About the CBI

October 2005
Background Note: Palau

Palau flag is light blue with a large yellow disk - representing the moon -
shifted slightly to the hoist side.

PROFILE

OFFICIAL NAME:
Republic of Palau

Geography
Area: 458 sq. km. (about 190 sq. mi.) in eight main islands plus more than
250 islets.
Cities: Capital--Koror (pop. 13,303).
Terrain: Varies from mountainous main island to smaller, reef-rimmed coral
islands.
Climate: Tropical.

People
Nationality: Noun and adjective--Palauan.
Population: 20,891. Age structure--35.4% under 18, 6.6% over 65.
Growth rate: 2.1%.
Ethnic groups: Palauans are Micronesian with Malayan and Melanesian elements.
Religion: Roman Catholic, Protestant, Modekngei (an indigenous Palauan
religion).
Languages: English (official in all 16 states), Palauan.
Education: Literacy--92%.
Health: Life expectancy--male 68 yrs.; female 76 yrs. Infant mortality rate
--16.7/1,000.
Work force: Government--29%; tourism--18%; other services--28%; construction
--11%, agriculture--3%.

Government
Type: Constitutional republic in free association with United States.
Independence (from U.S.-administered UN trusteeship): October 1, 1994.
Constitution: January 1, 1981.
Branches: Executive--president (head of state and government), vice
president, cabinet. Legislative--bicameral parliament elected by popular
vote. Judicial--Supreme Court, National Court, Court of Common Pleas, and the
Land Court.

Economy
GDP (2003): $116.8 million.
GDP per capita: $5,678.
National income (GDP + foreign assistance): $143 million.
National income per capita: $7,475.
GDP composition by sector: Public administration 27%, trade 20%, construction
8%, hotels/restaurants 10%, transport and communication 9%.
Industry: Types--Government, tourism.
Trade: Exports ($34.9 million, 2003)--fish, handicrafts. Export
markets--U.S., Japan, Taiwan. Imports ($97 million)--fuel, food and
beverages, manufactured goods. Import sources--U.S. and Guam (54%), Japan,
Singapore, Taiwan, Korea.
External debt: $32.7 million (2005).
Currency: U.S. dollar.

GEOGRAPHY AND PEOPLE
The Republic of Palau consists of eight principal islands and more than 250
smaller ones lying roughly 500 miles southeast of the Philippines. The
islands of Palau constitute part of the Caroline Islands chain. About 70% of
Palauans live in the capital city of Koror on Koror Island. The constitution
calls for a new capital to be established on the bigger but less developed
island of Babeldaob--the second-largest island in Micronesia after Guam.
Construction of that capital in the State of Melekeok began in 2002, with an
expected move of the national government in late 2006 following the spring/
summer 2006 completion of U.S.-funded connector highway.

HISTORY
Palau was initially settled more than 4,000 years ago, probably by migrants
from what today is Indonesia. British traders became prominent visitors in
the 18th century, followed by expanding Spanish influence in the 19th
century. Following its defeat in the Spanish-American War, Spain sold Palau
and most of the rest of the Caroline Islands to Germany in 1899. Control
passed to Japan in 1914 and then to the United States under UN auspices in
1947 as part of the Trust Territory of the Pacific Islands.

Four of the Trust Territory districts formed a single federated Micronesian
state in 1979, but the districts of Palau and the Marshall Islands declined
to participate. Palau instead approved a new constitution and became the
Republic of Palau in 1981, signing a Compact of Free Association with the
United States in 1982. After eight referenda and an amendment to the Palauan
constitution, the Compact went into effect on October 1, 1994, marking
Palau's emergence from trusteeship to independence.

GOVERNMENT
Palau is a democratic republic with directly elected executive and
legislative branches. Presidential elections take place every 4 years, at the
same time as the United States' presidential election, to select the
president and the vice president, who run on separate tickets. The Palau
National Congress (Olbiil era Kelulau) has two houses. The Senate has nine
members elected nationwide. The House of Delegates has 16 members, one each
from Palau's 16 states. All of the legislators serve 4-year terms. Each state
also elects its own governor and legislature.

The Council of Chiefs is an advisory body to the president containing the
highest traditional chiefs from each of the 16 states. The Council is
consulted on matters concerning traditional laws and customs.

The judicial system consists of the Supreme Court, National Court, the Court
of Common Pleas, and the Land Court. The Supreme Court has trial and
appellate divisions and is presided over by the Chief Justice.

On November 2, 2004, President Remengesau was reelected President and Camsek
Chin was elected Vice President. Several newcomers to the political scene
were elected to the Senate and the House.

