Koror -- With the recent appropriation of the Compact Review Agreement funding signed into law by U.S. President Donald Trump in March, Palau is seeking to have the remaining funds “front ended” so they can be invested to protect from inflation until zeroed out. A total of $123.9 million was appropriated as part of the U.S. National Defense Authorization Act.
President Tommy E. Remengesau Jr said Palau has asked the United States not to disburse the funds—direct economic assistance—in yearly scheduled payments but that they be given upfront to be invested with the Compact Trust Fund to earn interest to address inflation. “Palau’s position has been made clear in a letter to the U.S. Government,” said Remengesau, who added that such request is subject to discussion. “Unfortunately, the inflation adjustment factor was not in the language of the law,” President Remengesau said at a joint leadership meeting on March 29.
The inflation-adjustment factor was brought up during the Compact Review Agreement discussion so as not to have a replay of the initial Compact Trust Fund. The initial $66 million trust fund investment in 1996 under the first Compact was projected to grow at an annual yield of 12 percent but instead grew at little more than 7 percent. Current value of the trust fund as of March is $223 million. “It‘s not Palau’s fault that the rate of return didn’t meet expectations. It was the market performance as well as the overly promising financial projections,” Remengesau said.
It is hoped that the appropriated funds can be released in their entirety and placed in a money earning instrument under the monitoring eyes of both governments. The money would be subject to a withdrawal schedule under the agreement. Palau officials are undertaking a review of the $123.9 million that was deducted against the original $250 million agreed to in September 2010. At the same time, Palau has requested the U.S. Government through the Department of the Interior to give a breakdown on how the remaining balance was reached. Remengesau said there will be discussions after the numbers have been clarified and the funding approval process established “so that we can arrive at some level of understanding and expectations.”
In a statement last month after President Donald Trump signed the 2018 Omnibus Bill, the Department of Interior said that the “U.S. and Palau Governments will need to meet to update the funding schedule of the 2010 agreement which required specific annual outlays of funds. Included in the assistance are contributions to the Palau Compact Trust Fund, a capital improvement program, and an infrastructure maintenance plan. The specifics of disbursements must be reaffirmed by the parties prior to the implementation of the agreement.”
Before the recent funding approval of the Compact Review Agreement, the Department of Interior has provided annual funding to Palau with decreasing amounts each year since 2010 as scheduled in the agreement.
The Compact Agreement established a trust fund which is intended to provide Palau $15 million in annual payments from 2010 to 2044, when the U.S. direct economic assistance is gradually zeroed-out. The revised Compact Agreement signed by both countries in Honolulu, Hawaii in 2010, does not change the fundamental provisions of the original Compact; however, it does gradually reduce the financial support provided by the U.S. and extends the life of the direct economic assistance to 2024.