never sold passports to foreign nationals. We
have not naturalized a foreign national in many years, and the requirements are almost impossible to
meet. We do not facilitate the adoption of our children to “baby brokers.” We do agree with the US that
passports should be required of our citizens, and we are willing to accommodate the expressed interest
in the FSM’s use of the latest technology to reduce the risk of passport fraud. The FSM wants to do its
part to assist the US in its important task of securing the peace and in securing its borders.” Pacific
Islands Report.
29
Pacific Islands Report.

15
Infrastructural and Economic Development
Given the small size of the economy, government employment is generally the only
secure form of employment. Government employment also has the advantage of
including health insurance, which employees elsewhere may not necessarily obtain.
There were reports suggesting that the private sector prefers employing a foreign
worker rather than an indigenous FSM citizen, due to the tendency for locals to be
distracted by extensive customary obligations: a funeral ceremony can last as long as
one week.

A full analysis of infrastructural development may show a false start under both the
Trusteeship period and Compact I. Under Compact I, for instance, a reported USD
200 million was spent on establishing fish processing facilities in each of the four
states. These have subsequently either been unused, or found to be unprofitable. As
the government employs two-thirds of the paid workforce, any downturn in
government activity would have a big socio-economic impact.

Clarification of land ownership and land use remains one of the Federation’s biggest
concerns. In the absence of clarity, land disputes are slowing business investment and
the implementation of infrastructure such as roads, water, and power. On Chuuk, for
instance, the airport has been closed on occasion by landowners claiming increased
compensation. The Courts are full of disputes over compensation for public use of
land, and the State Court House was recently burnt down. Chuuk was the last of the
states to receive a cell-phone network, apparently due to the need to settle many
compensation claims for land use related to the infrastructure development.

On Kosrae the extension of power and water services to new sites has been slowed by
claims relating to the installation of every pylon. In March 2004 there were some 300
cases pending in the Kosrae State Land Court. The challenge of clarifying land tenure
was attempted under the German and Japanese administrations. The “Japanese
demarcation line” indicates where individual property ends and public land begins. A
current proposed amendment to the Constitution seeks to return all land beyond the
“Japanese line” to traditional landowners.

The establishment of new roads opens up opportunities for communication and

commerce, at the same time as it contributes in sometimes subtle ways to
environmental degradation. Most land degradation in the FSM occurs through road
development and the construction of housing. Despite the environmental impacts,
however, the expansion of road services will continue, because roads are linked to
votes. Additionally, there is always going to be some trade-off between the need for
investment and jobs and preservation of the environment. There is some evidence
that forests on Pohnpei have been depleted not by commercial logging but through the
intensification of traditional farming methods.

In 2001 there were an estimated 11,000 telephones in use. Mobile phones are
available in Pohnpei and Yap. There are five AM and one FM radio stations and two
television stations. In 2000 there was only one internet service provider and an
estimated 2,000 users of the internet.

16
As with other nations in the region, the opening up of additional air services is
something of a ‘holy grail’. Continental Airlines is the single carrier to many of the
islands, and the introduction of more competitive air rates would transform the
transport environment. However, the FSM agreed to a monopoly contract with
Continental some time ago. Moreover, under the contract the airline is obliged to
provide very limited services. For example, in the case of Kosrae, it is obliged to
make only one flight per week (due to current demand there are six flights per week).

Yap, Chuuk, and Pohnpei have entered into an agreement with Palau that will see an
additional carrier traveling between them (leading to demands that future negotiations
take place at national level to ensure that all islands benefit). Whether or not the small
island economies can support additional carriers, however, has not yet been
established. It is generally assumed that should other carriers try to establish services
throughout the region, Continental would work hard to protect its position.

The recent experiences of the Kosrae Utility Authority demonstrate the difficulties of
operating a public utility in a small political and economic environment. Since
conversion into a public corporation about 1994, the Authority has experienced
resistance to new infrastructural projects from land-owners, who at one time may be
seeking compensation and at another to prevent the provision of electricity to
neighbours with whom they are locked in petty disputes. The Authority’s adoption of
more business-like practices, such as insisting on payment for services provided from
customers formerly accustomed to getting away with non-payment of bills, has also
generated resentment.

Led by a five-member board of directors, the Authority is intended to be a “semi-

autonomous” business, but in reality is subject to political influence. Two of the
board members are members of government who are associated with the State
Governor. Ultimately, decisions have to be made as to who to disconnect for non-
payment of bills, and when to raise prices. With few commercial customers on the
island electricity usage is going down. The state fisheries business is defunct, and
sales to private customers are also decreasing. If the Authority disconnects a business
it will be likely to fail, so there is a need to work with businesses rather than punish
them.

With the removal of a US energy grant from 2004, the cost of energy has become a
critical issue. No longer able to cover the costs of fuel for the diesel generator, the
Authority is under economic pressure to raise energy rates. At the same time it is
under political pressure not to increase prices. Energy shortfalls are bound to occur,
and on Chuuk, doubtless in a similar situation, frequent blackouts have already
occurred. The Authority can seek remedies through full privatisation, selling of
assets, or changing its source of power.

While the urban areas are relatively small, Pohnpei, like other state capitals is
experiencing signs of urbanization, including traffic congestion, increasing incidences
of traffic accidents, and litter. Specific threats to the environment come from such
sources as old power transformers emitting toxic waste into the environment while
waiting for shipment from Kosrae to Australia.

17
The economic aspects of cooperative federalism are very important to the future of the
nation. There has never been a concerted and serious effort to promote economic
development, such as in the tourism sector. The potential for a tourist industry exists,
but the remote location, a lack of adequate facilities, and limited air connections
hinder development. On Kosrae, for instance, the Kosrae Visitors Bureau services a
tourist industry of approximately 2,000 annually (2003 was a poor year, with just
1,800 visitors recorded).
With fishing, FSM takes advice from the regional technical agencies and does
as well as any state with revenues, but there is still criticism of the small returns.
There is also need for examination of how the states can engage in economic activities
that are complementary rather than in competition with each other. In the past the
states have taken the national government to court to try to obtain a larger share of
fishing fee revenues, and municipal governments have taken state governments to
court when vessels have run aground on the reef, in an attempt to claim some of the
violation fee.

The country's medium-term economic outlook appears fragile, due not only to the
reduction in US assistance but also to the slow growth of the private sector.
Geographical isolation and a poorly developed infrastructure remain major
impediments to long-term growth. 30

GDP in 2002 was $277 million, supplemented with grant aid of approximately $100
million annually. Around 50% of economic production is in the agricultural sector.
The main agricultural products are black pepper, tropical fruits and vegetables,
coconuts, cassava (tapioca), betel nuts, sweet potatoes; pigs, and chickens. Exports
were $22 million in 1999/2000, with the major commodities being fish, garments,
bananas and black pepper. Most exports are to Japan, the US, and Guam. In 2002
GDP per capita was around $2,000.31

On Kosrae, the Development Review Commission, a five-member board that reviews

the environmental impact of development projects, is most concerned with the effects
of such activities as sand-mining, land-fill, road extensions, waste management and
sea walls. There is much concern at the impact of invasive species on native flora and
fauna. Degradation of coral and sand is resulting from individuals using these marine
resources in building homes, because they cannot afford to purchase the materials.

Governance Capacity

Will the Federation maintain its current composition? There is a great need to
improve economic performance and to improve governance. Improvement in
governance requires application of checks and balances. It is reported that on Yap
there has been discussion of “breaking away” and joining with Palau. In Chuuk State,
the Faichuuk are not unhappy with the FSM, just with the administration of Chuuk
state, they operate within the law. Although the Constitution does not allow for the
departure of states from the Federation, it leaves open the possibility of the entry of
new states. This raises the possibility for the emergence of additional states as a result

30
CIA World Factbook.
31
Asian Development Bank, “Key Indicators of Developing Asian and Pacific Countries”.

18
of fragmentation of the present states, or the addition of a state from an external,
presumably neighbouring, territory (In 1977 Kosrae state emerged by separating from
Pohnpei state).
Apart from the question of national unity, a more subtle challenge is locating the
political will to confront the state’s current problems with a sense of purpose and an
expectation of progress. Despite its political tensions, the Federation continues to
function according to constitutional requirements, and the states continue to engage in
vigorous dialogue. At a leadership conference held on Kosrae in March 2004, the
main concerns focused on improved fiscal management, land tenure, and the need for
political stability and political will - on the need for politicians to commit to the
nation and the state rather than to their individual constituencies. The 3rd FSM
Economic Summit convened March 29 to April 2 2004.

The Faichuuk

The Faichuuk movement started in the western part of Chuuk Lagoon in

approximately 1959, reflecting a desire to secede from Truk district of the territory
government. The Faichuuk islands comprise half the land mass of Chuuk state and
26% of its population. In 1999 the legislature authorized a constitutional convention
for Faichuuk. Although that constitution went to referendum and obtained 91%
approval from the Faichuuk people, the federal government has not given formal
approval. The bill that went to Congress in 2003 seeking a procedure for the Faichuuk
region’s admission to the FSM still has not been introduced. In the absence of any
response at the federal level, municipal governments in Faichuuk created a 38-
member commission comprising chairs of councils, MPs, and traditional leaders,
which in 2000 declared an interim government and appointed Mr. Kashitoshy Paulus
as Governor. When the Faichuuk issue was not included in Compact renegotiation
talks, Paulus went to Honolulu to talk seek an audience with the negotiators but this
request was not granted.

