Palau

Total land area	487km² ^[1]
Exclusive economic zone (EEZ) area	600,900km² ^[1]

Resident population (2008 estimate)	20,278 ^[2]
2015 forecast	21,168 ^[2]
Average annual growth rate 2008-15	0.6%
Population density	42/km²
Women in parliament	2 out of 13 seats (Senate), 0 out of 16 seats (House of Delegates)
Human Development Index - HDI score (estimate)	0.816^[5]

Following the Second World War, Palau was administered by the United States as a United Nations Trust Territory. In 1979, the people of Palau voted against joining the Federated States of Micronesia because of language and cultural differences. After voting several times to reject a proposed Compact of Free Association with the United States, the country finally became self governing in free association with the United States in 1994. Palau adopted its Constitution on January 1, 1981. The Compact of Free Association between the United States and Palau is primarily focused on the issues of government relations, economic relations, and security and defence relations. The special relationship with the US gives Palau access to many US domestic programs, including disaster response and recovery and hazard mitigation programs under the Federal Emergency Management Agency, the National Weather Service, the United States Postal Service, Federal Aviation Administration. As citizens of an associated state, Palauans may live and work in the United States. The November 2008 congressional elections were held jointly with the presidential elections, as well as a referendum on proposed constitutional amendments. In the previous elections held in November 2004, Palauans also approved several constitutional amendments, including a three-term limit for members of congress, and the election of a presidential ticket composed of a president and vice president. Based on the recommendation of the Reapportionment Committee of July 2005, the statutory number of members of the Senate increased from nine to 13 starting from the 2008 elections. Forty three candidates, including a record seven women, ran for the Senate, and another 44 candidates, including three women, stood for election to the 16-member House of Delegates. Ms Kathy Kesolei and Ms Regina Mesebeluu became the first women senators in Palau. No women were elected to the House of Delegates. As there are no political parties in Palau, all candidates stood as non- partisans. Palau is a democratic republic in free association with the United States, with a bicameral National Congress or Olbiil Era Kelulau, consisting of the Senate (13 seats with members elected by popular vote on a population basis to serve four-year terms) and the House of Delegates (16 seats representing each of the states with members elected by popular vote to serve four-year terms). Independence was gained on 1 October 1994 from the United Nations Trust Territory.

Head of State and Government	President Johnson Toribiong (since 15 January 2009) is both head of state and head of the executive branch of government. The president is elected by popular vote, along with a vice president, every four years.
Executive	The executive consists of the president as chief executive and the vice president, a council of chiefs and a cabinet of ministers. The Council of Chiefs is composed of one traditional leader from each of the republic's states. Cabinet ministers are appointed by the president with the advice and consent of the Senate. The vice president serves as one of the ministers. The ministries include: - Ministry of Finance - Ministry of Community & Cultural Affairs - Ministry of Education - Ministry of Health - Ministry of Justice - Ministry of Public Infrastructure, Industries and Commerce - Ministry of State - Ministry of Natural Resources, Environment and Tourism
Civil Service	The public sector altogether provides about one third of total formal employment. However, fiscal pressures and reform initiatives over the medium term may result in reductions-in-force in certain areas of the public service. The efficiency and effectiveness of government services is a key theme in the Medium Term Development Strategy (MTDS). The MTDS identifies a number of weaknesses in the current system and recommends strategies for improving services. One major issue is the widespread assumption that government should provide and subsidize as many services as possible for the welfare of the people, a major expression that emerged during a National-State leadership symposium in 2006. Other major issues include potential duplication of functions, conflicts of interest, spreading out of limited talents and capacity, planning and management weaknesses, and limited evaluation and assessment capabilities. The MTDS offers a range of strategies for addressing these weaknesses, including streamlining, exploration of more public-private partnerships, and outsourcing. One of the ultimate aims is to transform the role of government from one of ‘big brother’ to one of facilitator. The Bureau of Public Service System (BPSS) under the Ministry of Administration, is responsible for overall public service management. The BPSS is charged with carrying out the National Public Service System Act and the Public Service System Rules and Regulations.
Local Government	The Constitution designates the sixteen traditional municipalities of Palau as states with authority to formulate their own constitutional conventions and elect their respective legislatures and heads of government (governors). The state constitutions also defined the role of traditional leaders. Therefore, depending on the constitution of each of the sixteen states, they respectively have their own local government comprised of local legislators, governors, traditional chiefs, elders, and high ranking clans. The national government can delegate powers by law to the state governments and state governments have the ability (with consent from the Olbiil Era Kelulau) to impose taxes and borrow money to finance public programs or to settle public debt. Improving national-state working relations and the effectiveness of state governments are priority issues for Palau. A national-state leadership symposium in 2006 raised a number of matters that have been incorporated into the current medium term development strategy. States are recognised as having distinct roles to play, for instance in land use planning, zoning and building codes, in shaping national policies and plans, in attracting investment and development projects, and in improving performance across the public sector and in public enterprises. However, a number of real constraints exist (especially for the states other than Koror), including limited planning and management capacity, limited local revenue and resources, and weak institutional and human resource capacity. Limited national-state cooperation on economic development issues has been identified as another major challenge. The majority of the population (77%) lives in urban areas: Koror is the largest, followed by Airai and Hatohobei the smallest. The rest of the population (23%) is evenly spread throughout the remaining 13 states.
Local Government	Bureau of Public Serivce Systems Bureau of Public Safety Office of the Ombudsman
Judiciary	The judicial system consists of the Supreme Court, the Court of Common Pleas, and the Land Court. The Supreme Court has trial and appellate divisions and is composed of a Chief Justice and not less than three (3) nor more than six (6) Associate Justices, all of whom shall be members of both divisions. All appeals are to be heard by at least three justices. Matters before the trial division may be heard by one justice. No justice may hear or decide an appeal of a matter heard by him in the trial division. Judges are appointed to life terms by the President with approval from Palau's National Congress.
International Organisations	ACP, ADB, AOSIS, FAO, IAEA, IBRD, ICAO, ICRM, IDA, IFC, IMF, IOC, IPU, MIGA, OPCW, PIF, Sparteca, SPC, UN, UNCTAD, UNESCO, WHO.

