General Characteristics of the RMI

RMI's total land area of 70 square miles, scattered over a vast 750,000 square miles of the Pacific, makes it the smallest of the 5 American-affiliated Pacific territories in Micronesia. At the same time its estimated population of 56,000 is the third largest (following Guam and FSM), with Micronesia´s highest population density of 803 persons per square mile.

Both English and Marshallese are official languages, and the traditional society of complex matrilineal clans has gradually but carefully been blended into an American-style system of democratic institutions.

RMI has approximately 1,225 atolls, islands and islets, with a mean height of only 7 feet above sea level. These low elevations make the atolls vulnerable to damage from storms and high waves, but typhoons, which are often very destructive in the Western Pacific, are not common to the area. Rainfall decreases from south to north and January-March are the driest months. Seasonal variations in rainfall and temperature are very small. Because of sandy soil and high salt content, most of RMI's soils are unsuitable for most agricultural production except for a few tropical species.

RMI's urban areas are Majuro, the capital, on Majuro Atoll and Ebeye on Kwajalein Atoll. About half of RMI's total population of 56,216 lives in Majuro and about 20 percent (about 10,000) on Kwajalein. The remaining 30 percent (just under 17,000) is scattered throughout the Republic.

Majuro, 3.75 miles square, and Ebeye, located in the southeast corner of 6.3 square mile Kwajalein Atoll, have some of the world's highest population densities. Kwajalein is a reserved US military area, site of the US Army´s Kwajelein Missile Range, and access to it is limited, but it is connected to Majuro and other population centers by civilian aviation.

According to the most recent population census, in 1988, 24 atolls and islands were inhabited and their populations ranged from 10 on Bikini Atoll to 19,664 on Majuro. The same census also showed that RMI's population growth, 4.1 percent annually in 1980-88, was one of the world's highest, resulting from one of the world's highest birth rates of 7.2 children per family. Improved medical and health care services have contributed to high fertility rates in RMI, while the mortality rate has dropped and average life expectancy has increased. Unabated, this growth rate means that RMI's population will double in 17 years.

Family planning as practiced in industrial economies such as the United States is neither widely practiced nor strongly advocated by the RMI government as public policy. Further, an ancient family planning practice, voluntary separation of couples of child-bearing age for 2 years after the birth of each child which was common until a few decades ago, is no longer practiced. However, the social and economic implications of very rapid population growth have not gone unnoticed.

The RMI government is keenly aware that one of its most formidable tasks in the next 10-20 years is to bring population growth in line with economic growth.

A Brief History

Japan occupied all of German Micronesia (the Caroline Islands including Palau, the Northern Mariana Islands excluding Guam and the Marshall Islands) at the onset of World War I in 1914 and received a formal mandate for its administration from the League of Nations in 1920. Japan intensively colonized the area, with as many as 100,000 Japanese settling in Micronesia, developing the islands and fortifying them in preparation for war.

US forces gained control of Micronesia from Japan in 1944. In 1947 the United Nations created the Trust Territory of the Pacific Islands (TTPI) including the Marshalls and delegated its administration to the United States. Administration of the TTPI within the US government resided with the US Navy until 1951, when responsibility was transferred to the Department of the Interior.

Demands for self-rule and sovereignty could be heard in the various TTPI districts as early as the 1960s. In response the United States helped Micronesia form a consultative body, the Congress of Micronesia (COM) in 1967, which in 1970 declared the area sovereign. COM further stipulated that each of the various TTPI members had the right to form a government and to enter into some kind of political ties with the United States as they determined.

Following almost a decade of negotiations, in the late 1970s the United States agreed to terminate its trusteeship by the end of the 1980s. However, TTPI was not dissolved until October 1994 when its last member, Palau, became an independent nation in free association with the United States.

In 1978, the Marianas became the first TTPI district to become formally affiliated with the United States by forming the Commonwealth of the Northern Mariana Islands. In 1979 the Marshall Islanders adopted their own constitution and the Republic of the Marshall Islands was formed.

In 1983 voters approved entry into a 15-year Compact of Free Association with the United States, which took effect in October 1986 and formally ended US control over the Marshalls as a part of the TTPI. Under the pact, the United States is responsible for RMI's defense and has unlimited access to RMI's waterways for military uses. Over the 15-year period of the Compact ending in 2001, RMI will have received a total of $1 billion from the United States, adjusted for price inflation. RMI became a member of the United Nations in September 1991.