In 2001 the Faichuk Commission for Statehood adopted a resolution to separate from
Chuuk state. When the 12th FSM congress ignored the resolution the Statehood
Commission threatened to act unilaterally. The Mortlock Islands, which form a part of
the Chuuk group, has also in the past asked Congress for permission to become a
separate state. A bill was introduced into the Congress to establish a procedure for
admitting new states but it was not passed. The Faichuuk ask why Kosrae is allowed
statehood with a population of some 8,000, whereas it is not, although its population
reached more than 20,000 in 2003. 32

Separatist sentiments may have their origins in geography as well as ethnicity: there
are no separatist elements on Kosrae, which is a single island rather than comprising
atoll complexes. On Chuuk, however, the desire for separatism is not limited to the
Faichuuk. On Pohnpei, the traditional leaders and some legislators made an attempt
several years ago to secede, without success.

While the US has played a significant role in shaping some aspects of the FSM’s
governance, it has also neglected the system in a number of ways. As there has been

32
“Faichuk Leaders Want Out of Chuuk, FSM”, Chuuk (Marianas Variety, Jan. 31), viewed on
Pacific Islands Report website.

19
an assumption that the US will always play a role in the federation, little attention has
been given to improving the capacities of the various branches of government.

Some concern is being expressed about immigrants to the FSM from China, who, it is
claimed, invariably establish a business with a local ‘silent partner’ and who
subsequently tend to conduct their commerce with little regard to legal requirements.
While this results in storefronts selling items at low prices, it simultaneously threatens
the livelihood of businesses adhering to all legal requirements regarding import
duties, taxes, etc.

Human Resource Development

Health

A recent report by the Asian Development Bank states that the FSM shows “little sign
of meeting the Millennium Development Goals by 2015”. 33 Approximately 40% of
the population are regarded as living below the poverty line; enrolment in primary
schooling is an estimated 83%; the country continues to experience high maternal
mortality rates and a high infant mortality rate; and there is rapid spread of non-
communicable diseases (such as heart disease and diabetes). Only 41% of the
population has access to an improved water source, and only 45% have access to
improved sanitation. 34

The major health issues facing the FSM population include diabetes, alcoholism, and
youth suicide. According the Red Cross, tuberculosis and leprosy have re-emerged.
The FSM has experienced a high per capita suicide rate, although exact figures have
not been obtained for this report. Whereas some agencies have sought to address the
issue of teenage suicide, it is still regarded as taboo to discuss the phenomenon
openly. Government agencies, including the Department of Public Safety, are
working with such NGOs as the Salvation Army to provide anger management
courses. However there is need for the initiation of far more effective preventive
measures by government departments and NGOs alike. Fr. Hezel, of the Micronesian
Seminar, has undertaken a significant study on suicide.

There is an acute lack of personnel with medical training. The nearest nursing school
is in the Marshall Islands, with others at the University of Guam and the College of
the Northern Marianas that are farther afield and have stricter entrance requirements.
The FSM Departments of Health and Education are discussing the establishment of a
national campus for health training in Pohnpei. As regards training for medical
doctors, the nearest facility is the Fiji School of Medicine. The College of
Micronesia does not have any programs in health.

What little training does take place in health fields has a gender aspect to it. Some
sections of FSM society continue to suppress the education of girls, however, and the
empowerment of women remains an important policy objective. In the case of

33
Asian Development Bank, Millennium Development Goals in the Pacific: Relevance and Progress,
March 2003.
34
ADB, Millennium Development Goals in the Pacific: Relevance and Progress, March 2003, p.15.

20
Chuuk, females tend to marry early, which inhibits the possibility for women to leave
the island for higher education.

Apart from the challenges of human resources, the health sector lacks material
resources. No local companies make basic medical supplies, such as gauze and
bandaging, leading at times to a complete want of such essentials.

Education

The greatest needs at all levels of the FSM’s education system are for staff training
and infrastructure. Few teachers have formal qualifications, and many have been
resisting the implementation of an accreditation test. On Kosrae approximately 85 of
160 teachers possess degrees, and approximately 100 have been evaluated.

Until the governments, whether at federal or state level, have sufficient resolve to
improve the quality of the teaching corps, they will be obliged to settle for less than
satisfactory outcomes from educational institutions. In Chuuk state, where there are
13 junior and high schools and 87 elementary schools, the student-teacher ratio
reached 1:50 in some instances during the school year 2002-2003. 35 At tertiary level
a large number of FSM students attend the College of Micronesia (COM) and then the
University of Guam.

There is need to look at the relevance of the COM curriculum. Do the students receive
relevant training? Some concern was expressed as to whether the courses and degrees
offered at the College of Micronesia cover all the educational needs of the country at
this time. Although difficult to achieve, it makes sense to ensure that the tertiary
education offered in a country with minimal resources be finely attuned to the social,
economic, political, scientific and ethnical needs of that country.

Civil Society
Freedom of expression

Freedom of expression is secure in the laws and practices of the Federation, but there
are limited outlets for expression, in terms of print media, radio, television, etc. The
Kaselehlie Press, which appears bi-monthly, has a small staff and readership. While
the existence of the newspaper is valued, some express concern at the accuracy and
balance of the reporting, which might be hard to determine or to check in the absence
of a self-governing media association. Some saw the venting of public feeling about
the “amnesty bill” as a turning point because it demonstrated an unprecedented level
of public interest. The President issued a statement welcoming this level of public
participation and calling for more of it.

NGOs

NGOs work principally in the health and education sectors. There is an FSM alliance
of NGOs, but the NGO community is divided into those NGOs that are cooperative

35
Gemma Q.Casas, “Chuuk Says Compact Not Enough, To Lay Off Teachers”, Marianas Variety,
June 30, 2003. viewed at http://www.fsmgov.org/press.html

21
with government and those that maintain a more critical stance. NGOs are not suited
to assist in some areas of basic governance capacity training, which is also needed. A
number of NGOs and individuals have responded to the lack of information about
current events in the FSM by establishing their own websites and discussion outlets.
The Pohnpei businessman Bermin Weilbacker runs a fee-based internet news service
focused on Pohnpei and FSM news. 36

A number of NGOs focus on the federations’ environment. On Kosrae, for example,

environmentalists are closely monitoring the government’s plan to put a road through
the Ka forest. On Pohnpei the Conservation Society of Pohnpei, established in 1998,
has worked on the FSM’s national bio-diversity action plan, which is mandated by the
convention on biodiversity.

An FSM division of the Red Cross commenced activities in 1998 and joined the
International Red Cross Federation in December 2003. Membership of the Federation
implies that the FSM government has ratified the Geneva conventions outlining
international humanitarian law. Although the Red Cross in FSM has programs in the
three core management areas, Disaster management, Health care, and First aid, AIDS
is regarded as one of the major social challenges requiring immediate response.

Challenges to Security
Border security

Patrolling the FSM’s extensive maritime boundaries is a considerable challenge.

While vessels may enter FSM waters for a number of reasons – whether valid or
otherwise – the most damaging forms of intrusion are illegal fishing and other
poaching activities; and the importation of damaging flora and fauna. The FSM
National Police has a total of 80 personnel of which 55 are assigned to the Maritime
Wing responsible for maritime surveillance and are directly involved in the daily
operations of the patrol boats and related fisheries enforcement activities. The FSM
National Police is the law enforcement arm of the national government with mandated
duties and responsibilities to enforce national crimes, control substances, provide
executive protection, assistance in disaster relief operations, etc.

Each of the four States of the Federation has its own police force responsible for the
enforcement of States laws with their respective jurisdiction. With the exception of
the State of Kosrae, the other three States all have municipal law enforcement entities
that are charged with enforcement of municipal ordinances. The municipal police also
provide assistance to State and National Police Force.

With most of the national police assigned to the Marine wing, there are few members
available for other police work. There is virtually no policing activity at municipal
level.

Officials reported that drugs are being smuggled into the FSM (only one instance),
and that there is a culture of drug use among certain parts of the population (only

36
http://www.fm/bnn

22
marijuana). It is reported that the number of psychiatric patients is increasing due to
drug use. Prostitution activities have also been reported, often involving women who
have been brought into the country illegally.

Criminal Activity

FSM’s Police do not have adequate training in international crime detection, and have
very little capacity to deal with business fraud and other forms of “white collar
crime”. With regard to petty crime, anecdotal evidence suggests that most is
perpetrated by foreigners rather than FSM citizens (although no data has been cited
for this report).

Terrorism

The FSM has aligned itself fully with the ‘war on terror’, and has citizens serving
with the US military in Iraq. 37 The government’s website states that with
approximately 1000 FSM citizens in the US armed services “the FSM had among the
highest per capita enlistment of any other allied nation that participated” in the Desert
Storm/Gulf War of 1991. 38

Although no specific threats to infrastructure have been recorded, it should be noted

that sabotage at fuel storage sites, fuel boats; power plants, seaports, bridges, and
airports, would be relatively easy, and would have a significant impact on the national
economy and society. None of these facilities have special anti-terrorism measures in
place, apart form the searching of persons and baggage entering and existing by air or
by sea.

