The Contemporary Pacific
Volume 20, Number 1, Spring 2008, pp. 209-215

Political Reviews

Micronesia in Review: Issues and Events, 1 July 2006 to 30 June 2007 

Republic of Palau

Donald R Shuster

Activities of Palau's president and National Congress, relocation of the national capitol, the Taiwan-sponsored summit with its Pacific allies, advances in conservation and environmentalism, preparations for compact review, establishment of diplomatic relations with Russia, and the collapse of the homegrown Pacific Savings Bank were some of the major events that took place in the Republic of Palau during the year under review.

As of January 2008, President Tommy E Remengesau, Jr, has one year remaining in his second four-year term and is ineligible to run for office again in November 2008. Nevertheless, he has remained very active. During the year under review he met with the presidents of the other freely associated states (the Federated States of Micronesia [FSM] and the Republic of the Marshall Islands [RMI]) at their sixth summit in Majuro, RMI. Perhaps their most important achievement was the agreement to begin implementation of the Micronesian Challenge, whereby signatories pledge to have 30 percent of their nearshore marine areas and 20 percent of their forest [End Page 209] resources under environmental protection by 2020. The three leaders also made progress in completing treaties for the extradition of criminals and maritime boundary delimitations. At meetings with the chief executives of Yap, Guam, and the Commonwealth of the Northern Mariana Islands (CNMI) held in Yap , FSM, in late July, more agreements were made regarding the financing of the Micronesian Challenge conservation effort. Progress in recycling and the removal of metallic waste was reported. With the assistance of Japan , Palau has implemented a robust program of recycling and segregation of solid waste in Koror, and the once unsanitary town dump has been contained and capped, now forming a grassy hill. The leaders explored the idea of bulk fuel purchases to gain better prices and considered more active efforts in development of renewable energy sources. Perhaps Remengesau's most important overseas visits were to Saipan, CNMI, where he joined in the opening of the 2006 Micronesian Games, and to Paris where he met with President Jacques Chirac. In Israel , Remengesau and his party met with top Israeli officials, who expressed their appreciation for Palau 's support in the United Nations. The Israeli officials were amazed to learn that one of Palau 's National Congress senators, Alan Seid, is of Jewish descent, and that Palau 's ambassador to the United Nations, Stuart Beck, is also Jewish. The president and his party visited several holy sites in Jerusalem , including the Wailing Wall.

At home, landslides along the impressive US-financed Babeldaob compact road and skirmishes with the National Congress over the 2007 budget kept the president occupied. Because of ongoing disagreement over the budget, the congress had to pass a continuing resolution to keep the government working. Finally, in early January 2007, a budget law was passed and signed, totaling some $57.6 million. After three months of heated debate between the congress and the executive branch, compromises were reached on nine items that had been holding up the process: closure of Palau's consulate offices at Guam and Saipan, hiring of a bureau director in the Ministry of Education, pension plan contributions, rental payments to Palau's rural states, the scope of presidential reprogramming of budget funds, the status of the public auditor, financing for state capitol improvement projects, and the hiring of an independent special prosecutor to examine the Pacific Savings Bank collapse.

The relocation of the national capitol from Koror to Melekeok State was a defining event that coincided with the near completion of the fifty-three-mile Babeldaob circle road, which has been built using $150 million in US compact funds. Palau 's Constitution of 1979 called for moving the capitol, and in the 1980s leaders from Melekeok persuaded the National Congress to designate Melekeok as the location; they donated a large hill, Ngerulmud, to serve as the site. As one of Palau 's four ancient polities, Melekeok had been eclipsed by Koror because of Koror's popularity with foreigners. The new capitol consists of four buildings in classic Greek-Roman architecture: a three-story congress building complete with an impressive [End Page 210] dome, a two-story judiciary building, a two-story president's building (in the style of the Jefferson Memorial), and a three-story government-administration building, as well as two underground water storage tanks of 530,000-gallon capacity. Funding for the huge project was provided by Taiwan (about US$40 million) and the United States (US$2 million). Construction was carried out in two main phases (the earthworks, and the buildings and water storage tanks); five more phases (costing about US$12 million) were needed to complete the entire project.