From TTPI to the Missile Range

Clearly, by paying $1 billion to a country of fewer than 57,000 people over a 15-year period the United States has gone well beyond the usual scope of economic aid. The US military's involvement in RMI is in fact part of a much larger continuing strategic interest in the Pacific Ocean, where the United States has invested large sums since the end of World War II. As much as the euphoria over the end of the Cold War and associated ill effects of global armament is justified, the Western Pacific remains of vital long-term strategic and economic interest to the United States.

Even so, the amount of investment the United States is making in the Central and Western Pacific, however small in the context of the national budget, has been viewed as an area for review and possible reduction. Such a reduction may appeal to those whose task it is to bring national spending in line with national revenues after nearly three decades of fiscal disorder. But RMI is an integral part of the US permanent strategic zone in the Pacific, and investing in RMI's economy and the region is justified by both US security and economic interests in the long run. No changes in global and regional geopolitical configurations should be expected to change that reality and, therefore, US commitment to the region.

The United States retains the right to extend its lease agreement on Kwajalein for another 15 years when the present Compact ends in 2001. Although all terms of the Compact are subject to negotiations which either side may initiate, the Kwajalein missile range makes it unlikely that the United States will leave RMI any time soon. Nor would US strategic interest in the Central Pacific allow it to abandon the area. In fact, there has been discussion that the US Army may be interested in leasing more sites for missile testing and other purposes in RMI, and the RMI government may be willing to enter into such agreements because doing so will mean more income for the Marshallese..

The US Army leases most of Kwajalein Atoll from RMI for the missile range that has been in operation since 1961. Presently the Kwajalein range employs about 1,200-1,500 islanders, a large number for a country with a total population of less than 57,000. If the missile range expands its present site or acquires more sites it will create more work and income for RMI residents. To the extent that RMI can use the missile range as a means to negotiate for continued US rent and economic aid, it is a uniquely valuable resource for generating income. Higher and better uses of Kwajalein Atoll other than the missile range are severely limited.

Another avenue for continued economic and political dialogue between RMI and the United States is discussion to settle claims by those islanders who have been affected by the 1946-58 American nuclear testing. Bikini atoll was used by the US government for experiments with nuclear weapons in 1946-58 and Eniwetak Atoll in 1948-58. Since the Compact took effect in 1986 the nuclear impact settlement agreement has been reopened several times because of new claims based on new information coming to light. As recently as summer 1995, information disclosed yet another nuclear testing site affecting another group of Marshall Island residents. As new claims emerge and add to the legal and financial negotiations between the United States and the Marshall Islands, they also add to the need for further dialogue between the two economies.

Since the United States is unlikely to discontinue its military link to the Marshalls or to settle all claims against it any time soon, the ongoing contact translates to a continued economic link that benefits both sides in both the short and long terms. Whether the United States will be willing to pay the current rate of rent and economic aid after 2001 cannot be predicted with certainty, especially in light of the inward-looking posture in Washington and rising demand for a balanced budget. Large budget deficits the nation has tolerated for two decades add fuel to the fire to trim government and cut spending. Pieces of the budget that no longer carry the obvious weight of the Cold War era, among them the rent and aid package to RMI and other strategic interests in the Pacific, may be cut or eliminated. However, the fiscal ill health of the United States should not diminish the importance of its vital strategic interest in the area. At most, fiscal problems merely obscure it in the short term.

RMI Economic Characteristics

RMI's small population of 56,216 lives on more than 24 atolls, where lack of transportation facilities and communications tighten the constraints within which the economy must perform. These physical and economic limitations inhibit the economy´s capacity to operate smoothly and to provide the increasingly higher living standards that have come to be expected in a progressively global market economy that technology is changing rapidly. In addition, there are institutional barriers such as communal land holding, whose somewhat peculiar extensions include the multiple rights system under which several parties can claim and hold in dispute the same parcel of land. Provision for long-term leases of up to 50 years has been a welcome change, but the land tenure system as a whole remains an impediment toward establishing a market system without which the productive base of the economy cannot be expanded in the future.

At the same time, some of these same limitations that inhibit economic growth in RMI have also made RMI a valued strategic asset for the United States since the end of World War II. From the testing of nuclear devices in its waters in the 1950s to the missile range presently in place on Kwajalein, American interest in the RMI has shaped the RMI economy. As in some other parts of the former TTPI, US rent and aid payments have been the main sources of income, and government has been the largest beneficiary and therefore the main employer in the country for decades.