Natural Disasters

The possibility of natural disaster is perhaps the most inevitable and unavoidable
threat to the well-being of the people. Whereas social instability and political
instability are threats that are always present, they are nonetheless subject to human
intervention and resolution. Natural disasters, on the other hand, are unstoppable.
The maximum response available to government is to ensure that the fullest measures
are taken to minimize the impact of a typhoon, tidal wave, drought, or other natural
phenomenon and to provide for rapid recovery. Even smaller events, such as strong
and high tides, can damage infrastructure such as wharves, jetties, and sea-walls.

Preparation for forceful natural events, and post-event recovery, should therefore be at
the forefront of any governance program. Disaster plans have been devised by each
state government, although more attention could be given to learning more about best
practice in natural hazard preparation and post-event recovery.

In recent years Chuuk and Yap have been devastated by cyclones. On Pohnpei the
Department of Public Safety has an “all-hazard plan”, which caters for continuity of
the government in times of emergency, but there is no “disaster recovery plan” as
37
“FSM Declares Support for Bush Stance on Iraq”, (FSMIS/PINA, Feb. 23, 2003, Pacific Islands
Report website.
38
“Micronesian Army Specialist Awarded the Bronze Star and Purple Heart For Meritorious Conduct
During the Iraq War”

23
such. There is need for future plans to examine appropriate architectural and
engineering specifications to ensure that post-disaster development of infrastructure
builds to adequate specifications.

Typhoons occur between June and December. In 2002 Chuuk experienced

approximately 30 landslides and suffered almost 50 deaths at the hands of typhoon
Chata‘an. 39 Yap was severely affected by typhoon Sudal in April 2004. Aid was
offered from the Pacific Forum’s Regional Disaster Relief Fund.

Recommendations

Within the time frame of this review exercise the consultants asked as many informed
persons as possible about the social, political, environmental, or other issues that
might be the cause of current or future instability in the Federated States of
Micronesia. On the basis of the information received, we offer the following
recommendations:

• There is need to broaden self-reliance at the same time that the Federation
enhances its capacity to benefit from external support.
• There is a need to study the impact of internal migration on the social,
political, and economic fabric of the nation.
• The federal government should respond to the concerns of the Faichuuk,
whether by allowing their entry to the Federation as a fifth state, or by
attending to their concerns about neglect.
• The possibilities should be explored for the establishment of health training
courses at the College of Micronesia.
• Independent inquiries should be held to examine how best to develop the
nation’s fishing and tourism industries.
• The “representation funds” made available for use by individual members of
the legislature should be reduced. While members may say that they need
such funds to meet the expectations of their constituents, continuation of these
practices opens opportunities for corruption through lack of oversight and
accountability of expenditure of public funds, and confuses the role of the
legislator who should be occupied with oversight of executive acts, rather than
petty-dispenser of them.
• An Office of an Independent Prosecutor should be established to enhance the
justice system’s capacity to uphold the rule of law. Since corruption in public
office is widely recognised as being a major cause of disillusion with public
officials, a concerted effort to punish or otherwise end abuses of power is
needed to prevent further undermining the legitimacy of the Constitution and
its offices.
• The Joint Committee on Compact Economic Negotiations is to be phased out
by June 30th and the method for continued monitoring of the Compact has not
been determined. There is therefore need for the Federation to determine how
this can take place most effectively.
• There is need for provision of technical training for immigration personnel in
profiling assessments, interview techniques, and passport fraud detection.
39
Major Disaster Declaration Signed For Federated States Of Micronesia”, Federal Emergency
Management Agency website: http://www.fema.gov/

24
 • The Departments of Public Safety in each state should participate fully in the
Regional Pacific Policing Initiative.
• There is need to identify particular sectors needing human resource
development that require graduates within the next five years: health and
education are obvious cases, but there is also a pressing need for financial
managers and controllers, accountants, auditors, and statisticians.
• There is need for particular attention to be given to the education of traditional
leaders as to the significance of the education of women and girls; and to the
importance of education in the health sector.

ENDNOTES
1
Thirty-Third Pacific Islands Forum, Suva, Fiji Islands, 15 - 17 August 2002, Forum
Communiqué:

1. Forum Leaders recalled their commitment in the 1992 Honiara Declaration on Law
Enforcement Cooperation, the 1997 Aitutaki Declaration and the Biketawa Declaration
adopted in 2000 to act collectively in response to security challenges including the
adverse effects of globalisation such as transnational crimes, and unlawful challenges to
national integrity and independence.
2. In this regard, Leaders recalled their commitment to good governance practices at all
levels as a key fundamental strategy for addressing some of the difficult and sensitive
issues underlying the causes of tension and conflict in the region.
3. Leaders expressed their concern about the recent heightened threat to global and
regional security following the events of September 11th 2001, in particular, those posed
by international terrorism and transnational crime.
4. Recognising the need for immediate and sustained regional action in response to the
current regional security environment, Forum Leaders affirmed the importance of the
Honiara Declaration, in particular, as providing a firm foundation for action to address
these new and heightened threats to security in the region.
5. Forum Leaders underlined their commitment to the importance of global efforts to
combat terrorism and to implement internationally agreed anti-terrorism measures, such
as the United Nations Security Council Resolution 1373 and the Financial Action Task
Force Special Recommendations, including associated reporting requirements.
6. The Forum Leaders reaffirmed that law enforcement cooperation, backed by a strong
common legislative base, should remain an important focus for the region and
welcomed progress which has been made in regional law enforcement cooperation
under the auspices of the relevant regional bodies.
7 Forum Leaders noted however, that, while some progress had been made in the
implementation of the Honiara Declaration, further urgent action was required of some
member states and recommitted to full implementation of relevant legislation under the
Honiara Declaration by the end of 2003.
8. Leaders underlined the importance to Members of introducing legislation and
developing national strategies to combat serious crime including money laundering,
drug trafficking, terrorism and terrorist financing, people smuggling, and people
trafficking in accordance with international requirements in these areas, taking into
account work undertaken by other bodies including the UN and the Commonwealth
Secretariat.
9. Forum Leaders tasked the Forum Regional Security Committee to review regional
implementation of UNSCR 1373, the FATF Special Recommendations and the Honiara
Declaration and report back to the Forum at next year's meeting on these subjects.

25
2
Implementation of the Honiara and Nasonini Declarations

16. Leaders noted the progress that was being made in the enactment of the
legislative priorities of the 1992 Honiara Declaration on Law Enforcement Cooperation
and urged Forum Island Countries to fully to enact the relevant legislation under the
Honiara Declaration by the end of 2003, in accordance with the Leaders’ commitment
under the 2002 Nasonini Declaration.
17. Leaders commended the work undertaken by the Expert Working Group to
Coordinate the Development of a Regional Framework Including Model Legislative
Provisions to Address Terrorism and Transnational Organised Crime, convened under
the Nasonini Declaration, and urged speedy passage of the legislation once it was
finalised and adapted.

Biketawa Declaration

18. Leaders noted the various activities the Secretariat had undertaken in
implementing the Biketawa Declaration which included monitoring regional political
and security developments, post-Forum consultation visits, national security studies and
national security workshops.
19. Leaders also noted the establishment of the Regional Security Fund to cover
the Secretariat’s costs in implementing the Biketawa Declaration and encouraged
donors to contribute to the Fund.

26
REPUBLIC OF PALAU
Security Study 2004
Pacific Institute of Advanced Studies in Development and Governance.
University of the South Pacific

Graham Hassall
30 April 2004

This paper provides the findings of a security assessment of the Republic of Palau. It relies
on interviews undertaken over 6 days in March-April 2004, as well as consideration of
supporting literature. A limited range of official documents was made available to the
researchers, and this was supplemented with secondary literature.

Prospects for political stability

Although some Pacific states have experienced civil war and unrest in recent times, security
is no longer to be viewed in the narrow sense of merely defending a state from external or
internal threats of a military nature. Rather, it is now realized that security is closely linked
with generating conditions that free people from fear and misery arising from various causes.
This is particularly the case for security assessments of Pacific states, where current threats to
stability are more often linked to domestic failures of governance and inabilities to meet
aspirations for development and economic advance. ‘Security assessments’ therefore
continue to be interested in external threats of a military, political, social, or economic nature,
but are equally interested in the capacity of states to implement effective, efficient and
equitable economic and political governance at all levels, and to handle conflicts as they arise
– or preferably, prevent the emergence of conflicts by forestalling the conditions in which
they arise.

