Finance Minister Kaleb Udui

The second Palau Compact Review Agreement with the United States was initialed by Palau’s Chief Compact Negotiator, Finance Minister Kaleb Udui Jr., and US Special Envoy Ambassador Joseph Yun on Wednesday, May 17, 2023, at Ngerulmud, Palau. 

Next week, the document will be signed at the India-Pacific Islands Cooperation (FIPIC) Summit in Port Moresby.  United States President Joe Biden was scheduled to join this event but canceled at the last minute to attend to the ongoing contest over the debt ceiling issue back home.

The Compact Review Agreement (CRA) spells out the financial package and supporting programs offered to Palau by the United States.  Not all the details in the CRA are available, but the Memorandum of Understanding signed on January 10, 2023, showed the total financial package to be $890 million, covering 20 years, starting October 2023. 

“If approved by the US Congress, the assistance will be made available a year earlier, this October 2023,” said Chief Negotiator Kaleb Udui Jr. of the additional feature negotiated in the CRA. The negotiating team requested the earlier disbursement because of Palau’s financial challenges in recovering post-covid.

Udui reported that the $890 million package includes $20 million in annual financial assistance for government operations, $5 million in infrastructure, and $5 million in maintenance funds. $100 million will be paid into a new trust fund. The payment will be made in two installments of $50 million each in the first two years. Each year, $10 million will be paid for six years to cover debts acquired to assist Palau during the pandemic.

Unlike the original Compact Agreement and the CRA of 2010, this CRA has built into it an estimated 2% inflation rate, to be calculated and added every year to the amount of each specified funding.  President Whipps said Palau would receive $20 million for operations, and by year 20, it would receive about $29 million.

The 2% inflation factor is included in the $890 million financial package.

Other negotiated benefits in the Agreement include the removal of the fiscal cliff after year 20 and allowing for annual economic review, “much like the JCM,” said President Surangel Whipps Jr. referring to bi-annual Joint Committee Meetings between Palau and the United States over security matters.

Although the CRA is expected to be signed next week, Chief Negotiator Udui said the negotiations would continue to include US federal service eligibilities for Palauans, such as Veterans program, scholarships, and removal of mandate to obtain work permit requirements for Palauans working in the United States.

After the signing of the Compact Review Agreement, it will need to be passed by the US Congress into law before it takes effect.

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