The US government let financing for the Marshall Islands and Palau lapse at the end of September, less than a week after hosting the US-Pacific Islands Forum Summit meeting in Washington DC. The earmarked funds were not included in the last-minute 45-day stopgap budget passed last week.
If not restored, the funding failure could allow China to step in and provide economic assistance that is of great importance to the strategic Pacific Island archipelagos. Neither the Marshall Islands nor Palau can make budgetary ends meet without US assistance.
The US maintains Compacts of Free Association with three Pacific island states, namely the Republic of the Marshall Islands, the Republic of Palau and the Federated States of Micronesia.
In exchange for security guarantees, economic assistance and rights for their citizens to live, study and work in America, the three island nations grant the US the prerogative to operate military bases in the islands and make decisions related to their external security.
The US military operates a ballistic missile defense test site on the Kwajalein atoll in the Marshall Islands, is installing long-range over-the-horizon radar in Palau and plans to establish a permanent military presence in the Federated States of Micronesia. These facilities are and will be backed up by large US air and naval bases situated in Guam.
The three island republics are located west-southwest of Hawaii on the way to the Philippines and Australia. Taken from the Japanese in heavy fighting during World War II, they cover an enormous maritime area but have small populations and minuscule economies. Approximately 42,000 people live in the Marshall Islands, 18,000 in Palau and 115,000 in the Federated States of Micronesia.
From 1945 to 1978, the island states were administered by the US as districts of the United Nations Trust Territory of the Pacific Islands, which also included Saipan and the other Northern Mariana Islands. The Northern Marianas chose commonwealth status in 1975. The other three districts chose to become nominally independent states in free association with the US.
The Marshall Islands are best known for the nuclear weapons tests – 67 of them in total – carried out on the atolls of Bikini and Enewetak between 1946 and 1958. Residents were evacuated and radioactive fallout contaminated these and several other islands, causing sickness, death and long-lasting environmental damage.
The Castle Bravo hydrogen bomb detonated on Bikini in 1954 generated a 15-megaton blast, about 1,000 times greater than the atomic bomb the US dropped on Hiroshima during World War II.
Since then, the US government has provided about US$600 million in compensation for damages, cleanup and restoration of the environment, resettlement of displaced residents and health and medical programs.
The Marshall Islands, however, is demanding an additional $3 billion and an official apology. These amounts are drops in the bucket compared with the annual US defense budget, which now exceeds $800 billion, and the more than $100 billion in assistance provided so far to Ukraine.
Nevertheless, the US is driving a hard bargain. Speaking at a congressional hearing in July, Joseph Yun, President Biden’s special envoy in charge of negotiating the Compacts of Free Association agreements, said that he had told his Marshall Islands counterparts, “Listen, there is no more money.” As reported by The Guardian, he also said that the nuclear issue had been settled in the 1980s.
The US Congress-funded Voice of America quoted David Stilwell, former assistant secretary of state for East Asian and Pacific Affairs and an Air Force brigadier general, as saying “We have to draw a line somewhere.”
In President Biden’s budget for 2024, that line is $7.2 billion for all three island states over the next 20 years. Of this, $2.9 billion would go to the Marshall Islands, with $700 million earmarked to deal with nuclear-related issues.
It is hard to accuse Yun and Stilwell of not being able to see the Pacific for the palm trees – both are clearly concerned about China. The US provides about 40% of the Marshall Islands’ national budget and a general election is scheduled to be held there on November 20.
Palau’s finances are also in dire straits. In a recent interview with the Voice of America, President Surangel Whipps Jr said that if the US Congress does not restore its previously agreed funding, Palau will be unable to pay its bills as of January 1, 2024.
He also said, “I think the most important image that it projects on Palau and the people of Palau is, when the US commits to something, are they really committed?”
China, which was once the largest source of tourist revenue for Palau, retaliated against its refusal to cut ties with Taiwan by cutting the number of travelers it allowed to the island.
As a result, according to Whipps, between 2016 and 2019 the number of Chinese tourists who visited Palau declined by more than 50%, causing its GDP to drop by more than 30% and forcing its government to borrow from the Asian Development Bank. Then Covid-19 hit the global tourism industry.
If funding from the US had been provided as expected, Palau would have returned to solvency on October 1 but is now in financial limbo.
But, as Yun said in a statement reported by The Wall Street Journal, “If we fail to approve that package in a timely way, we severely risk our credibility vis-a-vis the region and obviously vis-a-vis what we are saying on competing with China.”
Currently, the Marshall Islands and Palau maintain diplomatic relations with Taiwan. The Federated States of Micronesia have diplomatic relations with the People’s Republic of China, but rejected a proposed regional security pact with China in 2022. Generally speaking, they are favorably disposed toward the US and wary of China, but Kiribati’s example cannot be ignored.
The Republic of Kiribati, which is located southeast of the Marshall Islands and Federated States of Micronesia, switched its diplomatic recognition from Taiwan to the People’s Republic of China in 2019.
In return, it has received assistance in the areas of agriculture, healthcare, and tourism – including the upgrading of an airport that the government of Kiribati says is for civilian use but that the US and others see as providing a potential military foothold for China.
After decades of neglect, the Biden administration has made a serious effort to improve relations with Pacific Island states. In September 2022, the first US-Pacific Island Country Summit meeting was held in Washington, DC.
Since then, the US has opened embassies in the Solomon Islands and Tonga, made plans to open an embassy in Vanuatu in 2024, begun discussions aimed at opening an embassy in Kiribati and extended diplomatic recognition to the Cook Islands and Niue.
At the second meeting, renamed the US-Pacific Islands Forum Summit and held on September 25-26 this year, Biden announced several priorities including the provision of additional development aid, the strengthening regional institutions, increasing digital connectivity via undersea cables, supporting the Compacts of Free Association and working “expeditiously to meet the needs of the Republic of the Marshall Islands.”
However, it’s unclear if he was listening when, on September 20, Marshall Islands President David Kabua told the UN General Assembly that “…while we have shared goals and a strong partnership with the United States of America, we also have grave development challenges … We know that the United States stands tall for its renewed engagement with the Pacific Islands and it is essential for all of us to ensure that words are met with actions.”
They probably will be, but if the US drops the ball, China is likely to pick it up.
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