KORROR Palau — President Tommy E. Remengesau Jr. plans a number of initiatives to boost Palau’s economy in his second term.

In his inaugural address on Jan. 28 he noted the accomplishments made in the past four years and outlined an agenda for the next four years.

In his address he referred to building a “strong Palau” through maintenance of cultural and traditional values protection of the unique environment and increased sustainable economic development. Remengesau noted that in his first term of office Palau had reduced the government general operations budget by 17% and the overall budget by 30% while increasing revenues by 18% and securing almost $100 million for the nation’s infrastructure. He spoke of the steady growth of tourism culminating in over 80 000 visitors in 2004 — Palau’s strongest year.

Remengesau said the first issue on his agenda would be the strengthening and broadening of the economy. He referred to spheres of tourism; natural resources; infrastructure; economic laws and incentives; international corporations and banking; school health care and law enforcement programs and the opportunities opening in Babeldaob with the completion of the Compact Road. He spoke of the importance of expanding Palau’s role in the international community and of preparing for the Constitutional Convention and the renegotiation of the Compact of Free Association.

In an interview with the Journal Remengesau answered in greater detail six questions that related specifically to his business/economics agenda.

• The Journal asked “What is the top priority agenda in the area of economic development for the next four years?”

Remengesau told the Journal “In my campaign I indicated that Palau was no longer in a “Non-Payday Weekend.” In my first campaign I used this phrase to indicate that Palau needed to retrench financially and control its expenditures to ensure a strong economic future. This was because we had exhausted our Compact of Free Association reserves. It also reflected a recognition that the Asia-Pacific financial crisis was still in full swing which placed Palau’s economy at further stress. Finally this phrase reflected the fact that we needed to establish certain governmental planning processes and infrastructure in order to be prepared for rapid economic growth.

“I believe that this was the best approach at the time. However I also believe that it is now time to move forward with Palau’s economic development and take advantage of the strengthening regional and international economy. In this context we will also be able to take advantage of our own strengthened governmental institutions. However to be successful we have a long way to go.

“Our first priority of course will be to strengthen our tourism industry the bread and butter of Palau’s economy. It is time that we develop new marketing options and expand government support for tourism. We must move forward rapidly and implement new tourism programs to take advantage of the strong regional economy. Towards this end I will work with the OEK to pass the necessary laws that will create incentives necessary to attract strong and diversified tourism projects to Palau. I will also work to strengthen and expand airline service to Palau especially as provided by domestic service providers.

“I will also work to increase the tourism dollar contributed to our economy by each tourist. We must do a better job at identifying our future tourists develop better charging systems to expand our revenues develop more diversified domestic tourism products and improve the capacity of our people to enter the tourism sector and provide tourism services.”

• “What plans are of interest to Palau-based and regional businesses?”

“We must institute measures that will build a strong private sector over the next four years. This will require that we complete the sustainable development agenda of this administration. And we must begin with the modernization of those laws that permit private sector businesses to grow. We must therefore complete our long-standing legislative agenda by upgrading and modernizing our tax laws health care financing laws foreign investment laws and banking laws and regulations.

“It is also crucial that we complete the Compact Road and the national capital in a timely fashion and put into place programs that will permit the rapid development of Babeldaob. This will require that we develop basic infrastructure such as water wastewater and sewer. We must also complete the development of realistic national land use guidelines. Uncontrolled growth will not benefit anyone. I will therefore seek funding from the OEK to finalize this process.

“It is also imperative that we broaden our economic base beyond tourism. As part of this effort I will seek passage of the pending international corporate laws now before the OEK. Palau is in a unique position to lawfully bring in large Japanese and other international corporations. Success in this effort will begin the process of establishing a regional banking capacity.

“We must begin the hard work of preparing for the renegotiation of our Compact of Free Association with the United States. To achieve a national consensus we must work with the leadership of Palau to prioritize our Compact Renegotiation strategies and objectives. The United States remains Palau’s primary trade partner and it is imperative that we define our future development needs and include them in our negotiations.

“Finally we must also improve our financial position and strengthen the private sector by establishing a system that will improve government’s cash flow and maximize the injection of capital into the economy. Regarding our cash flow situation we must recognize that because of our tax system revenues are collected more slowly than expenditures are received. Consequently we must implement a bond or loan system that anticipates these revenue collections and allows us to pay our vendors in a timely fashion. We must also improve the cash position of our private banks and our development bank to permit the development of new locally owned private ventures. We must also better implement our tourism objectives and put into place initiatives such as the National Tourism Unit that will maximize tourism benefits to Palauans and realize our high-end tourism objectives.”