Critics of US involvement in RMI and elsewhere in the region have argued that the United States has made RMI so dependent that without its rent and aid the economy cannot sustain its current consumptive mode and standard of living. As true as that claim may be, it is also true that the current standard of living could not have been achieved and maintained without US payments. Alternative uses of RMI's resources, with the exception of fish and other marine habitats which can produce food for both domestic and overseas markets, are extremely limited. In search of an income source in the 1980s, middlemen working for the RMI government and nuclear powers searched the nuclear world for waste to be stored in those RMI areas that have no productive uses. In return for allowing nuclear waste in its waters, RMI would receive rent payment in the manner it receives rent from the United States for the missile range and exclusive military access to its waterways. So far such a deal has not been consummated, at least not publicly. Whether the RMI government will pursue such a transaction in the future will depend on how urgently it needs additional source of income.

The nature of RMI's economy, its dependence on US rent and aid and aid from other foreign sources, has made government the largest employer for two reasons: First is the communal social structure of RMI in which economic benefits (and costs) are shared by the entire population. Second is the need for an equitable distribution of those benefits among the population which without the central government´s direct involvement cannot be guaranteed. The dual role of government as both the guardian of a traditional social structure that the Marshallese want to maintain, and as the provider of income and security, makes it a uniquely dominant social and economic force.

Also, since the government represents the people through an elaborate and hierarchical but representative system, it exercises the authority people respect. The social and political stability resulting from the integration of the communal system with a US-style democracy is a major institutional asset for accomplishing economic change. The certainty arising from political and social stability should enhance RMI's efforts to attract foreign capital and expertise on its way to becoming a more productive and self-sufficient economy.

Gross Domestic Product

Despite a well-developed money economy since the 1940s, RMI is a developing economy with a relatively high standard of living on a global scale as reflected in a per capital gross domestic product (GDP) of about $1,700. As is typical in most developing economies, accurate and current economic information is limited, making a definitive assessment of the economy and its future prospect for change difficult. However, the RMI government and world aid and finance organizations, especially those of which RMI is a member such as the World Bank, the International Monetary Fund and the Asian Development Bank, have recently begun to generate some information systematically.

Imports, Exports

Exports have remained very small. If RMI were to fund its imports with borrowings, which is not unusual in developing economies, it would be in a permanent state of trade deficit. And since most world aid and finance organizations do not routinely fund current consumption, RMI would be unable to borrow in global capital markets to pay for its consumption.

Goods Producing Industries

Services

Trends in Real GDP

GDP data go back to 1981, but the absence of a price index for periods earlier than 1984 prevents calculation of real GDP, which is a more realistic measure of standards of living. Real GDP data since 1984 show interesting changes. Just before the Compact took effect in 1986, RMI had a recession and real GDP dropped 2.3 percent in 1985. In the first year of the Compact (1986), real GDP increased 17.6 percent, rose another 16.1 percent increase in 1987 and another 8.2 percent rise in 1988. In the first three years of the Compact, real GDP increased 47.5 percent from $35.8 million in 1985 to $52.8 million in 1988. This unusually large gain in RMI GDP resulted from the initial boost provided by the Compact´s implementation which included the first annual payment, the establishment of the trust fund and payment of other regular aid from the United States.

Real GDP growth in the next 5 years (1989-94), on the other hand, averaged only 1.9 percent, a rate of growth that appears consistent with the RMI economy´s long-term growth path. It is highly unlikely that RMI's GDP can repeat the annual compounded growth of 13.8 percent that it did in the first three years of the Compact. Nor would it appear practical that RMI's ecosystem can sustain such growth even if it were feasible.

As in the neighboring Federated States of Micronesia, the US Compact payment schedule was structured with a step-down every 5 years, that is, the payment level would drop every 5 years. The discretionary portion of the Compact payment was $53 million a year in the first 5 years, $49 million a year in the second 5 years and $46 million in the last 5 years (1996-2001). Thee Compact also created a trust fund to compensate for damages linked to the nuclear testing in the 1940s and 1950s.Other specific aid was to be provided for health care,ocean surveilance and education. Altogether, US Compact payments would amount to $1 billion over the 1986-2001 period.

Trends in Per Capita GDP

Inflation & Real Per Capita GDP

Suspecting higher price inflation than indicated by the Majuro CPI and varying price inflation rates for the various locales, the RMI government passed a law in 1986 to set a minimum wage of $1.50 per hour. Nevertheless it is believed that the minimum wage does not support a minimal living standard unless supplemented by subsistence production.

The country's largest employer, the RMI government has observed its minimum wage law. At the other extreme are small employers who cannot pay the minimum wage because they do not generate the type of value added to support higher wages. Anecdotal evidence tells us that these employers pay less than the minimum wage.