Palau’s National Master Development Plan 2020 (NMDP) articulates the country’s overarching development strategies. The NMDP aims to transform Palau’s economy to one that is more private sector driven, to strengthen and streamline government institutions and activities, and to pursue strategies to help finance development goals. While the NMDP, adopted in 1996, is still considered the underlying framework for development, Palau has also recently prepared a medium term development strategy (MTDS) - Actions for Palau's Future, The Medium-Term Development Strategy 2009–2014 -that articulates three thematic priorities: paying the ‘right price’ (an emphasis on cost recovery and well defined, targeted, transparent subsidies); reducing costs and ensuring conservation; and generating income opportunities. The preparation of the MTDS included three years of public consultations and leadership conferences, although it has yet to be officially adopted by the government. While Palau performs relatively well across a range of public financial and economic management indicators, recent developments signal emerging challenges over the medium term, especially as Palau adjusts to new financial arrangements under its renegotiated economic program under the Compact with the United States. Palau’s stable economy and relatively well run services have helped it achieve the highest human development levels in the Pacific. Nevertheless, it faces its own set of challenges that require continued reform commitment and action, especially if the effectiveness and efficiency of the public sector is to improve and meet expectations. Palau’s public financial management system and broader economy are heavily influenced by the Compact of Free Association with the US and its provisions. Financial health and performance has generally been stable, although in the 2008 financial year, expenditure exceeded revenue, raising some concern on the country’s fiscal position. The government has made a number of commitments to strengthen fiscal and financial policy and management, including moving towards a medium-term budget framework. In 2008 a Medium Term Fiscal Strategy (MTFS) was presented to the government leadership but has yet to be adopted. The MTFS promotes greater fiscal self-reliance and calls for tax reforms, expenditure compression, and efficiency improvements. Grants, primarily from the US through the Compact, have consistently made up over 50 percent of total government revenues. The government has also tended to supplement revenue with annual withdrawals of US$5m from its Compact Trust Fund, the current balance of which is approximately US$170 million. In early 2010, Palau and the US reached a tentative agreement (yet to be approved by the US congress) on a new economic assistance program that will provide Palau with US$13.5 million annually through to 2023. The transition to the new program will likely require considerable, but manageable, fiscal adjustment. Coupled with stagnant revenue trends and expenditure pressure, the government may need to consider strong expenditure controls and revenue raising measures over the medium term. Electricity and water services are highly subsidised. The issue of subsidies and the performance of public enterprises and utilities are a medium term reform priority with corporatisation and privatisation to be considered under the Medium Term Development Strategy. Country performance ratings for debt policy and management exceed regional averages. Total external debt as of 2008 was around 14 percent of GDP, one of the lowest in the Pacific region. Some public enterprises do, however, carry significant liabilities.

Palau Medium Term Development Strategy 2009-14^[6]

Overall goal

A sustained and widespread improvement in general standards of living while preserving cultural and environmental values for the people of Palau.

Strategic priorities

Preserving key values and advantages which are: The environment, cultural values, political stability, public security and civil order, effective relationships with development partners. Achieving consensus for change through transparency and opportunities for consultation. Addressing binding constraints to economic development which are: - The expectation that someone else should pay for a wide array of government, reflected in a 'lack of willingness to pay, work productively and support effective policies'. - Conflicts of interest that make it difficult to gain acceptance for and to implement effective governance arrangements and policies for the benefit of the community as a whole.

Overarching strategies	There are three overarching (or thematic) strategies that cut across sectors and issues and that encapsulate a wide range of more specific strategies and actions, as follows: 1. Paying the right price (cost recovery and well defined, targeted, transparent subsidies). 2. Reducing costs and ensuring conservation. 3. Generating income opportunities.
Expected Outcomes	The expected outcomes from effective implementation of actions for Palau's future essentially related to the various dimensions in which progress is made in terms of the overall goal for sustainable national development. Key elements include: 1. Improvements in general standards of living. 2. Private sector development. 3. Greater self reliance. 4. Preservation of culture and the environment. 5. Social and political stability. 6. Looking after the vulnerable.