Principal Government Officials
Head of State and Government--President Tommy E. Remengesau, Jr.
Vice President--Camsek Chin
Ambassador to the U.S.--Hersey Kyota
Ambassador to the UN--Stuart Beck

Palau maintains an embassy at 1700 Pennsylvania Avenue, Suite 400,
Washington, DC 2006 (tel: 202-452-6814, fax: 202-452-6281). The Republic of
Palau's Mission to the United Nations is located at 866 United Nations Plaza,
Suite 575, New York, New York 10017 (tel: 212-813-0310, fax: 212-813-0317).

POLITICAL CONDITIONS
While calm in recent years, Palau witnessed several instances of political
violence in the 1980s. The republic's first president, Haruo I. Remeliik, was
assassinated in 1985, with the Minister of State eventually found to be
complicit in the crime. Palau's third president, Lazurus Salii, committed
suicide in September 1988 amidst bribery allegations. Salii's personal
assistant had been imprisoned several months earlier after being convicted of
firing shots into the home of the Speaker of the House of Delegates.

Legislation making Palau an "offshore" financial center was passed by the
Senate in 1998. In 2001 Palau passed its first bank regulation and anti-money
laundering laws.

ECONOMY
Palau's per capita GDP of $5,678 makes it one of the wealthier Pacific Island
states. Nominal GDP increased by an annual average of nearly 14% from 1983 to
1990, and by an annual rate of over 10% from 1991 to 1997. Growth turned
sharply negative in 1998 and 1999 as a result of the Asian financial crisis,
but grew by 3.3% and 3.1% in 2000 and 2001 respectively.

Tourism is Palau's main industry. Activity focuses on scuba diving and
snorkeling in the islands' rich marine environment, including the Floating
Garden Islands to the west of Koror and the Rock Islands to the south. The
number of visitors--85% of whom come from Taiwan, Japan, and the
U.S.--reached 90,000 in 2004, more than quadruple the level of a decade
earlier. Tourism earned $67 million in foreign exchange for Palau in 1996,
accounting for roughly half of GDP. Arrivals from Asian countries dropped in
1998 and 1999 due to the regional economic downturn but rebounded throughout
the first half of the 2000s. CBS's airing of "Survivor: Palau" in 2004-5
raised the country's international profile substantially, and in 2005 a new
Japan Airlines-affiliated luxury hotel opened for business. Palauan tourism
and environmental authorities would like to transition the industry to cater
to low-volume, high-dollar tourists.

The service sector dominates the Palauan economy, contributing more than 80%
of GDP and employing three-quarters of the work force. The government alone
employs nearly 29% of workers. One of the government's main responsibilities
is administering external assistance. Under the terms of the Compact of Free
Association with the United States, Palau will receive more than $450 million
in assistance over 15 years and is eligible to participate in more than 40
federal programs. The first grant of $142 million was made in 1994. Further
annual payments in lesser amounts will be made through 2009. U.S. grants in
2003 totaled $11 million.

Construction is the most important industrial activity, contributing over 8%
of GDP. Several large infrastructure projects, including the rebuilding of
the bridge connecting Koror and Babeldaob Islands after its collapse in 1996
and the construction of a highway around the rim of Babeldaob, has boosted
activity.

Agriculture is mainly on a subsistence level, the principal crops being
coconuts, root crops, and bananas. Fishing is a potential source of revenue,
but the islands' tuna output dropped by over one-third during the 1990s.

The main economic challenge confronting Palau is to ensure the long-term
viability of its economy by reducing its reliance on foreign assistance. The
Compact of Free Association created a trust fund to provide perennial budget
support when U.S. direct assistance ends in 2009. The value of the trust fund
in 2005 was approximately $150 million.

FOREIGN RELATIONS
Palau gained its independence October 1, 1994 with the entry into force of
the Compact of Free Association with the United States. Palau was the last
Trust Territory of the Pacific Islands territories to gain its independence.
Under the Compact, the U.S. remains responsible for Palau's defense for 50
years.

Palau is a sovereign nation and conducts its own foreign relations. Since
independence, Palau has established diplomatic relations with a number of
nations, including many of its Pacific neighbors. Palau was admitted to the
United Nations on December 15, 1994, and has since joined several other
international organizations.

Principal U.S. Officials
Charge d'Affaires--Deborah L. Kingsland

The mailing address for the U.S. Embassy is P.O. Box 6028, Republic of Palau
96940. Telephone: 680-488-2920/2990. Fax: 680-488-2911. Email:
USembassyKoror@palaunet.com.