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Country Profile

Area: 458 sq km
Population: 21,000 (July 2010 est.)
Capital city: Melekeok
People: Palauan 69.9%, Filipino 15.3%, Chinese 4.9%, other Asian 2.4%, White 1.9%, Carolinian 1.4%, Micronesian 1.1%, Unspecified 3.2%
Languages: English (official in all 16 states), Palauan, Tobi.
Climate: tropical climate with annual mean temperature of 27 degrees Celsius. Relative humidity is 82%. Rainy season from May to November. Typhoons are rare as Palau is located outside the typhoon zone.
Religions: Roman Catholic, Protestant, Modekngei (indigenous belief)
Currency: US dollar (USD)
Government: Republic
Head of State and Head of Government: Johnson Toribiong
Vice President: Kerai Mariur
Minister of State: Victor M. Yano
Finance Minister: Kerai Mariur Membership of international groups/organisations: Africa, Caribbean and Pacific Group of States (ACP), Asian Development Bank (ADB), Food and Agriculture Organisation (FAO), International Atomic Energy Agency (IAEA), International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC), International Monetary Fund (IMF), International Maritime Organisation (IMO), South Pacific Regional Trade and Economic Co-operation Agreement (SPARTECA), United Nations (UN), World Health Organisation (WHO), Secretariat of the Pacific Communities (SPC), Association of Small Island States (AOSIS).

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Basic Economic Facts

GDP: $180 million (2008)
GDP per capita: $8,812.3 (2008)
Annual growth: 2.5% (2007)
Inflation rate: 2.3% (2007)
Unemployment rate: 4.2% (est 2005)
Major industries: tourism, construction, garment making, craft items from shell, wood and pearls
Major trade partners: Exports- US, Japan, Taiwan; Imports- US (Guam), Japan, Singapore, Taiwan, and Korea.

Economic situation

Palau's per capita GDP - of $8,812.3 makes it one of the wealthier Pacific Island states; this is twice that of the Philippines and Micronesia. This is partly the result of foreign assistance particularly that received from the United States under the Compact of Free Association. Under the terms of the Compact, Palau received over $450 million in budget support and infrastructure development between 1994 – 2008. A trust fund has been created to provide perennial budget support following the end of US direct assistance. Palau has approached the management of its Compact funds prudently and the value of the trust fund in 2005 was approximately $150 million. Nevertheless, the main economic challenge confronting Palau is to ensure the long-term viability of its economy by reducing its reliance on foreign assistance.

Palau has rich fishery resources that are critical to domestic food supply. Locally based tuna shipping companies export sashimi grade tuna, mainly to Japan. The local industry is in the doldrums at present, but the licensing of vessels from United States, Japan, Taiwan and the PRC is still a significant source of foreign exchange. After a long delay for environmental reasons Congress passed a bill at the end of 2004 to enable oil exploration to begin in Kayangel.

Tourism (and its attendant infrastructure changes) is Palau's main industry. Its major draws are its diverse and pristine marine environment, making it a world-class diving centre, and its above water tropical island beauty. The number of visitors, 75% of whom come from Taiwan, Japan, and the US, exceeded 86,000 in 2005. Continental Airlines, Far Eastern Transport (FAT), and Asian Spirit have direct flights to Palau from Taiwan, Philippines and Guam. Japan Airlines runs chartered flights from Tokyo. In 2002, the last year for which figures are available, tourist spending in Palau was $66 million.

The service sector dominates the Palauan economy, contributing more than 50% of GDP and employing more than half the work force. The government alone employs nearly 25% of workers and accounts for 23% of GDP.

Construction is an important activity, contributing over 15% of GDP. Several large infrastructure projects, including the Compact Road, relocation of the new capital, and new hotels, have boosted this sector's recent contribution to GDP.

Agriculture is mainly on a subsistence level, the principal crops being coconuts, taro, and bananas. Revenues in fishing industry are mostly from license fees from fishing vessels.

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Historical perspective

Archaeological evidence indicates that Palau was inhabited as early as 1000 BC and it is believed that the first inhabitants came from Eastern Indonesia. Spanish and Portuguese navigators first sighted Palau in the sixteenth century.

In 1783 English captain Henry Wilson was shipwrecked on a reef and became the first Westerner to visit Palau. Wilson and his crew stayed for three months and rebuilt their vessel with local help. Palau’s Prince Lebuu later went to England with Wilson, where he fell to smallpox shortly after their arrival. The encounter precipitated a trading link. European contacts grow and Britain became Palau's main trading partner until Spain claimed possession of the island in 1885.

Spain and Germany vied for possession of the Caroline Islands, including Palau, until Spain transferred these territories to Germany in 1899.

During World War I Palau was occupied by the Japanese and became the administrative centre of Japan's Micronesian territories. It was used as a Japanese military base during World War II.

