Compact of Free Association: Proposed US Assistance to Palau Through Fiscal Year 2024
Gootnick, David (2012). Compact of Free Association: Proposed US Assistance to Palau Through Fiscal Year 2024 (Report). Washington, DC: Government Accountability Office.
- Has attachment: File:8PQWIMTC.pdf
Abstract: I am pleased to be here today to discuss the September 2010 agreement between the U.S. and Palau governments.
The Compact of Free Association between the Government of the United States and the Government of the Republic of Palau, which entered into force in 1994, provided for several types of assistance aimed at promoting Palau’s economic advancement and eventual self-sufficiency. In addition to establishing Palauan sovereignty and U.S.-Palau security and defense arrangements, the compact provided economic assistance to Palau. This assistance comprised, among other things, direct economic assistance for 15 years to the Palau government; the establishment of a trust fund intended to provide Palau $15 million annually from 2010 through 2044; investments in infrastructure, including a major road; and the provision of federal services, such as postal, weather, and aviation. The compact also established a basis for U.S. agencies to provide discretionary federal programs related to health, education, and infrastructure. In June 2008, we projected that U.S. assistance to Palau from 1995 through 2009 would exceed $852 million, with assistance under the compact accounting for about 68 percent and assistance through discretionary programs accounting for about 31 percent. We also reported in 2008 that the likelihood of the Palau trust fund’s being able to sustain the planned payments through 2044 was uncertain.
The September 2010 agreement between the U.S. and Palau governments (the Agreement) followed a formal review of the compact’s terms required 15 years after the compact entered into force. Provisions of the Agreement would, among other things, extend economic assistance to Palau beyond the original 15 years and modify trust fund arrangements. The Agreement establishes an assistance schedule beginning in 2011. There are currently two bills pending before the Congress to approve and implement the Agreement. A bill now pending before the U.S. Senate would approve the Agreement and also appropriate funds to implement it. However, the Senate bill does not reflect the fact that fiscal year 2011 has passed. A bill now pending before the House would approve the agreement, apply an inflation adjustment to assistance payments, and shift the timing of certain assistance payments to reflect the passage of fiscal year 2011.
The Senate Committee on Energy and National Resources held a hearing to review the pending bill on June 16, 2011; the Subcommittee on Asia and the Pacific of the House Committee on Foreign Affairs held a hearing to assess the formal review and proposed Agreement on November 30, 2011 We testified at both hearings and described the terms of the Agreement, assessed trust fund balances and disbursement plans under various assumptions and investment returns, and examined single audit reports and budget estimates prepared for the Palau government.
My statement today updates our November 2011 statement.11 In particular, it describes (1) the extension of economic assistance to Palau as outlined in the Agreement, (2) the impact that this assistance would have on the Palau trust fund’s sustainability, (3) the projected role of U.S. assistance in Palau government revenues, and (4) the pending legislation to implement the Agreement. We used recent data from the Palau trust fund to update its sustainability, and we reviewed the bill pending before the House that was introduced in July 2012.12 In addition, since Congress has not approved legislation implementing the agreement, we note that the Department of the Interior has provided direct economic assistance to Palau. We conducted this work from August and September 2012 in accordance with all sections of GAO’s Quality Assurance Framework that are relevant to our objectives. The framework requires that we plan and perform the engagement to obtain sufficient and appropriate evidence to meet our stated objectives and to discuss any limitations in our work. We believe that the information and data obtained, and the analysis we conducted, provide a reasonable basis for any findings and conclusions in this product.