While the decision on the style and size of the buildings was made by representatives from the president's office, the traditional chiefs, the state governors, and the National Congress, it has attracted much criticism from Palauans who argue that it is too large, too expensive, and untraditional. Defenders of the Greek-Roman classic style maintain that the Palauan people want their capitol to be of great international significance and symbolic of democracy, unity, liberty, and justice. Wisely, all the buildings are decorated with permanent indigenous motifs that make them distinctively Palauan. The grand opening of the capitol complex on Independence Day, 1 October 2006, was filled with feasting and much celebration. It was a nation-building event of considerable importance, rivaling Palau 's superb hosting of the Ninth Festival of Pacific Arts in 2004.

President Remengesau made the local headlines by accepting blame for the August/September power outages and rationing of electricity. Electrical power outages are recurrent problems, and renewable sources of power such as solar and wind are badly needed for Palau 's long-term economic and social progress. Several new electrical generators were purchased with a US$7 million loan from the International Commercial Bank of China , Taiwan (TBN, 25 Aug–1 Sept 2006, 1).

Mr Remengesau and his top advisers were involved in two international meetings of major importance. The first was the Taiwan-Pacific Allies Summit held in Palau . Besides Palau, the other Pacific Island nations maintaining diplomatic relations with Taiwan sent their heads of government, including RMI President Kessai Note, President Anote Tong of the Republic of Kiribati, Nauru President Ludwig Scotty, Solomon Islands Prime Minister Mannaseh Sogavare, and Tuvalu Prime Minister Apisai Ielemia. In sessions with the meeting's host, Republic of China President Chen Shui-bian, the Pacific leaders supported enhanced cooperation with Taiwan with regard to law enforcement, information technology, tourism, health care, protection of natural resources, economic partnerships, cooperation in agriculture and fisheries, and the preservation of culture. Since Taiwan and each of the Pacific Island allies commonly use the English language (in addition to vernaculars), and have a continuing need for development assistance, advances in these areas are likely.

The summit was significant for Taiwan in that it received a sovereignty endorsement from the attending Pacific nations. Their declaration stated: "The Leaders of Taiwan's Pacific allies strongly support Taiwan 's achievements in political democratization and economic development. Taiwan 's Allies acknowledge Taiwan [End Page 211] as a sovereign nation whose right to participate in international organizations such as the United Nations and World Health Organization cannot be deprived. Taiwan 's Allies are committed to continuing their firm support of Taiwan 's entitlement to undertake full involvement in international and regional organizations and initiatives" (TBN, 8–15 Sept 2006, 1). It is also noteworthy that this declaration used " Taiwan " instead of "Republic of China." President Chen experienced some political turbulence during his visit to the Pacific when his official jet aircraft was refused permission to land on Guam, a US territory. The refusal stemmed from the United States ' desire not to provoke the People's Republic of China . Thus Chen was forced to use the services of Continental Airlines.

Mr Remengesau led Palau 's delegation to the Thirty-Seventh Pacific Island Forum held in Fiji in October. The Forum consists of sixteen independent Pacific countries, including Australia and New Zealand . Remengesau played an important role in the Forum meeting by advancing his commitment to the conservation of marine and terrestrial habitats. He won full support from his colleagues, who tasked the Forum Secretariat to assist in ensuring that the commitment was upheld. An added bonus was the funding support for the Micronesian Challenge and related initiatives from financial donors such as Nature Conservancy, Global Environmental Facility, and Conservation International. Remengesau also gained enthusiastic support for Palau 's law prohibiting deep-sea bottom trawling in its waters. Palau 's UN Ambassador Stuart Beck alerted the United Nations to this destructive practice and the General Assembly is expected to take action on it soon.

Furthermore, Remengesau gained Forum members' support for the Republic of China/Taiwan to be accepted as an equal Post Forum Dialogue partner, in recognition of Taiwan 's substantial contributions to the Forum and its regional programs (TBN, 3–10 Nov 2006, 2).

Early in 2007, Mr Remengesau made a second state visit to Taiwan with an eight-person party consisting of State Minister Temmy Shmull, First Lady Debbie Remengesau, and several state governors and traditional chiefs. This visit was a follow-up to the September Pacific Allies Summit in Palau . Mr Remengesau requested Taiwan 's support for additional infrastructure projects, a humanitarian loan to assist small depositors suffering because of the failure of the Pacific Savings Bank, and further cooperation in the areas of health and conservation consistent with the summit agreements.

