MARSHALL ISLANDS

COUNTRY OVERVIEW

LOCATION AND SIZE.

The Marshall Islands are located in the North Pacific Ocean some 4,000 kilometers (2,486 miles) northeast of Australia. They consist of 2 groups of small islands, atolls (coral islands), and reefs running from the northwest to the southeast. The more easterly of these is the Ratak Chain, the more westerly, the Ralik Chain. It is estimated that there are 1,152 islands and 30 atolls, but only 4 islands and 19 atolls are inhabited. With terrains of coral, limestone, and sand, none of the islands have any high ground, and the most elevated location of the islands is 10 meters (33 feet). The total land area is 181 square kilometers (70 square miles), and about 60 percent is taken up by crops. There are phosphate deposits and the possibility of minerals in the seabed within the 200 nautical mile economic zone claimed by the Marshall Islands. The capital is Majuro, which is located on an atoll of the same name.

The Marshall Islands are located within the tropics, and the weather is generally hot and very humid. Temperatures average around 27°C (81°F), and vary little during the year. There is a rainy season from May to November, with annual rainfall of about 4,000 millimeters (157 inches), but the sandy terrain means that little water is collected, and the shortage of drinking water is a continual problem. The islands are occasionally hit by typhoons.

POPULATION.

The population was estimated at 68,126 in 2000, giving a population density of 375 persons per square kilometer (971 per square mile), quite a bit higher than in neighboring island states in the Pacific. The population was estimated to be growing at 3.9 percent a year in 2000, which is considered a very rapid rate. The birth rate was 45 births per 1,000 population, and the death rate was 6 persons per 1,000. The figures indicate negligible migration, but the International Monetary Fund (IMF) has indicated that there is in fact significant out-migration to the United States. The average fertility rate is 6.6 children per woman. With such a rapid rate of growth, the population can be expected to have a young age structure. The 0-14 age group contains 50 percent of the population, the 15-64 group contains 48 percent, while only 2 percent are 65 and over. Slightly more than half of the population lives on Majuro Atoll, and a further 20 percent live on Kwajalein. The urban population is about 70 percent of the total.

Almost all of the people on the Marshall Islands belong to the Micronesian ethnic group and follow the Christian religion. Most are Protestant, although there are some Catholics and small communities of Seventh-Day Adventists, Mormons, Jehovah's Witnesses, and Bahai. English is the official language and is spoken by everyone. Two local Malayo-Polynesian dialects are in use as local languages, and they are used in parliament and for some radio broadcasts. Overall life expectancy is 66 years, with a 64-year expectancy for males and a 67-year expectancy for females. The adult literacy rate was 93 percent in 1980, with practically all adult males and 88 percent of females being literate.

OVERVIEW OF ECONOMY

Given its small size in terms of population, its inaccessible location, and the absence of any minerals apart from phosphates (which are not currently exploited), it is surprising that the economy of the Marshall Islands generates as much income for its citizens as it does. The per capita gross domestic product (GDP) was estimated at __BODY__,670 ( purchasing power parity, 1998 est.), and this rate would just squeeze the Marshall Islands into the lower-middle income group. In addition, the Marshall Islands receive very substantial receipts from the United States—partly aid and partly rents for the use of military bases—which add more than 50 percent to the income that is generated domestically.

Most employment is in the services sector, which, because of the receipts from the United States, is able to support health workers, teachers, and government administrators. The agriculture sector is quite small in terms of both its contribution to total output and employment. The small industry sector, primarily engaged in crop and fish processing, is about what would be expected given the general level of development of the islands.

Coconut products and fish are the main exports, and these earnings are supplemented by tourism. Almost everything, aside from some food products, is imported and, without U.S. aid there would be a drastic fall in imports.

The growth of the economy varies from year to year and is affected by the impact of climatic conditions on agriculture. In recent years, output has declined by 2 percent to 5 percent per year, although El Niño weather conditions caused severe disruption in 1996, when output fell by 13 percent.