Overarching strategies

There are three overarching (or thematic) strategies that cut across sectors and issues and that encapsulate a wide range of more specific strategies and actions, as follows: 1. Paying the right price (cost recovery and well defined, targeted, transparent subsidies). 2. Reducing costs and ensuring conservation. 3. Generating income opportunities.

Expected Outcomes

The expected outcomes from effective implementation of actions for Palau's future essentially related to the various dimensions in which progress is made in terms of the overall goal for sustainable national development. Key elements include: 1. Improvements in general standards of living. 2. Private sector development. 3. Greater self reliance. 4. Preservation of culture and the environment. 5. Social and political stability. 6. Looking after the vulnerable.

GNI per person 2007 (Atlas method)	US$8,270 ^[2]
GDP current 2009 estimate	US$178.4m ^[3]
GDP per capita 2009 estimate	US$8,941 ^[3]

Labour market‚ Formal sector (2005)

Number of employees	9,777 ^[4]
% Female	39% ^[4]
% Public sector	35% ^[4]
% Private sector	65% ^[4]

Palau has experienced above-average economic growth rates over the past decade relative to other Pacific countries, and compares very well with its Pacific neighbours on a per capita income basis. Nevertheless, challenges loom on the horizon. The economy depends primarily on government expenditure (which is heavily reliant on official transfers), tourism, and to a lesser extent fisheries and agriculture. The public sector provides one third of total formal employment and accounts for 20 percent of GDP. Major indicators suggest a general deceleration in economic growth, and the transition to the new Compact assistance program will likely translate into a contraction in per capita GDP. Despite the country’s relatively impressive economic record, in 2006 about one in five households and one in four persons were considered to be experiencing economic hardship, based on Palau’s own definition of the term. Palau faces somewhat unusual labour force characteristics. Increasing labour demand, fuelled mostly by growth in the tourism sector, for specific skills that are unavailable in the local market, out migration of Palauans to the US, and other factors have led to a general mismatch in labour demand and supply. Palau now relies heavily on imported labour and foreigners now outnumber citizens in the formal labour market. Some of the key labour market issues being reviewed include minimum wages, the foreign worker fee, and technical and vocational training for Palauans. Tourism will continue to be the key source of private sector growth with annual visitor arrivals now exceeding 80,000. The Medium-Term Development Strategy 2009–2014 outlines a range of strategies to improve the enabling environment and encourage greater domestic and foreign private sector investment.

Palau laws provide for freedom of speech, freedom of the press, and freedom of assembly and association and the government upholds these rights in practice.

Telephone
Internet	5,400 users as of December 2007 ^[7].
Newspapers	Tia Belau- English-language weekly, Palau Horizon- English-language twice weekly and Roureor Belau- English twice weekly.
Television	There are two private TV broadcasting companies (MBTV &OTV) with locally produced shows (mostly news coverage) airing on PNCC. Most households have cable TV, which rebroadcasts US and satellite TV channels.
Radio	Two private FM stations and one government controlled station on AM and FM.

Palau maintains a national police force, including a sea patrol operation, but maintains no regular military forces. Under the Compact, defence is the responsibility of the US. Moreover, the Compact grants the US military access to the islands for 50 years, although it has not yet exercised this option. Surveillance and monitoring exercises, including Australian and New Zealand coast guards, are occasionally conducted in Palau and the surrounding region. Palau has provided police officers to work as part of the Regional Assistance Mission to Solomon Islands since May 2006, and also sends police officers to UN peacekeeping missions. There is a small police force under civilian control. There are no armed forces. Under the Compact, defence is the responsibility of the United States.

Official transfers account for just over half the national budget. The United States is the major aid donor to Palau under the terms of the Compact of Free Association. US aid to Palau has included direct budgetary assistance to the Palau national government, including investment in a trust fund intended to provide $15 million annually from 2010 through 2044; federal postal, weather, and aviation services; and construction of a major road. US assistance to Palau has also included discretionary federal programs, such as health, education, and infrastructure services, that are not provided for in the compact. Other donors and development partners include Japan, Taiwan, Australia, New Zealand, European Union. Australian bilateral development assistance to Palau is modest - approximately AUD$150,000 in 2008-09. Education is a priority of the Australian program, which concentrates on scholarships and a small grants scheme supporting community organisations. Australia also provides ongoing funding for the Pacific Patrol Boat Program and its regional development program also supports Palau across a range of areas including: health (HIV/AIDS, non-communicable diseases) land, energy efficiency, environment, gender equity and governance. Palau also works closely with a range of regional and international organisations, including a United Nations joint presence (UNDP, UNICEF and UNFPA), the Asian Development Bank, World Bank, and International Monetary Fund. Recent and ongoing public sector related projects include implementing the Medium-Term Budget Framework and development of a Sustainable Health Financing Scheme by the Asian Development Bank.