Establishing ties with Russia was a huge diplomatic step forward for Palau . On 28 November in New York , Palau 's UN Ambassador Stuart Beck and Vitaly Churkin, Ambassador of the Russian Federation to the United Nations, signed a joint communiqué officially establishing diplomatic relations. Beck lauded Russia for its rich history, strong economy, and contributions to the international community. The two ambassadors agreed to cooperate in the areas of fisheries and climate change/global warming. Diplomatic relations between Palau and its much larger neighbor, Indonesia , are pending. [End Page 212]

Prior to the New Year, Palauans witnessed the rebirth of one local bank and the total collapse of another. Palau 's first locally owned bank, Bank of Palau, was established by the late Roman Tmetuchl in 1981 during the closing years of the US-administered Trust Territory of the Pacific Islands . The bank lost its license for some years but reorganized to meet the Financial Institutions Commission's legal conditions of solvency and liquidity. The revived bank, now known as the First Fidelity Bank, is located in the PDC (Pacifica Development Corporation) building in central Koror. Attorney Johnson Toribiong, Tmetuchl's nephew, led the effort to reinstate the bank.

In contrast, Pacific Savings Bank, Ltd (PSB), which was chartered in 1992 and claimed to be the "people's bank," collapsed with a thunderous roar on 7 November 2006. With over 7,000 depositors, 7,900 accounts, 1,800 loans totaling $11.5 million, and some 1,000 shareholders, the PSB directors and officers must take responsibility for this social and financial catastrophe. They are Tim Taunton, the president and chairman of the bank's board of directors and owner of 32 percent of the shares; the late Johnny Reklai, who held 18 percent of the shares; Silvester Spichtincher with 9 percent; and Jay Cobele, Tadao Ngotel, and Margo Llecholch, each having 2 percent of the bank's shares. The remaining 34 percent of PSB shares are owned by individuals who each hold less than 2 percent (TBN, 10–17 Nov 2006, 1, 15).

The serious irregularities and illegalities in the PSB operations were uncovered in a report by an independent auditing firm, J Scott Magliari & Company. The report was completed in May 2006 but was kept under wraps by the bank until 3 November, just four days prior to its collapse. Palau 's financial watchdog, the Financial Institutions Commission (FIC), closed down the bank and locked its doors because of insolvency: PSB liabilities exceeded its assets, and the bank could not satisfy demands on deposits. The bank also reportedly had only $45,000 available, whereas it was legally required to have at least $500,000 cash on hand. During the six months prior to the collapse, and probably in response to inside information about an impending failure, about $9.2 million was withdrawn by several government agencies, private businesses, and a dozen individuals with large deposits in the range of $20,000 to $2.4 million. What sank the bank was a large number of bad loans and the total breakdown of fiduciary duty and responsibility. The FIC revoked the bank's license, suspended the bank's administrators, and named Kaleb Udui, Jr, president of the National Development Bank of Palau , as the receiver. These actions were carried out in accordance with Palau 's banking laws. In addition, numerous lawsuits, both civil and criminal, have been filed, and Palau 's attorney general is moving to extradite PSB President Taunton from New Zealand , where he fled two days after the collapse. He had over $4 million in bad loans.

With thousands of small shareholders and depositors, the Pacific Savings Bank collapse hurt many individual Palauans and their families, as well as small businesses. The failure of the so-called people's bank generated both [End Page 213] despair and anger. Especially hard hit were the private schools that had their operating funds in the bank: Bethania High School with $198,000; Seventh-Day Adventist Elementary School with $148,449; Palau Mission Academy with $46,329; Emmaus High School with $25,000; and Emmaus Kindergarten with $18,000. Palau 's Tia Belau News described the collapse as a tale of mismanagement and abuse unprecedented in the development of Palau 's local institutions (TBN, 26 Jan–1 Feb 2007, 1, 5).

Responding to an emergency request from President Remengesau, Taiwan became Palau 's new "Uncle Sam" by making a short-term, interest-free loan of $3.3 million. Of this amount, $2.4 million has been used to fully pay some 4,950 depositors who had less than $2,000 in Pacific Savings Bank. These are mainly accounts belonging to individuals, schools, state governments, and several churches.