POLITICS, GOVERNMENT, AND TAXATION

The Marshall Islands were originally settled by people from neighboring Pacific islands. In the 16th century, Spain claimed the islands, although Germany was allowed trading rights. With decline of Spanish influence, the islands came under the control of Germany, who established a protectorate. At the outbreak of World War I (1914-18), the Japanese took over the islands and administered them under a United Nations (UN) mandate. World War II (1939-45) saw clashes between the United States and the occupying Japanese, with the United States finally establishing control of the islands in 1944. The United States administered the islands as a trustee for the United Nations and used them to begin a series of nuclear tests. The tests subjected the islanders to serious radiation and made Bikini Atoll uninhabitable. This was to have long-term implications for the Marshall Islands, leading to the United States providing considerable financial support while continuing to operate its military bases. In 1965, movements for self-determination of the islands began, culminating in full independence in 1990. The Marshall Islands has a Compact of Free Association with the United States, agreed to in 1986, by which the United States is responsible for defense of the Marshall Islands, rents military bases, and provides financial assistance. The initial agreement was valid for 15 years from 1986 and is being renegotiated.

The 1979 constitution established a parliamentary government, with a president as chief executive and head of state. The parliament is known as the Nitijela. Directly elected for 4-year terms, the parliament has 33 members, known as Senators. The president is elected by the parliament, and the president chooses his cabinet from among the members of parliament. The voting age is 18. Although elections were typically non-partisan on the Marshall Islands, opposition began to emerge in 1991, and subsequent elections have seen incumbents losing their seats. In 2000, the opposition gained 40 percent of the seats in the parliament and established a significant presence. Parliamentary candidates tend to contest elections on the basis of their personalities, rather than their party affiliations, and it is sometimes not clear which party an elected member supports. In 2001, during a no confidence vote (which decides if the ruling government has enough support to survive), 2 ostensible government members voted with the opposition and 1 opposition member voted with the government.

The legal system is based on the former Trust Territory laws, but has been modified by the legislature, municipal

bodies, customary law, and common law. There are 4 levels of judicial courts: the Supreme Court, High Court, district and community courts, and traditional courts. The traditional courts are limited mainly to jurisdiction over traditional titles and land issues.

In the fiscal year 1997-98, the budget anticipated that government revenues would be 25 percent of GDP. Income tax raised 32 percent of government revenue (excluding grants), import duties 28 percent, sales taxes 13 percent, and other income (interest, fees, licenses) 27 percent. There is a continuing program to try to improve tax performance by tightening administration, reducing tax arrears, simplifying import duties to a basic duty of 12 percent (with some exceptions), doubling the fuel tax, reducing tax exemptions, introducing a value-added tax (VAT) and taxes on commercial rentals, and the introduction of user charges.

Total spending in 1997-98 was projected at 53 percent of GDP. On the recurrent expenditure side, general administration takes up 12 percent of total government spending, education 23 percent, health 12 percent, and foreign affairs 10 percent. The gap between revenues and expenditures was more than met by receipts from the United States of 40 percent of GDP, and on this basis, a budgetary surplus of 11 percent of GDP was forecast. Budget surpluses have not always been the norm. Between 1992 and 1995, budget deficits averaged 14 percent of GDP.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

Perhaps because the country's limited roadways are scattered widely across the many islands, there are no measurements of roadway length on the Marshall Islands. The main settlements on Majuro Atoll and Kwajalein have paved roads, and the roads in Majuro have recently been upgraded. Elsewhere there are coral surfaced roads and sandy tracks. There are no railways. The main port is at Majuro, and this is the only port that is able to receive large ocean-going vessels. A dry-dock facility was recently completed on Majuro Atoll for the islands' fleet of 143 ships, mostly bulk and cargo carriers, petroleum tankers, and a vehicle carrier. Sixteen of the inhabited atolls and islands have airports and 4 have paved runways.

All of the Marshall Islands' electricity is supplied by diesel generators. In 1994, the Marshall Islands generated and consumed 57 million kilowatt hours (kWh). There is some domestic use of bottled gas, and many families use kerosene stoves or wood as cooking fuel. The water supply is erratic, and there are projects to increase water storage facilities and to construct desalinization plants.

In 1994, there were an estimated 3,000 land line telephones in use and 280 mobile telephones. The 3 major settlements of Majuro Atoll and the islands of Ebeye and Kwajalein are connected by a direct dial system; the other locations are linked by shortwave radiotelephone, mainly used by the government. International links are provided by 2 Intelsat satellite earth stations. There is a U.S. government satellite link on Kwajalein Island.