Prospects for political stability in the Palau depend greatly on the extent to which the citizens
of the Republic perceive that it is able to meet their individual and collective needs. Political
stability is part of a larger concept of “comprehensive security”, which the Council on
Security Cooperation in the Asia Pacific defines in this way:

Comprehensive security posits that a security of person, community and

state is multifaceted and multidimensional in character. Ultimately security
encompasses the security of all the fundamental needs, core values and vital
interests of the individual and society in every field – economic, social,
political, cultural, environmental and military. Any significant threat to the
comprehensive well-being of man, society and state, whether emanating
from external sources or from within a state, is deemed a threat to security.” 1

1
CSCAP Memorandum No. 3.
1
Recent global conferences held under the auspices of the United Nations have articulated a
series of ‘common themes’ that currently constitute the challenges to human well-being on a
global scale - poverty eradication, gender mainstreaming, access to and transfer of knowledge
of technology, especially information and communication technology, fostering an enabling
environment for development, improving market access, creating employment, and human
resource development – which are all therefore important to any security assessment. 2

In adopting such a notion of comprehensive security, this report seeks to present an all-
encompassing impression of the security and stability situation in Palau at the current time. It
offers the following findings:

• Prospects for political stability in Palau require an expanded application of the

principles of good governance: good governance requires not only adherence to
the highest ethical principles by those entrusted with public power; it also
requires the strengthening of bonds of trust and communication between the
government, civil society, and the private sector.
• The security challenges facing Palau range from protection of the environment,
through to stabilizing the nation’s economy, social fabric, and political order.
• Environmental threats range from those over which the nation has little direct
control, such as the impact of global warming or a catastrophic natural event; to
those which depend on policy options taken in relation to natural resource
exploitation (oil, gas, fishing).
• Some of the major environmental concerns are inadequate facilities for disposal
of solid waste; and threats to the marine ecosystem from sand and coral
dredging, illegal fishing practices, and over-fishing.
• More likely sources of insecurity are political, social, or economic, and may
emerge from domestic politics, or from Palau’s identification with the US-led
“coalition of the willing” against some terrorist networks and movements. The
relationship with the United States will come under closer examination when
Palau’s Compact of Free Association comes due for re-negotiation.

Pacific regional security initiatives

Security analysis in Palau takes place within the context of recent security policy initiatives
by the Pacific Forum. At its 33rd meeting in Suva in 2002, the Pacific Forum outlined the
features of its regional security plan in its Nasonini Declaration. a A year later, consequent to
its 2003 meeting, the Forum’s Communiqué included a section on “Regional Security and
Governance”. b

2
United Nations. Open-ended ad hoc working group of the general assembly on the integrated and
coordinated implementation of and follow-up to the outcomes of the major united nations conferences
and summits in the economic and social fields, 2002.
(http://www.un.org/esa/coordination/ecosoc/wgga/Non-paper%201%20-%20common%20themes.pdf)
2
People and Environment

Palau constitutes the westernmost archipelago in the Caroline chain. The nation consists of
six island groups totaling more than 300 islands, including nine inhabited, with a landmass of
458 sq km (of which approx 22% is arable land). Population in 2003 was estimated at
19,717. After three decades as part of the UN Trust Territory of the Pacific under US
administration, these islands opted for independence in 1978 rather than join the Federated
States of Micronesia. A Compact of Free Association with the US was approved in 1986, but
not ratified until 1993. It entered into force on 1st October 1994, when the islands gained
independence. The Republic comprises 16 states. 3

Palau’s 1990 census indicated the total population comprised 81.5% Palauan citizens and
18.5% alien workers, dominated by Filipino workers. 4 At local level some tensions exist
between Palauans and Filipinos on the basis of differing cultural practices and language.
There is also a small Muslim community in Palau, comprising Filipinos and others from
South Asia, notably Bangladesh. The Chinese constitute another minority group of
immigrants. The Palauan population itself has mixed ancestry, with a notable Japanese
influence.

Expatriate U.S. citizens, given the positions they hold in the Palauan administration (and at
times in the judicial system), exert an influence on Palauan affairs disproportionate to their
numbers.

Palauan society is currently experiencing rapid social change. Its younger generation is not
interested in living a subsistence lifestyle and is rapidly migrating to the urban areas in search
of jobs or to complete their education. Some are leaving Palau entirely. Villages are
increasingly populated by the very old and the very young. Some socio-economic surveys
have shown that it is increasingly difficult for villagers to cover the costs of basic services
such as telephone, water, and television, by selling cash crops. The tendency of Palauans to
shy away from menial jobs has exacerbated their economic condition, and they may have to
adjust to the reality of their situation, in which they simply cannot afford to have non-
Palauans entering the country in large numbers to do menial tasks for them.

Although drugs constitute a small problem in Palau – small quantities of “ice” are being
imported, most probably from the Philippines – alcohol is a larger social problem.

The extended family often absorbs the welfare role assumed by the state in other countries.
Palauans may face pressure from customary obligations to spend their money on relatives. In
Palauan custom, for instance, one can build a house and require sisters and other female
members of the family to pay for it. The relatives may have to take out a bank loan to do so.

3
Aimeliik, Airai, Angaur, Hatobohei, Kayangel, Koror, Melekeok, Ngaraard, Ngarchelong,
Ngardmau, Ngatpang, Ngchesar, Ngeremlengui, Ngiwal, Peleliu, Sonsoral.
4
UN/HRI/CORE/1/Add.107, 10 January 2000, “Core Document Forming Part of the Reports of
States Parties Palau” [21 October 1998] (Office of the United Nations High Commissioner for Human
Rights)

3
A number of informants expressed concern at the increasing gap between rich and poor in
Palau. Palauans have come to expect a high standard of living, and imports of consumer
items are increasing. Palau is also increasing its dependency on oil imports. Exports are not
keeping pace with imports and this places upward pressure on domestic prices and increases
the need for foreign aid.

Council of Chiefs

Chiefly authority remains strong in Palauan society, although there are different views
concerning the direction this authority is headed. On one view, Chiefs provide stability to a
society undergoing rapid modernisation, and will continue to be a presence in guiding public
affairs. This view is countered by the view that sees chiefly authority declining in the face of
modernisation and ‘progress’: moreover, whatever influence Chiefs retain is mostly due to
politeness from a society that is shifting toward greater democracy and less hierarchy.

Palau’s traditional chiefly authority is recognised by a Council, which has one representative
for each of the nation’s 16 states, and which has constitutional power to consult the President.
Although it is a matriarchal society and women appoint the chiefs, there are no women on the
Council of Chiefs. It is possible for a woman to represent a chief if no other appropriate
person is available. The Council of Chiefs is set in a court-like arrangement, with the two
highest chiefs - Ibedul (from Koror) and Reklai (from Malekeok) - at the head.

The status of the Council of Chiefs is somewhat idiosyncratic: while the chiefs receive a
small salary from their state government, and the Council receives an allocation in the
President’s annual budget,5 the Council’s meetings are generally confidential. In practice,
the Council meets as often as it pleases, to consult on matters of concern to it, 6 but they
consult more widely than this. Sometimes government officials attend to explain policies on
any subject, from invasive weeds to clarification of state boundaries to the impact of the
“compact road” currently under construction. Other topics consulted on in recent times
include the preparation of traditional war canoes for the forthcoming festival of arts, the
environment, water, crime, youth, social issues, and health issues. The Council of Chiefs
holds views on constitutional change and favour the convening of a constitutional
convention. It is concerned about corruption in public life and supports the activities of the
office of the Special Prosecutor.

In practice, the authority of the chiefs is respected in ways beyond those called for in the
constitution. Government departments, for instance, may seek permission from a chief
before undertaking a major investment in his region. The Council of Chiefs is currently
writing its rules of procedure.

5
There was no allocation in 2004 due to budgetary constraints.
6
At the time this report was being written the Council of Chiefs was meeting weekly to discuss
matters relating to an arts festival that Palau was about to host.
4
Constitutional Structure and Operation
At the time Palau was part of the United States Trust Territory and therefore participated in
the 1975 Constitutional Convention of Micronesia. When, however, the territory found that
the Northern Marianas were already in negotiations with the US for separate status it decided
to do the same, and eventually came to independence separate from both the Commonwealth
of the Northern Mariana Islands and the Federated States of Micronesia. Given the
subsequent experiences in the region, there are few public figures who regret this decision.
The current constitution was crafted at a 1979 constitutional convention.

Since the constitutional structure is still relatively new, it is not necessarily understood by
people at grass roots level, and this lack of knowledge may leave village communities
vulnerable to the interests of more educated political and business interests.

Palau’s bicameral Parliament or Olbiil Era Kelulau (OEK) consists of the Senate (9 seats;
members elected by popular vote on a population basis to serve four-year terms) and the
House of Delegates (16 seats; members elected by popular vote to serve four-year terms).
Elections were last held on 7 November 2000, with the next election scheduled for November
2004.

In 1999 the OEK expressed a desire to alter the constitution so as to provide for a single
legislature rather than the existing bicameral arrangement, in an effort to reduce the costs of
government, but this change was not made.

Although there has been little public discussion about the costs and benefits of maintaining
16 state governments, the ability of the Republic to maintain so many governments must be
open to question. Politically, the states are seen as integral to the fabric of the nation. In
terms of efficient government, however, they may not be sustainable. Some of the smaller
states sustain a governor (although all governors are reportedly living in the capital, Koror)
and a legislature, representing populations as small as 400. Given their size and capacity the
states might more appropriately be regarded as municipalities.

The government is currently constructing new buildings at Melekeok to house the principle
branches of government – the legislature, executive, and judiciary, in a project that borrows
heavily from Palau’s American constitutional influences.

There are no formally constituted political parties. The president and vice president are
elected on separate tickets by popular vote for four-year terms. Elections were last held on 7
November 2000 (the next election is to be held in November 2004). There are rivalries within
the OEK and between the Congress and the office of the President that are having the effect
of delaying passage of crucial legislation.