Following the conclusion of that war, Palau was administered by the United States as part of the UN Trust Territory of the Pacific Islands. Palau became independent in free association with the United States on 1 October 1994.

Independence was only achieved after more than fifteen years of debate over aspects of the 1979 Palau Constitution, which sought to establish mechanisms for the protection of Palau's culture and environment, including restricting land ownership to Palauans, limiting the use of Palau for the benefit of a foreign nation and banning nuclear and toxic materials. Finally in 1993 Palauans voted to suspend the anti-nuclear provisions of the Constitution. This enabled Palau to ratify the Compact it had signed in 1982 and paved the way for independence. Under the fifty-year Compact, the United States retains responsibility for Palau's defence and security and provides substantial funding.

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.

Palau became the sixteenth member of the Pacific Islands Forum at the Madang meeting in September 1995. Palau hosted the Forum in October 1999. BBC News Country Timeline: Palau (

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Palau joined the United Nations (UN) as a full fledged member on 15 December 1994. It currently has bilateral relations with 40 countries, including the United Kingdom and the European Union.

Palau is a member of the Pacific Island Forum (PIF) and as such is part of the recently approved Umbrella Agreement including Australia and New Zealand called the 'Pacific Agreement on Closer Economic Relations' (PACER). This agreement includes the future creation of a free trade area amongst the 14 ACP Forum Island Countries (FICs) called the 'Pacific Island Countries Trade Agreement' (PICTA), without Australia and New Zealand.

Palau became the 185th member of the United Nations in 1994 and was admitted to the International Monetary Fund in 1997. The main donors are the U.S. (via the Compact payments), Japan and Taiwan. Palau is also a (non-borrowing) member of the Asian Development Bank.

Palau has ongoing maritime delineation negotiations with the Philippines and Indonesia.

Relations with the EU

In October 1999, Palau asked for the establishment of diplomatic relations with the European Union. After obtaining observer status to the post-Lomé negotiations, Palau became a signatory of the ACP-EU Partnership Agreement and ratified the Convention on 16 August 2001.

Palau joined the Africa, Caribbean and Pacific (ACP) Group of States in 2000, when it became a signatory to the Cotonou Agreement. Under the 10th allocation of the European Development Fund (2008-2013) Palau will receive 2.5 million Euros. Projects under this strand will focus on the development of renewable energy within water and energy sectors, and technical assistance and co-operation to aid related projects.

Relations with the UK

The UK's relations with the Republic of Palau are excellent. Several hundred British tourists visit Palau every year, and Palau officials have received scholarships to study in the UK.

Aid and development

The UK has no aid programme in the Republic of Palau. However the Bilateral Programme Budget of the British Embassy in Manila has provided funding for a few projects in Palau. The latest project involved the clearing of unexploded World War II ordnance in some islands in Palau to reduce the threat to their communities and visitors.
Palau is one of five pilot countries to take part in the London Olympic Committee’s International Inspiration Programme, a multi-million pound project that brings together experts in sport, development and education to bring high quality and inclusive physical education and sporting opportunities to transform the lives of millions of children in developing countries.

Diplomatic representation

The British Ambassador to the Republic of Palau is Mr. Stephen Lillie who is also resident HM Ambassador to the Republic of the Philippines based at the British Embassy Manila.

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The Republic of Palau consists of eight principal islands and more than 300 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 city of Koror on Koror Island. The capital, however, relocated in 2006 from Koror to a newly constructed complex in Melekeok State on the larger but less developed island of Babeldaob – the second largest island in all of Micronesia after Guam.

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Trade and investment with the UK

Shell has a successful oil distribution business. Currently there are no other significant UK businesses operating in Palau. Initial estimates in 2008 of UK exports of goods to Palau totalled £11,308.

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Political system

Palau has a constitutional government in free association with the United States under the Compact of Free Association which entered into force on 1 October 1994. Legislative authority rests with the bicameral National Congress, the Olbiil era Kelulau, made up of a Senate and a House of Delegates elected every four years. The President, who is both Head of Government and Head of State, is elected by the people for a four-year term and may serve as President no more than twice.

Presidential elections were held as part of the Palauan general elections on 4 November 2008. President Johnson Toribiong and Vice President Kerai Mariur were installed on 15 January 2009 along with members of the Palau National Congress. Pres. Toribiong, an attorney, is a former ambassador to the Republic of China.

Under the state constitutions, each of Palau's 16 states has a governor. Some governors are elected while others are chosen on the basis of their traditional status. There is also a 16-member Council of Chiefs which advises the President on matters of custom and traditional law. There are two high Chiefs, based on Koror and Melekeok.

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Palau generally respects the human rights of its citizens. However, areas of concern include government corruption, which the government is taking some steps to address. There have also been cases of domestic violence, trafficking in persons, prostitution, and discrimination against/ abuse of foreign workers.

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Last Updated: August 2011

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