The islands had 3 AM radio stations and 4 FM stations in 1998, and in 1997, there were 3 television stations, although 2 of these were provided by the U.S. military on Kwajalein Island. The local newspaper is the weekly Marshall Islands Journal.

ECONOMIC SECTORS

The services sector dominates the economy, and is primarily composed of the large number of government employees, those providing services for the U.S. military installation on Kwajalein Island, and the tourism industry. In 1995, services generated 72 percent of GDP. The most recent employment figures, from 1988, indicate that the services sector employed 58 percent of the labor force. Incomes in this sector are above average. The smallest sector in terms of output is industry, which produced 13 percent of output in 1995 and engaged 23 percent of the labor force in 1988. The agriculture sector (which includes fishing) only employed 19 percent of the labor force in 1998, generating 15 percent of output in 1995.

AGRICULTURE

Copra (dried coconut) is the main cash crop, though its output has been falling. There was a 16 percent fall in 1996 as a result of El Niño rains, but this was followed by an 11 percent fall in 1997. The poor transport links between the islands, atolls, and Majuro is a problem, as the crop has to come to the capital for processing and packaging before exportation. The price earned by growers has fallen (the price halved between 1994 and 1997), reducing their incentive to produce, but it was still above the world price due to a government subsidy. The long-term problem is that the coconut trees are declining in productivity as they become older and, with lower prices, the growers have little incentive to replace the tree stock. The lack of private land titles and a land market is a further problem. Without land as collateral, farmers find it difficult to raise loans to finance replanting.

Fish exports appear substantial and fast-growing, but much of the catch is in fact caught by Chinese and Japanese vessels, taken to land, and then shipped from the islands in refrigerated cargo boats. The main benefits to the islands are fishing license fees, supplying the fishing fleet, and some processing and packaging of the catch. The Marshall Islands do have some government-owned boats, but their catches were very low. They ceased operation in 1996. Trochus shells are collected from the reefs. They are exported to be made into buttons and ornaments, and they can be ground to produce an ingredient for lacquers.

Food and livestock production has grown modestly in the period from 1993 to 1997 (by about 3.5 percent annually), basically reflecting the increase in the population. However, production is not encouraged due to the low prices of imported food as compared with domestic output. A total of 60 percent of caloric intake comes from imports. Local food producers are hampered by poor transportation, which raises the cost of their products. The main food crops are bananas, breadfruit (a large fruit with edible pulp and seeds), pandanus (a fruit with edible nuts), taro (a starchy root crop similar to the potato), vegetables, and tropical fruits. Livestock is mostly poultry and pigs, with some cattle.

INDUSTRY

There is no mining on the Marshall Islands, although there are some phosphate deposits. The main manufacturing enterprise is the Tobolar Copra Processing Authority, which is government-owned but run by a private management team. It is the only purchaser of copra, which it crushes to produce coconut oil. Currently, it is unable to purchase enough copra and operates at about one-third of its capacity. A garment factory was established in 1998 in a joint venture with China. Other manufacturers are involved in the production of drinking water and beer, and the processing of breadfruit and taro.

The Marshalls Electricity Company is government-owned, and manages to cover its costs, as does the publicly-owned Majuro Water and Sewage Services. The construction sector is made up of small private enterprises that mainly construct private dwellings. An international construction company undertakes any large project, such as the new port at Majuro, and the local workforce provides only some unskilled labor.

SERVICES

The services sector is the largest employer, and generates almost three-quarters of GDP. Transport and communications generate 7 percent of GDP; distribution, restaurants and hotels, 18 percent; financial services 14 percent; and public administration and community services, 30 percent.

Much of the high value of this sector comes from servicing the U.S. installation on Kwajalein Island, which is used for missile tracking and weapons testing. Another source of service sector income has been the sale of Marshall Islands passports since 1996. These were initially offered at $350,000 each, and later at $100,000. The islands indicated that they were prepared to sell up to 3,000 passports, and to date the sales have realized about $10 million. The sales were suspended in 1997 but there are plans for resumption. The services sector also supplies the international fishing fleets operating in the waters that surround the islands, serves as an onshore leave destination, and generates further income from the sale of fishing licenses (about __BODY__.5 million to $3 million, a year).