International Context

Palau signed the Compact of Free Association with the United States on January 10, 1986,
but the agreement did not come into effect until 1994. In numerous separate referenda or
plebiscites, the voters of Palau cast ballots on the implementation of the Compact of Free
Association with the United States. After six unsuccessful attempts to meet the three-quarters
5
majority vote required for approving the Compact, a proposed amendment to the Constitution
of Palau was offered to the voters under Article XIV, Section 2, of the Constitution. The
amendment, which would lower the nuclear ban waiver requirement to a simple majority,
was approved at Palau's regular general election in November 1992 by more than a simple
majority of the votes cast on the amendment and in more than three-quarters of Palau's
sixteen states. On November 9, 1993, in the eighth plebiscite on the Compact (held pursuant
to Palau Public Law No. 4-9), sixty-eight percent of those voting approved the Compact.

The end of the “cold war” has had significant repercussions for the way the US interacts with
its Micronesian client states. Whereas under “cold war” conditions the US paid large sums of
money in order to ensure ‘strategic denial’ of the North Pacific to other significant regional
powers, post-war conditions have reduced this imperative. At the same time, the US has
become more interested in how its money is being used, and has sought to reduce its total
financial contributions.

The Compact of Free Association provides Palau with up to $700 million in US aid over 15
years in return for furnishing military facilities. The Compact grants the US military access
to the islands for 50 years.

Although Palau’s Compact agreement re-negotiation is not due until 2009, the outcome of the
ongoing FSM - US negotiations could affect Palau.

Palau is currently taking considerable assistance from Taiwan and Japan. Japanese aid to
Palau is targeted at both the economy and infrastructure and at Palauan society. While this
assistance is greatly valued, there must be concern about too much reliance on these partners
in the longer term, particularly in relation to uncertainties about Taiwan’s future relations
with the Peoples’ Republic of China. Palau does not have diplomatic relations with
Indonesia, a close neighbour. The Japanese aid agency (JICA) has recently completed a
comprehensive development assessment as an assistance to the Palauan government.

The fragile nature of Palau’s economy can be demonstrated by two events of the last decade.
In 1996 the bridge joining Koror and Babeldoab collapsed, resulting in several fatalities and
adversely affecting tourism, as well as the provision of such basic services as water supply
and electricity. More recently, the SARS epidemic had a significant impact on Palau’s
economy, halting tourist arrivals for several months and interfering with various other forms
of social and economic exchange with Asia.

Palau has nominated its first Ambassador to the United Nations, Stewart Beck, an American
lawyer, who helped Palau draft its constitution and worked on the Compact arrangements. He
is an honorary citizen of Palau. Having an office in New York will assist Palau gain access to
UN committees and NGOs at the UN, and may open access to UN funding.

Legislative Capacity

Palau’s Congress holds four regular sessions per year, in accordance with a law requiring
meetings every second week of each quarter. A regular session comprises 25 calendar days,
and this can be supplemented with special sessions according to need. The Congress has

6
recently been reorganised from 13 to 7 committees. There are plans for Congress to have a
website on-line by the end of 2004.

Executive Capacity

Under Palau’s constitution, executive power is exercised by a popularly elected president.

While this model has allowed for energetic executive government since independence, at
times there have been strained relations between the executive and the legislative branches of
government. In a state where the pristine condition of the environment, and the tourist
industry, are such important factors in the economy, it is curious that there are no ministries
for either of these interests.

Judicial Capacity

Palau has a stable judicial system, 7comprising superior, national and inferior courts
(including a Land Court and a Court of Common Pleas). Whereas the Supreme Court has not
handled many cases of constitutional interpretation, the courts at all levels have heard many
cases pertaining to issues of land ownership and use. Where applicable, the inferior courts
and the Land Court use meditation to settle disputes. 8 The legislature is currently considering
a bill that would require all judges to be Palauan and for judicial proceedings to take place in
Palauan. This bill evidentially derives from concern about the ability of non-Palauans to
properly interpret relations between modern law and Palauan custom.

The Rule of Law

The state has barely sufficient legal resources to monitor its legal obligations and cope with
demands for legal processes. In early 2004 the Attorney-General was supervising several
hundred concurrent prosecutions, with a staff of eight handling 500 active cases. The office
also has responsibility for drafting legislation for Palauan accession to international treaty
obligations; for advising the President on proposed legislation; and for signing every
government contract (at the current time this included signing 200 easements related to the
Compact road under construction on Babeldoab).

The Justice Ministry has a wide range of responsibilities, including Corrections, Immigration,
Attorney General, criminal investigation and drug enforcement, and Public Safety.

The Department of Public safety is responsible for fire and rescue operations, and the
Director of Public Safety is a member of the National Emergency Management Office.
Justice ministry personnel require capacity training in a number of areas, including
conducting investigations, and counter-terrorism training.

Some informants expressed concern at the politicisation of the civil service. Whereas
government departments should provide the “institutional memory” for the state, they are
often subject to political pressure to respond to short term political interests rather than to

7
The country has experienced periods of instability in both its political and judicial systems: see
Michael Kirby’s report on the breakdown of the rule of law in Palau commissioned by the
International Commission of Jurists.
8
The Land Court has eleven mediators, who have received basic mediation training.
7
more long term development issues. There is also the potential for officials to use
nominations to public sector positions as a system of patronage.

In a small political community in which Presidential authority is extensive, there is a concern

that matters of justice may be sacrificed to expediency. Law enforcement agencies, for
instance, may concentrate on criminal cases rather than others that might have political
implications. Similarly, there is concern at the potential for a number of constitutional
offices, such as the auditor and the electoral commission, to come under the influence of the
Office of the President. Currently the Election Commission’s five-member board is
appointed by the President and its budget is submitted to the OEK and the President for
approval.

In 2004 Palau will conduct a presidential election and a general election in November. In
preparing for these elections, the major challenges facing the Election Commission are the
handling of absentee applicants, screening of candidates, and preparation of the ballots.
Following the last national election, in 2000, there were recall exercises against two senators,
and in 2003 there was a special election to fill the seat of Senator Chin, whose eligibility to
sit in the Senate was contested by that body.

Accountability

There are several aspects to measuring the accountability practices of those in positions of
public responsibility. Some of these may be regarded as routine measures, such as the tabling
of annual reports, while others are measures used at time of specific need. During fieldwork
for this report, a number of agencies indicated that they do not file an annual report.
Regardless of whether or not these agencies are required to report in this manner, the failure
of government to routinize reporting procedures has a number of repercussions. Firstly, these
agencies are not being called to account for the effectiveness of their activities over the
reporting period. Secondly, the legislature is not able to measure the government’s
performance in these areas. Thirdly, failure to report removes the possibility of institutional
learning from the successes and failures experienced.

Some informants expressed concern at the extent of corruption in public office in Palau, and
the degree of pressure that “resource gate-keepers” experience from family members.
Around 33% of all adults are employed by government and, as most Palauans are related in
some way, there are many social and kin obligations intersecting with public responsibilities.
The close family relationships within this small society is one contributing factor to not
having trial by jury.

Concerns about accountability have also emerged from the close relations between business
and politics. In a way, this nexus is understandable, since the first OEKs comprised business
leaders who became politicians. By the 6th OEK the situation had reversed and members were
entering politics and then entering business. This business-politics nexus may have peaked in
the 5th and 6th OEK, and there is now a move toward greater accountability.

Perhaps in recognition of the need for particularly independent powers in a micro-state, the
office of an independent prosecutor was established as a Compact requirement. The
Compact further required the state to fund the office for at least the first five years.

8
While the Special Prosecutor has taken a number of public officials to trial, the number of
prosecutions proceeded with is determined by the Office’s resource limitations. In some
cases public officials are able to avoid prosecution in return for admission of wrong-doing
and (in cases of misappropriation or other financial misdemeanours) financial settlement. A
comprehensive criminal code has been drafted but has remained for some time with the
legislature.

At the last general election some incumbents who had been exposed for unethical or illegal
practices were voted out of office, possibly as a result of adverse publicity. Numerous
leaders were pursued by the Special Prosecutor in 2003. The Governor of Ngardmau, for
instance, Albert Ngarmekur, was impeached on 16 counts of misconduct, 14 counts of
forgery, nine counts of cheating, seven counts of grand larceny and five counts of
embezzlement.

In late January 2004 the Special Prosecutor dropped civil and criminal charges against the
Speaker of the House of Delegates, Mario Gulibert, and Delegate William Ngiraikelau and
settled claims against ten other Delegates who had received letters from the Office of the
Special Prosecutor regarding the use of government funds for overseas travel expenses.
Under the settlement agreement the Delegates must repay a total of $154,599.16, plus
penalties, to the government.

The Financial Institutions Commission was established in 2001 to oversee all financial
institutions, such as banks and trust companies. It regulates existing banks and licenses new
banks. Appointments to the Commission’s board are recommended by the Chamber of
Commerce and selected by the President. Terms of commissioners are staggered to ensure
continuity. The Commission is scheduled to fully implement its oversight of financial
institutions by the end of 2005. A number of acts are currently under amendment, including
the Proceeds of Crime Act, and the President is understood to be giving high priority to
financial reform.