Since salaries in the public sector are higher than in the private sector, the private sector has the additional disadvantage for competing for employees. Whether the budgetary problems the government faces as Compact funds decline will mean a cut in the minimum wage is uncertain. Also uncertain is the extent to which the RMI government will have to cut either payroll or other spending to cope with declining Compact funds.

Although the loss in real per capita GDP has so far been slight (12 percent in 1988-94), especially on year-to-year basis, it represents a trend that every economy hopes to avoid. The case for more robust economic growth in RMI is no different from that of other economies in the region: there is the need to compensate for rapid population growth in the face of limited natural and capital resources. Emigration to the United States can reduce some of the urgency to generate more rapid economic growth, but exporting an economy´s most valuable resource, its people, has turned out not to be among the most desired solutions in the long run.

Studies of developing economies in the Pacific show that migration especially of skilled people, whether to North America or Australia and New Zealand, is increasingly becoming a problem. If economic growth is to produce results from which the majority of the population benefits in the long run, it must be accompanied by growth of the domestic labor force´s skills and productivity. Such a change must also be accompanied by a concerted shift toward building a private sector-dominated economy, which can create wealth and income from both foreign and domestic sources more efficiently than the public sector can.

A sign of the move toward a market economy has been a small decline in governments share of employment. Public employment as a share of total paid employment in the economy dropped from 41 percent in 1985 to 37 percent in 1992. Although the drop in government´s share as employer has neither been steady nor large enough to see it as a signal of a major shift, it offers some evidence that RMI's market economy can expand. In 1985-92, total paid employment increased 40.5 percent from 5,487 to 7,707 while public employment rose 26.9 percent from 2,267 to 2,877 and private sector employment rose 50.0 percent from 3,220 to 4,830.

With reliable income sources such as US rent and aid payments along with aid and technical assistance from other sources, RMI can make the transition to a market economy. However, it is critical to point out that this transformation will neither be easy nor quick. The private economy´s capacity to generate work and wealth can expand, but only gradually because the institutional structure underlying a market economy is not in place. The strength of the public sector has been developed over the last five decades, mostly with American involvement. To generate an equally strong private sector will require both time and resources.

Agriculture

Copra production has remained in the 4,000-6,000 ton range since the 1950s. Since 1951 total output reached 7,348 tons only once, in 1970. With full utilization of all resources, the country´s total production potential is believed to be about 14,000 tons. The drop in output to below 5,000 tons in 1993-94, although not out of line with earlier periods, is believed to be the onset of a trend typical of Pacific copra-producing countries, which have suffered recently from low world prices. According to the World Bank, real (adjusted for inflation) world coconut prices dropped 64 percent in 1980-90. At the same time Marshallese have migrated to the urban centers in search of higher income, and the labor supply on the copra plantations has been affected.

Tourism

A number of reasons preclude RMI from becoming a mass market tourist destination such as Guam, but the most important are isolation, small land mass and poor infrastructure. These conditions do not suggest that tourism on a small scale cannot be developed, but they do suggest that the best prospect for RMI's tourism is the small specialty market. In 1983-94, total passenger arrivals increased 75 percent from 3,630 to 6,363, but visitor arrivals including business arrivals increased 145 percent from 1,999 to 4,909. We do not know how many recent arrivals have been tourists and how many business travelers (separate data for business travel is available only for 1983-88).

Majuro's small tourist plant of 130-200 rooms is being expanded by a government-owned hotel now under construction, with the completion of 150 new rooms expected in June. Presently there are no tourist facilities in the outer islands. Overall, the prospect for tourism development is limited but not unimportant. Some of the pristine outer islands are best suited for specialty tourism if such an industry can be developed around diving and other small group activities.

Fishing & Fisheries

The national average for fish consumption, on the other hand, has been estimated at only 37 pounds because of the relative shortage of fresh fish near urban areas and the difficulty in transporting fresh catch to the urban centers. Also contributing to the low national consumption of fresh fish is cheaper imported canned fish and other meats, especially in Majuro and Ebeye.

Large-scale commercial fishing in the RMI has been conducted for some time by American and Japanese fishermen, and more recently by both Mainland Chinese and Taiwanese fishing fleets.

With a large number of Chinese fishing boats catching fish in RMI's Exclusive Economoic Zone since 1992, the total catch increased substantially from 8,248 tons in 1991 to 25,562 tons in 1992 and to a record 111,198 tons in 1993. The 1994 catch was larger still by a little, the 1995 catch is estimated to be slightly smaller.