• “What about the Foreign Investment Board? Is it too stringent? Does foreign investment law need to be changed to make it more accessible to outside investors or provide more incentives for foreign capital to move into the economy? What should be happening in the next four years with the FIB?”

“I believe that Palau must establish a consistent and transparent foreign investment system which attracts foreign direct investment but which continues to protect privately owned businesses in Palau. To enhance our current system I introduced a bill in 2001 that accomplished these goals. While this bill replaced the Foreign Investment Board I believe the more important component was the creation of 1) consistent categories of businesses and 2) clear guidelines and processes for foreign investment. If a foreign business knows that it will be treated as well as a local business with the same protections afforded to that business I think that we will have accomplished our goals. I hope to work very closely with the Olbiil Era Kelulau and the private sector to come up with a compromise bill that will accomplish our primary foreign investment goals.”

• “In regard to business what should happen to the three bills introduced last spring that would establish new corporate registry for foreign corporations? The bills referred particularly to Japanese corporations to be registered here in Palau. What about the 26% income tax that will be implemented with these bills as well as the Reinvestment Act wherein a percentage of these taxes could be reinvested for Palau?”

“First let me say that I strongly support the development of an international corporate and banking sector in Palau. As our economy continues to grow we must diversify our private sector options in order to weather regional and international economic storms. Within this context I believe that the three-bill package introduced in the Sixth OEK and recently reintroduced in this Seventh OEK is deserving of our support. The three bills were prepared through a private grant through very reputable regional and international law and accounting firms. The laws move away from the concept of no-interest money laundering and shift towards lawful offshore corporate and banking transactions. In this case we are focusing on Japanese transactions by large credible corporations at tax rates that are set by the Japan government and that are acceptable under Japanese law. Palau is very fortunate to be in the same time zone as Japan and has very strong historical ties to Japan. This makes us uniquely positioned to gain success with the passage of the legislative package.

“The 26% tax rate is the rate permitted by Japanese law for its foreign corporations. This compares to a domestic rate of about 46%. Of this 26% tax all revenues will eventually return to the republic. The law’s proposed ‘Reinvestment Scheme ‘ permits the foreign corporation to use for a limited period of time a portion of that ‘owed’ tax for loans or for equity investments to the corporation subject to market rates and conditions.”

• “Is the Free Trade Zone in Ngardmau something the executive branch would like to pursue and make happen? What should be done to encourage this development?”

“I am in favor of the Free Trade Zone if we can identify a market where we can sell our goods that does not exist without the Free Trade Zone. I am not in favor of a Free Trade Zone merely to say that we have one. I am also not interested in a Free Trade Zone if such a zone merely results in the elimination of tax revenues and allows foreign corporations to conduct business in Palau for free. We must be very careful that this does not happen. To prevent this from happening and to establish the best possible system we must hire high quality tax accounting and development consultants on this issue before we forge ahead with a final plan. I know that sometimes people get mad at me because I want a plan before I will move forward but I believe that is the way that one avoids long term mistakes. If it can be shown that Palau through the creation of a Free Trade Zone will create a new capacity to develop tax revenues and to provide the people of Ngardmau and the people of Palau with new private business opportunities I will be the first to work towards its establishment and implementation.”

• “What about the issue of the ten-year visa?”

“For many years now I have been supporting a ‘Silver Hair Town’ concept to expand our revenue base. The proposed ten-year visa is a clear attempt to move in this direction and I am supportive of this attempt in general terms. However I believe that we must be careful to cover all of the bases of such a program so that it will be successful in the long term. We must clearly identify the type and number of guests that we want to attract and establish a system that accomplishes this goal. Over the next year I will work closely with the OEK to identify these goals and to draft a law that will serve the long term interests of the people of Palau.”

• “What about international relations? When President Chen was here he talked about the Republic of China’s friendship ties with Palau that were economically beneficial. What about the relationship with not only colleagues in Palau but with international friends and colleagues to bring more economic development to Palau?”

“The strong friendships that we have developed with our diplomatic and development partners in the region and internationally have been created over many years through hard work on a number of levels. In the last four years Palau was able to secure almost $100 million from foreign governments for infrastructure projects. This was in addition to assistance under the Compact of Free Association. We accomplished this by recognizing who Palau’s real and close friends are and by supporting them on issues important to them in the international arena. It was also accomplished through constant interaction and constant work to identify the on-going needs of Palau. As I indicated in my inauguration speech it will not be business as usual in Palau over the next four years. We will work twice as hard as we did in our first term and this will include the issues that we have with our diplomatic and trade partners.” MBJ