Foreign Investment

While Palau is seeking to increase foreign investment the institutions established to achieve
this lack the resources to pursue this goal vigorously. A foreign investment board was
established in 1980. Its members, who are appointed by the president, with the consent of the
OEK, are tasked with promoting foreign investment, vetting applications, and ensuring
protection of Palauan interests in the ownership of businesses. The Board reports annually to
the President. 12 applications were received in 2003, from investors in Japan, Taiwan,
Malaysia, and South Korea.

While Palau’s foreign investment laws seek to reserve particular businesses for Palauans,
there has not been much discussion concerning the economic costs and benefits of this
measure or of the appropriateness of the list. The World Bank Group’s Foreign Investment
Advisory Service Asia Pacific Regional Office (APRO) in Sydney has made
recommendations to the Foreign Investment Board (FIB) on current rules and regulations
relating to investment in Palau, and is known to be recommending increased transparency in
its decision-making processes. A Diagnostic Review was completed by APRO in 1999 and

9
comments were made on draft foreign investment legislation. However, the 2000 elections
caused the reforms to be placed on hold. APRO provided comments on further drafts of
foreign investment legislation in 2001, 2002 and 2003. However, the Congress had not
passed any of the foreign investment legislation presented.

Investment promotion is currently minimal. The Palauan Visitors Authority does some
promotion, but the FIB itself has no other promotional tool than its website. Nor does the
Board have the resources to complete background checks on applicants. In the face of such
institutional weaknesses, the proliferation of “front-businesses” in Palau is causing concern.
A “front-business” is one in which a foreign business partner operates a business that has
been established with a Palauan “silent partner” who took part in the application (which
required at least 50% Palauan ownership) but who takes no active role in the business. The
legal system appears too weak at present to identify and deter such businesses practices. It
may also be the case that existing laws provide insufficient penalties to deter such practices.
The fact that many business partners in Palau are also politically active may contribute to the
continued presence of silent partnerships.

Infrastructural and Economic Development

For the foreseeable future Palau’s economic progress is highly dependent on the economic
well-being of the economy of three partners: the United States, the Republic of China, and
Japan. Any significant down-turns in these economies will have a direct impact on Palau. In
a loose way, Palau’s government follows a national master development plan launched in
1998 and designed to provide a development framework for a period of 20 years. The Plan
presents the following facts and findings:

The Palauan economy, like other Pacific island economies, are constrained by factors such
as:

• a small domestic market which is exacerbated by the geographical dispersion of

islands within countries;
• high unit costs for infrastructure and industry services;
• narrow resource bases;
• heavy dependence on external trade and foreign assistance;
• adverse terms of trade (that is, the price of exports relative to the price of
imports); and
• vulnerability to external shocks and natural disasters.

There is also an Economic Development Plan, which focuses on infrastructure development,

funding, and timelines. First adopted as a requirement for the Compact, this plan has been
amended considerably by the OEK.

The economy consists primarily of tourism, subsistence agriculture and fishing. The
government is the major employer, and relies heavily on financial assistance from the US.
Business and tourist arrivals numbered 50,000 in 2000/01 and approximately 70,000 per year
in 2003/04. The population enjoys a per capita income twice that of the Philippines and much
of Micronesia. Long-run prospects for the key tourist sector have been greatly bolstered by

10
the expansion of air travel in the Pacific, the rising prosperity of leading East Asian countries,
and the willingness of foreigners to finance infrastructure development.

The Palau Chamber of Commerce is in dialogue with government over matters related to
development of the private sector. Since a several politicians are also successful in business,
the Chamber has worked hard to ensure its non-political status. The government has always
been open to discussion with the business community, and issues currently under discussion
include the foreign investment policy, labour laws (as the current law is a carry over from
Trust territory), tax policies (some elements have been acted on but not all), and the
Economic Development Plan.

There are some anomalies in current labour laws, which while intended to protect and favour
Palauan interests, do the opposite. The requirement, for instance, that Palauans must be paid
a minimum wage ($2.50 per hour), while intended to ensure a minimum wage, is undercut by
the lack of a similar clause on wages for foreign workers (allowing foreign workers to be
employed more cheaply). Such laws have encouraged Palauans to employ foreign workers
on farms, and in fishing outside the reefs.

While there is wide-spread concern about ‘front-businesses’, there is no law defining what
this means. Front businesses have caused several types of problems. In some cases the
foreign partner has left, leaving the company’s debts for the Palauan partner to pay. In other
cases local partners have commandeered the business’s assets.

Japanese assistance has recently included construction of the international airport (opened in
2003), the Coral Reef Centre, the Friendship bridge, and the jetty in Kayangel. Forthcoming
infrastructure projects made possible by Japanese assistance include resurfacing of three
causeways, a solid waste management project, a water sanitation project, and a sewerage
treatment project. In 2000 the Japan International Cooperation Agency delivered to the
Government of Palau a comprehensive “Study for Promotion of Economic Development in
the Republic of Palau”.

The “Compact Road” project is scheduled for completion in 2005. The US$149M project,
intended to foster economic development in Palau, is by far the largest civil works project
undertaken in Palau and Micronesia. The road features include 53 miles of 24-foot wide AC
pavement; two causeways totaling 1.6 miles in length and 12 circulation culverts; 7 bridges
with a total length of 240 feet; and almost 400 other drainage structures, including 20 box
culverts. The construction contract was awarded in 1999.

The President has commissioned several tourism master plans. Although relevant government
agencies and NGOs were brought together by executive order to review and update these
plans, so that a national tourism unit could be formed, this agency is yet to be established and
the activity was not included in the 2003-4 national budget. Approximately 20,000 Japanese
tourists come to Palau annually. Most are divers, and since language is important in dive
safety, there is a need for Japanese dive guides. There are also approximately 20,000
Taiwanese tourists per year, who access direct flights from Taipei.

During the period of Japanese rule, a system for land registration was established, and
approximately 18,000 lots of land documented. In more recent times, 8000 of these have

11
been clarified by the current Land Court. Since February 2003 the filing of claims and the
monumenting process was transferred from the Land Court to the Bureau of Lands and
Survey (BLS). The nature of land disputes has changed in the past five years. With an older
generation dying out, there are many children and grand-children making competing claims
to land titles. Although the new law requires the BLS to register all Palauan land in one year
it has not been able to achieve this.

Health

In disaggregated terms, Palau’s health indicators are positive. The immunisation rate is 95% -
one of the highest in the world. Infant mortality rates are reasonably good. Some of the
major health threats are from non-communicable diseases, particularly diabetes and
hypertension, and cardiovascular diseases. In recent years there have been incidences of
dengue fever.

Access to primary health care has dramatically improved over the last decade. But health
care is not evenly distributed among the population, as less than 1% of the population is
currently getting 20% of the care (much of this may relate to off-island tertiary care and
chemo-dialysis). This is also due to the fact that 70% of the population resides on Koror, and
has 24-hour access to primary health care at a hospital staffed 24/7 by two physicians. The
south-west island, a day away by patrol boat, has a fully equipped dispensary.

Following the events of 9/11 Palau received US funds to improve hospital preparedness
against bio-terrorism (through the Centers for Disease Control), which amounted to a major
infusion for medical services training and acquisition of equipment.

The Health budget is USD $6 million, and through the Compact a further USD $5 million is
acquired from US federal funds, giving a total of approximately USD $11 million per annum.

Despite this access to US funds, the major problem facing the health care system is the
volatile cash flow from government,

A second challenge to the health care system is the availability of qualified staff. Here the
issue is related to the challenges of education. At the current time there are 65 staff employed
in Palau’s allied health system – only four of whom are Palaun (and these four are reported as
currently working well above their training levels and in need of further training). Palauan
students at the Fiji School of Medicine do not have a good success rate. Most fail the
foundation sciences course, thus preventing their further study in Fiji, and indicating a
problem with science education within Palau.

Retention of nurses is another problem, as the country’s best nurses are being attracted to
Guam and to Saipan by higher salaries. The health care system is also lacking professionals
in physical therapy and mental health – there is a high rate of schizophrenia, which is going
untreated. At the same time there are innovations and initiatives in health planning and
health sector cooperation. A Pacific Emergency Health Initiative that commenced in 1999 is
undertaking assessments in many countries below the equator. In 2003 Palau joined SOPAC.

12
Food Security

About 90% of Palauan food is imported, with much agricultural produce coming from
Taiwan. Local production of chickens, eggs, and rice cannot compete with imports.
Production of some Palauan fruits has been damaged by two species of fruit fly that arrived
from the Philippines in about 1995. A fruit fly eradication plan has been devised but lacks
funds to enable its implementation. Betel nut can be exported to Guam but not to FSM.
Hawaii will accept betel nut if it is peeled. Palau’s small squad of quarantine offices (eight
officers, four working by day and four by night) is maintaining constant surveillance of goods
entering the country by air, sea, or post, in an effort to prevent further entry of unwanted
insects or other foreign species. There are agricultural grants available, but the criteria are
too stringent. In particular, the grace period is too short – farmers need more time to grow
their first crops.

Natural Resources

The Republic has a 600,000 sq km of Economic Exclusive Zone, which is rich in fish and
other natural resources, although the boundaries of the EEZ have not been agreed with
Indonesia, the Philippines, or the FSM. There is a well-developed barrier reef system,
approximately 70 miles long and up to 20 miles wide, which surrounds the majority of the
islands, forming a lagoon. Under the Niue subsidiary agreement Palau cooperates with other
Micronesian states in the management of fisheries. Efforts are being made to ensure the
sustainability of stocks in coastal areas, which have traditionally been exploited by the
Palauan people.