Most of it is skipjack tuna, followed by yellowfin, bigeye and albacore tuna. Billfish, marlin, some species of shark and wahoo have limited commercial potential in global markets. Japanese vessels return their catches to Japan for processing and fresh consumption, and American vessels carry their catch to canneries in American Samoa. Albacore tuna mostly ends up in canneries while large and high-quality bigeye and yellowfin tuna are transported to sashimi markets in Japan and more recently in Hawaii.

Poor infrastructure, isolation from markets and transportation and labor costs through the years have constrained the development of fishing and fisheries. Also, a contributing factor in the short run has been low tuna prices worldwide. The same principle that applies to copra, fluctuating commodity prices in world markets, works in other commodities including fish products. Over the years these constraints have worked against the construction of a tuna canning facility in RMI. However, as is evident from the rise in the total catch since 1992, there is a potentially vast market for RMI's fishing resources.

Local Transportation

Implications of Rapid Population Growth

China, for example, wants to achieve a higher standard of living by forcibly reducing fertility and limiting the family size to one child per couple. If such a policy can be enforced in perpetuity, it may achieve the stated objective of a higher standard of living for all Chinese in the years to come. India, while trying to limit population growth through conventional means, has achieved self-sufficiency in food production and strives to become an industrial economy.

How does a small, isolated island economy with one of the world's highest population growth rates fit into the global picture? Fifty-one percent of RMI's population is 15 years old or younger. Should RMI's population continue to grow at 4.1 percent while real GDP grows at less than 2 percent and per capita real GDP declines as it has since 1988, it seems inevitable that the country will experience a substantial decline in living standards in the years ahead.

The question then becomes: what can RMI do to bring the population and economic growth rates in line soon? RMI is potentially a representative case in our region of what has been called the Neo-Malthusian society, an economy seemingly faced with an inevitable future of lower standards of living because of rapidly growing population which the economy's human and natural resource base cannot support.

At current population growth rates, if the Marshallese are to maintain current standards of living with no improvement at all, real per capita GDP must grow at least 4.1 percent per year. Such a growth rate would require that real total GDP grow 8.5 percent annually. Adding a 5 percent price inflation, for example, suggests that RMI nominal GDP must grow at 13.5 percent annually to maintain its current standard of living. But RMI's economic history since World War II tells us that the economy grew at that rate for only two years (1986-87), when the first phase of the Compact was implemented. Realistically, such a growth rate for GDP is not feasible, at least at this stage of economic development.

The other end of the argument, altering population growth, may be more feasible for RMI than rapid economic growth. It is important to remember that rapid population growth has critical implications for the fragile ecosystem within which the population must live and prosper. Given RMI's natural resource base and the unique environment which supports it, slowing population growth may be a more manageable prospect than forcing the type of economic growth that the ecosystem would not be able to sustain even if it were possible to inject large sums of capital into the economy.

The government of the RMI is fully aware of the challenge it faces. In a comprehensive and thoughtful population policy analysis released in July 1990, it outlined the problems and their possible solutions. The paper outlined three scenarios for population growth, even the most favorable of which would result in nearly tripling the 1995 population estimate of 56,215 by 2025. The most rapid rate would result in total population of 189,440 in 2025 and the slowest rate of increase would mean a total population of 147,784 in 2025. Even under the slower rate, Majuro would have a total population of 66,800 as compared with about 20,000 today.

Many factors are at work to influence population and economic growth over time, technological change being the most important. However, even technological change faces limits imposed by nature, the most important of which are the natural systems that support life in an island economy.

To address the population growth issue, government of the RMI outlined a complete list of policy options that would, if implemented, solve some of the population-related problems. The problem, however, is that implementation of such a comprehensive program would require the economic resources that RMI does not have and that world aid organizations are unlikely to provide.

What may work in both the short and long terms is both an economic development strategy that addresses economic growth needs along with a population control program that starts with an educational program to acquaint citizens with the problem and its implications. RMI is a democracy and a consensus-driven society. A policy that addresses the population question in a realistic manner originating in consensus appears the most feasible path to a sustainable living in one of the unique ecosystems of the Pacific.

Originally published by Bank of Hawaii as part of its Pacific Islands Reports Series.

CONTACT:
Dirk H.R. Spennemann, Institute of Land, Water and Society, Charles Sturt University, P.O.Box 789, Albury NSW 2640, Australia.
e-mail: dspennemann@csu.edu.au