The Pacific region was settled thousands of years ago, predominantly by Melanesian people in Papua New Guinea, Solomon Islands, and Vanuatu; Micronesians in Kiribati; both Melanesians and Micronesians in Fiji; and Polynesians in Tonga and Western Samoa. Most of the inhabitants resided in closely knit coastal communities, which were governed by powerful local chiefs. Fertile soil, except on coral atolls, and plentiful fish enabled living standards to be kept above subsistence levels in these economies. An ample diet, in terms of calories and protein, and a generally equable climate contributed to relatively long life expectancy. Explorers from Spain and Portugal in the sixteenth century, from the Netherlands in the seventeenth century, and from the United Kingdom in the eighteenth century were primarily interested in trade in precious metals and spices. Except for the spread of diseases, against which local inhabitants lacked immunity, the life of the region was unaffected by these contacts.
The Republic of the Marshall Islands (RMI) consists of a group of atolls and islands in the central Pacific with a total land area of 20,000 square kilometers and 750,000 square miles of ocean. Two-thirds of the population of about 58,000 live in the two major urban centers, Majuro and Ebeye. Like other small Pacific island countries, the country is remote from major markets, and the economy is highly dependent on U.S. financing provided through the amended Compact of Free Association (covering 2004-23). Economic activity is dominated by the public sector, and a small private sector developed mainly to meet the demands of the government and its workers. Small contributions also come from agriculture, fisheries, and tourism. As a result of large external assistance, economic conditions are relatively favorable by regional standards, with a per capita GDP of around $2,500.
The Federated States of Micronesia (FSM) comprises about 600 islands, stretching 1,800 miles across the central Pacific. The total landmass of about 700,000 square kilometers is spread over a sea area of 1 million square miles, including its exclusive economic zone. With the remote location, small population of 110,000, and narrow resource base, Micronesia has much in common with other Pacific island countries. Economic and social conditions are relatively favorable by regional standards, with per capita GDP of around $2,000, primarily because of very high external grants under the two successive Compacts of Free Association with the United States (Box 11.1). At the same time, there is a need for major adjustment efforts because external assistance will be reduced in coming years.
The Republic of Palau is an archipelago of more than 560 islands. It has a total land area of 460 square kilometers stretching along 700 kilometers of sea from northeast to southwest. The center of government and economic activity is the northern volcanic island of Koror, which is connected by bridge to Babeldaob, a densely vegetated island that accounts for 78 percent of total land area but remains largely undeveloped. The capital is to move from Koror to Babeldaob. South of Koror and scattered over a large lagoon are the 300-odd raised coral limestone Rock Islands, mostly uninhabited, and world-renowned for marine-based tourism. The southernmost islands of Peleliu and Angaur were the site of fierce battles during the Second World War. Palau was administered by the United States after the war and until 1990 as part of the United Nations Trust Territory of the Pacific Islands. Palau adopted its own constitution in 1981 after choosing not to join the Federated States of Micronesia in 1978. A Compact of Free Association with the United States was approved in 1986 but ratified only in 1993, following several referenda on whether the United States should be permitted to transport nuclear weapons through Palau’s territory. Under the Compact, the United States controls Palau’s security and defense for 50 years and has exclusive access to waterways and certain land, in exchange for economic aid, security, and right of entry for Palauans to the United States for residence or work (Box 12.1).