The political status of free association has been accepted by the United Nations as an appropriate way to end a non-self-governing or colonial status. Palau 's compact agreement with the United States was fully implemented in 1994 and Palau became sovereign and the 185th member of the United Nations in the same year. Palau 's compact agreement runs for fifty years, and over $500,000 million (not including inflation adjustments) in funding was provided for fifteen years, that is, from 1994 to 2009. Palau's Compact Review Commission, chaired by former President Kuniwo Nakamura, along with eight other members and a two-person staff, have been hard at work reviewing Palau's performance under the 1994 compact agreement. The review commission is mandated by Republic of Palau Public Law 7-15 to identify Palau's positions on compact-related issues and provide names of qualified individuals to serve on a negotiating team "in bilateral re-negotiation of the Compact and the subsidiary agreements" (TBN, 11–18 Aug 2006, 4).

The commission visited leaders of the other compact states, the Republic of the Marshalls and the Federated States of Micronesia , to learn about their renegotiations, which were completed in 2003. The key issues were new requirements concerning postal services, immigration, and compact fund management. Fund management requirements involve a "stricter process of review and approval for the expenditure of Compact Funds, eligibility for fewer federal programs, and perhaps less funding in the long run" (Underwood 2003, 2). The Compact Review Commission will revise Palau 's master development plan, which was completed with the beginning of the compact in 1994. Furthermore, with funding assistance from the Asian Development Bank, the review commission conducted a national economic symposium that involved external financial and economic specialists as well as local experts. What may make Palau 's compact review interesting is the recent US Inspector General's report, released in 2006. Requested by Palau 's Public Auditor, the report evaluates Palau 's expenditure of funds for the period 1994–2005. One glaring conclusion is that a key compact objective has not been met: the advancement of Palau 's economic development and self-sufficiency.

An unusually large number of [End Page 214] important people died during the review period. Viviana Ucherbelau was a teacher, sports coach, and Koror state legislator; Salvator Ongrung worked for the Trust Territory and Palau governments for nearly forty years in community and economic development; Katsutoshi Becheserrak was a Palau High School teacher, vice principal, activist, and part-time legislator; Joseph Ngiracheluolu was a sailor, small businessman, heavy equipment operator, and Koror community activist; Omelau Tanaka had a long career as magistrate during the Trust Territory period, served as both governor and traditional chief of Ngchesar State, and was a legislator, gardener, and expert fisherman; Herman Rodas was the long-time announcer for Palau's WSZB radio station, Palau's Labor Division head, member of the Seventh Palau Legislature, and traditional chief; Santos Edward was a musician, traditional chief, and building designer and contractor who built a number of important buildings in both Koror and on Angaur. A most extraordinary man, Ngirchobeketang Sachelboi Wasisang, passed away at age eighty-two. For nearly thirty-five years, he was the leader of the Modekngei, Palau 's indigenous religious group. Senate President Johnny Rekali, a cofounder of the Pacific Savings Bank, died by drowning in a freak fishing accident. The first American to marry a native Palauan woman and settle in Palau , Henry "Hank" Worswick, died at age eighty-four. As a US Navy man, Worswick was involved in the invasion of Angaur in 1944. Another member of the US military, Army Corporal Meresbang T Ngiraked, age twenty-one, was the third solider of Palauan ancestry to die in Iraq and the twenty-second fighting man from the Micronesian region to make the ultimate sacrifice there. Lastly, former senator and presidential candidate, Peter Lawrence Naoya Sugiyama, passed away on 10 June 2007. Known as "Pete," Sugiyama was an exceptionally dedicated civil servant who had a long and distinguished career, first in government administration and then as a senator in the Palau National Congress. The high points of his political career were his participation in Palau 's first Constitutional Convention of 1979, his presidency of the Senate from 1997 to 2000, and his close second-place finish in the presidential race of 2000.

Acknowledgment

Special thanks to Yoichi K Rengiil for comments on an earlier draft of this review.

References

TBN, Tia Belau News. Weekly. Koror, Republic of Palau .

Underwood, Robert A. 2003. The Amended US Compacts of Free Association with the Federated States of Micronesia and the Republic of the Marshall Islands: Less Free, More Compact. East-West Center Working Paper 16. Honolulu : East-West Center .

Donald R Shuster, who has written the political review of Palau for this journal every year since 1990, is a professor of education and Micronesian studies and a faculty member at the Micronesian Area Research Center , University of Guam . He has worked and lived in the Pacific since 1965 and focuses his research efforts on Micronesia and the Republic of Palau . Shuster's research-based biography Roman Tmetuchl: A Palauan Visionary (2002) was the first such biography to be written about a Micronesian leader. He will complete Baseball in Palau : Passion for the Game 1925–2007 later this year.