Signs of oil and gas have been found in Palau’s Velsaco Reef and the current administration
has to determine the pace at which these resources will be explored and exploited. World
Bank representatives visited Palau in 2003 to discuss future exploitation of these resources
with members of OEK and the President. It is understood that the President is taking a
cautious approach to development. He has a pro-conservation approach in favour of the
environment and the tourist industry, particularly the diving industry, and the present
administration will not rush into oil and gas exploration. This is not to say that an alternative
government would maintain this conservative approach, and there will inevitably be pressure
within the political community to exploit this resource.

Environmental Quality Protection Board

Palau has a pristine but fragile eco-system, and maintaining its qualities is critical to the
nation’s future. Environmental security is entrusted to the Environmental Quality Protection
Board, established by public act 1-58, the Environmental Quality Protection Act 1981. The
act provides for a seven-member board appointed by the president, which makes policy for
such areas as Earth moving, Marine and fresh water qualities, Sewerage, Public water supply
systems, Pesticides, Air quality, Solid waste management, and Environmental impact
assessment

Mechanisms open to the board for enforcement of standards rely on financial penalties,
obligations to undertake community service, and the administration of an environmental fund
of deposited fines. Given the known significance of protecting Palau’s natural heritage, it is

13
surprising to learn that there is no comprehensive land-use plan, nor zoning (the Ministry of
Resources and Development has called for bids to develop a land-zoning plan). At Malakal,
for instance, one may find a hotel next to a house, which is next to a quarry.

Thus the Environmental Quality Protection Board (EQPB) is something of a ‘last line of
defence’ against ill-judged commercial project proposals but it is operating with limited
resources and limited knowledge. For example, it must judge the worth of proposals to
dredge and remove mangroves but the full impact of mangrove removal on birds and other
fauna is not fully understood. Like other administrative bodies in Palau, the EQPB has
difficulty operating with full independence. Funds for its operation are appropriated by the
national congress, and since the congress is “pro-business”, with many MPs having active
business partnerships, the Board can experience some conflicts of interest when its decisions
involve business people who are MPs. There is need is to find a way to create distance
between people who make decisions and those who are awaiting the decisions. At the current
time, if EQPB officers do not make decisions favourable to a client, the client may turn to the
chair of the Board to seek its overthrow. In terms of knowledge management, the EQPB has
important gaps in its data collection, and it is considering how best to bring its knowledge of
environmental assessments into a consolidated database.

The Special Prosecutor has also become involved in environmental protection, using his
powers to block proposed projects that appeared to pose considerable threat to the
environment: in one case a poorly planned scrap metal processing plant and in another, a
garment factory.

At the international level, Palau is a beneficiary of resources distributed under such multi-
lateral agreements as the Convention on biological diversity for capacity building. However,
Palau does not have sufficient human resources to meet the requirements of its Multi-lateral
Agreement obligations. The Board has some contact with US agencies, such as the US
Environmental Protection Agency.

Environmental protection measures differ between coastal and deep-sea areas. Sewerage was
a problem in coastal regions close to the capital, but this has been addressed with the current
project. Illegal fishing by Indonesian and the Philippines fishing vessels is thought to be
depleting fish stocks at an unknown rate. The Bureau of Marine Resources in the Ministry of
Resources and Development is working toward a Memorandum of Understanding with the
Philippines government on how to handle illegal fishing by Filipino vessels in Palauan
waters.

Civil Society
Both houses of Palau’s National Congress have approved legislation allowing gambling on
the island of Angaur. The House of Delegates bill passed on a vote of four to three with four
abstentions and five absent. It also allows gambling by Palauans who had been excluded in
earlier versions of the legislation in deference to Palau’s constitution that prohibits gambling.
There has been strong resistance to this legislation from religious groups.

The presence of an active branch of the Red Cross in Palau boosts the nation’s ability to cope
with emergencies and disasters significantly. At the very least, the Red Cross assists with
14
training in basic emergency care. In recent years it has mobilised assistance following
typhoons in Guam, Pohnpei, and Chuuk. Within Palau it attended at the time of the bridge
collapse, and following the outbreak of Dengue fever. It has undertaken a disaster
preparedness exercise at the international airport.

Despite its humanitarian contributions to the nation, however, the Red Cross has a difficult
relationship with the Congress. Although the government funded the organization for its first
three years in Palau, it has stopped this support, arguing that as an NGO the Red Cross should
find its own financial support. This is a perspective that differs from the Red Cross’s view of
itself as an auxiliary to the government, rather than an NGO, and as an organisation that only
exists in the country through the recognition by the government of the International Red
Cross and the set of international humanitarian laws within which it operates.

Challenges to Security
Border Security and Terrorism

Although security has become a major concern in the Pacific in recent years, there was a
general feeling in the public sector, as expressed in interviews, that the OEK had not moved
quickly to address the nation’s security interests. Palau has entered into a subsidiary
agreement to the Niue Treaty, which provides for law enforcement cooperation between the
Republic of Palau, Republic of the Marshall Islands and Federated States of Micronesia. In
October 2001 President Remengessau Jr. established a Task Force on Anti-Terrorism and
Homeland Security (Executive Order No. 202). The Task Force issued its first report in
March 2002.

In December 2003 Minister of Justice Michael J. Rosenthal prepared a note on Counter

Terrorism Recommendations for the Republic. The minister noted:

• Palau has supported the war on terrorism and is one of the 56 member “coalition
of the willing”;
• Palau is less than four-hundred miles from the Philippines and Indonesia, two
countries that have experienced significant terrorist activity;
• Palau is close in proximity, and has daily flights, to Guam. It is thus a potential
gateway to the United States and numerous attempts have been made to smuggle
persons through Palau to Guam;
• Palau is lacking in sophisticated equipment, has only a limited ability to conduct
investigations, and is insufficiently prepared for acts of mass destruction;
• Sharing of information regarding potential terrorists and transnational crime is
limited and not timely.
• In presidential determination 2002-9 of March 12 2002, President Bush
authorised the ‘furnishing of defence articles and services’ to the governments

15
 of Palau, Kiribati and Tuvalu, which would ‘strengthen the security of the
United States and promote world peace’. 9
• The ability of foreigners to act is mitigated by Palau’s small population, unique
language, and strict immigration and labor laws – all of which make suspicious
activities by foreigners evident to the local community.
• Possession of firearms/ammunition is illegal in Palau, except for law
enforcement officers.

Palau operates the patrol boat PSS Remelik which was donated by Australia in 1996 as one of
22 boats contributed to 12 nations across the Pacific. The boat assists Palau monitor its 200
kilometre exclusive economic zone. Whereas Australia funds training, and funds its own
advisors, the government of Palau operates the program. At the current time there is need to
tighten up the program by providing more specific guidance in the form of marine law
enforcement standing orders. In terms of policing economic exploitation of marine resources,
the patrol boat enforces fish and wildlife legislation in open waters that are policed inside the
reef by another government agency. But there could be greater clarity of purpose in regard
to policing of drug trafficking, poaching, and entry by illegal immigrants. There is little
consultation with the fisheries licensing authority (the maritime authority), or with the US
navy. The Palauan government could more fully explore the benefits of the US Lacey Act.

At present patrols lack aerial surveillance capacity and are sailing “blind” in their search for
illegal activity. There is need to explore the possibility of getting information from US
satellites based in Guam. The Transport Security Authority (TSA) is required to provide a
threat assessment, and there are standards set by the International Civil Aviation Organization
(ICAO). While some of the essential elements of threat assessment administration are in
place in Palau, there is need for stronger coordination between national agencies. There are
four ministries and an independent agent involved in border administration.

There is no secure line between security authorities and the national police, or Office of the
President. Transport officials feel that if adequate infrastructure was established by the
Palauan government, the TSA would be able to share more information in a more useful way.

Immigration officials must monitor arrivals at the International Airport, and at the privatised
seaport. The Department of Immigration, in discharging its responsibility to check on the
validity of visitors to Palau, has not reported a large number of incidents, although officials
have noted “suspicious” visits by a group of Russian citizens, and another visit by visitors of
“middle eastern” appearance. By “suspicious” is meant visits that did not appear to be for the
purposes of tourism, business, or other recognisable activity.

The Customs Department is working closely with Australian customs authorities and is part
of the computerised information network run by the Oceania Customs Organization (OCO).
But there are some operational weaknesses in the alibility of custom’s officials to conduct
their work. For instance, whereas the USA has imposed reporting requirements on airlines
and other means of transport, small states such as Palau do not have similar authority to do
this. If it places on transport companies compliance requirements that they feel are too
9
Presidential Determination No. 2002-09 of March 12, 2002, “Eligibility of Palau, Kiribati, and
Tuvalu to Receive Defense Articles and Services Under the Foreign Assistance Act and the Arms
Export Control Act”.
16
onerous – such as requirements relating to the quality of a manifest – such companies
may simply pull out of servicing.

Although there is an “open skies” policy under the Compact, Continental Airlines is
the predominant carrier. In fact, Continental takes a large part in airport operations,
handling its own security screening and ground-handling under a year-to-year
agreement.