The National Telecommunications Authority is still majority-owned by the government. By virtue of being a monopoly and making relatively high charges for international calls, it manages to cover its costs. Air Marshall Islands is government-owned. It sustained large losses in 1996 and 1997, and its routes have been restructured with plans of eventual privatization.

BANKING AND FINANCES.

The banking sector includes 2 U.S. commercial banks, the domestic Bank of the Marshall Islands, and the Marshall Islands Development Bank. Most lending consists of consumer loans for construction, travel, and education. The lack of private titles to land or a land market makes lending to the agriculture sector difficult.

TOURISM.

Tourism offers some prospects for expansion. In 1997, there were 6,000 arrivals in the islands, but less than 1,000 were tourists; the rest were on business or in transit. There are presently less than 200 hotel beds, although a new government-owned hotel of 150 beds is under construction. In 1997, tourism is estimated to have earned $3 million for the Marshall Islands. Visitors are presently deterred by the lack of facilities (particularly outside Majuro), the relatively high cost of transportation to the islands, the radiation contamination of some of the atolls by nuclear testing, and the current program of weapons testing on Kwajalein. It is thought, however, that the islands have some possibilities in establishing a specialty market in tourism, based on sport fishing, diving and snorkeling, gambling (approved in 1996), and the general tropical attractions of the islands.

INTERNATIONAL TRADE

Merchandise exports of $28 million were made up entirely of coconut products (11 percent) and fish products (89 percent) in 1997. Frozen fish exports have increased from __BODY__.3 million in 1993 to $21.9 million in 1997 as a result of a Chinese fishing fleet that based itself at Majuro. Exports of trochus shells for buttons, ornaments, and making lacquers are not recorded, but there is probably some small informal trade. Diesel used to be re-exported to Micronesia, but this ended in 1996. Exports go mostly to China as a result of the frozen fish expansion, with the United States, Japan, and Australia being other export destinations.

Merchandise imports were $58 million in 1997, with food and beverages making up 31 percent and fuels 23 percent. The rest consisted of consumer manufactures, machinery and transport equipment, and chemicals. The United States supplied 52 percent of imports in 1997, much of which was goods for the U.S. workers at the Kwajalein installation. The next biggest supplier was Singapore with 4 percent.

MONEY

The Marshall Islands use the U.S. dollar as their currency. This has the advantages of not having the expense of running a central bank, the currency is completely convertible, and price stability is reasonably well ensured as the Marshallese do not have the ability to print currency. The rate of inflation has been in single digits in the period from 1993 to 1997, ranging from 4.8 percent to 9.6 percent. The only drawback for "dollarized" economies is that they do not earn the seigniorage (profit from the minting of coins) they would gain if they issued their own currency. The increasing number of countries that have been attracted to using the U.S. dollar in place of a domestic currency has caused the United States to consider sharing some of the seigniorage it earns as currency issuer.

POVERTY AND WEALTH

The are no figures on the numbers below the dollar-a-day poverty line, but given the income level and the structure of the economy, perhaps 20 percent of Marshallese might live poverty. Most of those affected will be among the 30 percent of the population living on the atolls other than Majuro and Kwajalein, relying on small-scale agriculture and fishing for their livelihoods.

Life expectancy (at 65 years in 2000) is considered high, and the level of adult literacy, last surveyed in 1980, was 93 percent. Together with its lower-middle

income status, the Marshall Islands has a medium level of human development when evaluated by the criteria used by the UN. Infant mortality is high, however, at 41 per 1,000 births in 2000 (in the United States the rate is 6 per 1,000).

WORKING CONDITIONS

The economically active labor force was estimated at 11,500 in 1988, of which 73 percent were males. Approximately 12 percent of the labor force was recorded as being unemployed. However, the unemployment rate has little meaning in an economy like that of the Marshall Islands, as it relates to those registering as looking for jobs in the urban areas as a percentage of the formal labor force. A substantial part of the labor force of the Marshall Islands is in the agriculture and fishing sectors, much of it in small-scale family enterprises outside the formal sector. With negligible social security provisions, those without work or support from families or charities cannot survive. It is likely that there is considerable disguised unemployment in the rural areas, meaning that the work could be carried by a smaller workforce than is used.