There is currently an effort to establish a regional airline. Palau Micronesian Air is

scheduled to start in May 2004. Two attempts have been made previously to establish
a second carrier in the region, without success.

There is no doubt that Continental will respond to any effort by another carrier to
establish itself in the Micronesian market. On at least one previous occasion the
airline invited leaders from the region to a summit to ask what it was doing wrong.

Palau’s airport receives direct flights from the Philippines and Taiwan, as well as
Guam, and the Asian routes are regarded as the most troublesome. There is a security
committee at the airport comprising customs and immigration personnel who consult
on joint security arrangements, but there is no interaction at ministry level. There are
no relations with other threat assessment agencies. Legislation has been passed
establishing an agency to regulate the safety and security of airlines and airports. The
airport is currently owned by the government, although legislation has been passed to
allow for the privatisation of some utilities. Each new airline wishing to operate
through Palau requires commercial and safety approval from the Minister of
Commerce and Trade.

Limitations of infrastructure are holding back expansion of landings. These include a

lack of fire-fighting trucks, and a need to re-surface the runway. The government of
Palau has is seeking funding from FAA for infrastructure development and is seeking
a loan from the Republic of China for runway re-surfacing.

There is need for better accountability for storage of explosives used in public works
in the Republic. When the Palau Homeland Security Committee reported, it failed to
note that foreign workers – many of whom are Muslim - were handling explosives.
They are still handling them.

At present, possession of explosives requires a permit from the Department of

Agriculture, but transport and customs authorities doubt whether at the current time
the Attorney-General’s office checks to see whether and how explosives are secured.
Although no specific threats to infrastructure have been recorded, it should be noted
that sabotage of fuel storage sites, fuel boats; power plants, seaports, bridges, and
airports, would be relatively easy and would have significant impact on the national
economy and society. None of these facilities have special anti-terrorism measures in
place, apart from the searching of persons and baggage entering and existing by air or
by sea.

17
Criminal Activity

In 2000 concerns that Palau was being used for money laundering emerged when a
bank operating in Palau reportedly handled over $1.7 billion in transactions over an
18 month period – an amount nearly 100 times Palau’s gross domestic product. After
the Bank of New York raised concerns to President Nakamura, a Palauan delegation
headed by then Vice President Tommy Remengessau, Jr. met officials of the Bank of
New York and Deustche Bank to clarify the allegations. In June 2001 Palau enacted a
series of anti-money-laundering laws, which restored the Republic’s financial
reputation – although there is a line of thinking amongst some Palauans that the
current laws are too exacting on local banks and skewed in favour of foreign banks,
and should be “rolled back”.

Natural Disasters

At independence Palau took $20 million rather than join FEMA, the US’s main
emergency management authority, and as a result has had to develop its own disaster
preparedness plans. Executive Order No. 166-99 established a National Disaster
Management Plan, which serves as a framework for emergency responses. The plan,
under the supervision of the Office of the President, establishes the National
Emergency Committee and a National Emergency Management Office.

Although the threat of natural disasters is ever-present, Palau has to date been outside
the typhoon belt which has badly affected its neighbour states. If weather patterns
change and Palau is hit, the nation will experience economic, social and political
disasters. The population may well blame the government for a lack of preparedness.
In 2002 the Republic was able to send personnel and supplies by US military planes
to assist the relief efforts in the states of Chuuk and Yap following typhoon Chata’an.

Recommendations

Within the time frame of this review exercise, the consultants asked as many informed
persons as possible about social, political, environmental, or other issues that might be
the cause of current or future instability in the Republic of Palau. On the basis of the
information received, we offer the following recommendations:

• Palau should begin planning for Compact renegotiation status as early as

possible, and include in this planning a study of the negotiation processes
and outcomes relevant to Republic of the Marshall Islands and the
Federated States of Micronesia.
• The political and legal system would be strengthened by strengthening the
independence of several offices, particularly the office of the Attorney
General, so that the senior legal officer has sufficient autonomy from the
Office of the President, the Ministry of Justice and the police force to
initiate prosecutions in the public interest.
• Public office holders and elected officials should be required by law to
make declaration and disclosure of their personal assets, wealth and
sources of income at both the beginning and the end of their term in office.

18
• The Micronesian states should work more closely to pool expertise in
disaster relief.
• Palau should look at the advantages and disadvantages of prohibiting the
conversion of visitors’ visas into work permits.
• Where work permits are granted, consider the advisability of having the
work deposit funds equal to the cost of a return airfare, to ensure that the
expatriate has sufficient resource to return home on completion of the
contract.
• Provisions should be made to ensure that procedures for appointment to
senior positions in the public sector follow transparent procedures to
ensure that appointments are made on the basis of merit.
• The independence of the offices of the Electoral Commission and the
Ethics Commission should be strengthened.
• The government should give financial and technical support to research in
aquaculture, as part of an effort to provide future food security for the
people of Palau.
• An appointment should be made to the position of Director of National
Security
• There is need for closer coordination of immigration and customs
responsibilities at airports and seaports.
• The position of the Department of Customs should be clarified. It is
currently under the Department of Finance on account of its taxation
functions, but it could equally be placed under the Ministry of Justice,
given its law-enforcement function. Alternately Customs could be placed
with Immigration, as part of a border security administration.
• The government should take steps to encourage and strengthen the media,
and civil society organisations. A small state such as Palau must value the
role of independent voices, able to offer perspectives on the functioning of
the state, and the condition of society for the benefit of all members of
society.
• If the government is serious about ensuring that a new generation of
Palauans become agriculturalists, whether at subsistence or commercial
levels, it must look closely at the whole complex of related matters in the
agricultural sector, including education, finance, business training, and
marketing.
• There is need for more systematic sharing of information between
neighbouring states in security matters. There are individual police,
customs and intelligence networks, but other agencies having security
roles, such as immigration, may hold a vital piece of information that is
not being shared. Within Palau there is need for greater inter-agency
coordination, and beyond Palau’s borders there is need for a similar
expansion of cooperation by regional bodies.

19
ENDNOTES
a
Thirty-Third Pacific Islands Forum, Suva, Fiji Islands, 15 - 17 August 2002, Forum Communiqué:

1. Forum Leaders recalled their commitment in the 1992 Honiara Declaration on Law
Enforcement Cooperation, the 1997 Aitutaki Declaration and the Biketawa Declaration adopted
in 2000 to act collectively in response to security challenges including the adverse effects of
globalisation such as transnational crimes, and unlawful challenges to national integrity and
independence.
2. In this regard, Leaders recalled their commitment to good governance practices at all levels
as a key fundamental strategy for addressing some of the difficult and sensitive issues
underlying the causes of tension and conflict in the region.
3. Leaders expressed their concern about the recent heightened threat to global and regional
security following the events of September 11th 2001, in particular, those posed by international
terrorism and transnational crime.
4. Recognising the need for immediate and sustained regional action in response to the current
regional security environment, Forum Leaders affirmed the importance of the Honiara
Declaration, in particular, as providing a firm foundation for action to address these new and
heightened threats to security in the region.
5. Forum Leaders underlined their commitment to the importance of global efforts to combat
terrorism and to implement internationally agreed anti-terrorism measures, such as the United
Nations Security Council Resolution 1373 and the Financial Action Task Force Special
Recommendations, including associated reporting requirements.
6. The Forum Leaders reaffirmed that law enforcement cooperation, backed by a strong
common legislative base, should remain an important focus for the region and welcomed
progress which has been made in regional law enforcement cooperation under the auspices of
the relevant regional bodies.
7 Forum Leaders noted however, that, while some progress had been made in the
implementation of the Honiara Declaration, further urgent action was required of some member
states and recommitted to full implementation of relevant legislation under the Honiara
Declaration by the end of 2003.
8. Leaders underlined the importance to Members of introducing legislation and developing
national strategies to combat serious crime including money laundering, drug trafficking,
terrorism and terrorist financing, people smuggling, and people trafficking in accordance with
international requirements in these areas, taking into account work undertaken by other bodies
including the UN and the Commonwealth Secretariat.
9. Forum Leaders tasked the Forum Regional Security Committee to review regional
implementation of UNSCR 1373, the FATF Special Recommendations and the Honiara
Declaration and report back to the Forum at next year's meeting on these subjects.
b
Implementation of the Honiara and Nasonini Declarations

16. Leaders noted the progress that was being made in the enactment of the legislative priorities
of the 1992 Honiara Declaration on Law Enforcement Cooperation and urged Forum Island
Countries to fully to enact the relevant legislation under the Honiara Declaration by the end of
2003, in accordance with the Leaders’ commitment under the 2002 Nasonini Declaration.
17. Leaders commended the work undertaken by the Expert Working Group to Coordinate the
Development of a Regional Framework Including Model Legislative Provisions to Address
Terrorism and Transnational Organised Crime, convened under the Nasonini Declaration, and
urged speedy passage of the legislation once it was finalised and adapted.

Biketawa Declaration
20
18. Leaders noted the various activities the Secretariat had undertaken in implementing the
Biketawa Declaration which included monitoring regional political and security developments,
post-Forum consultation visits, national security studies and national security workshops.
19. Leaders also noted the establishment of the Regional Security Fund to cover the
Secretariat’s costs in implementing the Biketawa Declaration and encouraged donors to
contribute to the Fund.

21