There is a Marshall Islands Social Security Administration, but it is under investigation for mismanagement, and it is not able to make much of a contribution to helping those who are out-of-work or in need.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

1000 B.C. Migration to the Marshall Islands from other Pacific Ocean islands begins.

1525. Spanish navigator Alonso de Salasar is the first European to sight the islands.

1529. Alvaaro de Saavedra lands on the islands and claims them for Spain.

1788. The British sea captain, John Marshall, visits the islands.

1874. Pope Leo XIII, acting as a European mediator, confirms Spanish dominion over the islands, while also allocating trading rights to Germany.

1885. Germany establishes a protectorate over the islands.

1914. With the outbreak of World War I, Japan assumes administration of the islands.

1920. Japan receives a United Nations mandate to administer the islands.

1944. After fierce fighting between Japanese and American forces during World War II, the United States occupies the islands.

1945. Japanese settlers are repatriated.

1947. The UN assigns the islands (which are known as the Trust Territory of the Pacific Ocean) to the United States. The U.S. Navy undertakes their day-to-day administration.

1948. The United States begins a series of nuclear test explosions on the islands, which subject the islanders to high levels of radiation.

1965. The Congress of Micronesia is formed by delegates from Pacific islands to press for independence.

1970. A commission on self-government confirms that the peoples of Micronesia have a right to sovereignty, self-rule, and to terminate association with the United States.

1979. Marshall Islands District, named after the British explorer who visited the islands in 1788, drafts and approves a constitution, which is recognized by the United States. Amata Kabua, who holds the traditional position of High Chief, is elected as the first president.

1982. The United States signs a Compact of Free Association, which outlines proposals for the end of its trustee relationship with the Marshall Islands.

1983. Marshall Islanders vote to accept the Compact of Free Association. Kabua is reelected as president.

1986. The Compact of Free Association, after several mutually agreed amendments, comes into operation, and the islands become self-governing.

1987. Kabua reelected as president.

1990. The UN removes the trustee status of the islands, establishing the Republic of the Marshall Islands.

1991. The Marshall Islands joins the UN as an independent, sovereign nation. The Ralik-Ratak Democratic Party is formed to oppose the supporters of Kabua, and wins 2 seats in the parliament.

1995. Kabua is reelected as president. The Government Party (or Kabua Party, as it is often known) wins 23 seats, and the newly formed United Democratic Party (UDP) wins 10 seats.

1996. President Kabua dies and is succeeded by Imata Kabua, the paramount chief. The Kabua Party becomes Our Islands Party (OIP).

2000. Elections give the OIP 20 seats and the UDP 13 seats. Kessai Note, who had held no traditional post, is elected president.

2001. The United States Nuclear Claims Tribunal awards Marshall Islands $563 million, but the tribunal has no powers to enforce payment.

FUTURE TRENDS

It is clearly very important that the islands extend the agreement with the United States relating to the use of Kwajalein for missile testing. About 1,500 Islanders work at the complex, making up about 13 percent of the labor force, and the jobs are particularly well-paid. The major success in recent years has been the expansion of the frozen fish export sector, and the government would be wise to make sure that the agreements with the Chinese fishing fleets are continued. Tourism has some possibilities as a specialty market, but foreign investment will be vital if significant expansion is to be achieved.

The main sector of concern is the production of coconut products. In the long-term, many of these problems can be solved by registering land-titles and extending loans to farmers to replace exhausted trees. This is particularly important from a social standpoint, as the coconut farmers are among the poorest members of the community. In the short-term, some efforts to improve transport between the islands and atolls would help both the coconut farmers and the small fishermen.

DEPENDENCIES

Marshall Islands has no territories or colonies.

BIBLIOGRAPHY

Bank of Hawaii. Republic of Marshall Islands. <http://www.boh.com/econ/pacific/rmiaer.asp>. Accessed April 2001.

International Monetary Fund. Marshall Islands: Recent Economic Developments. Washington, DC: International Monetary Fund, 1998.

U.S. Central Intelligence Agency. CIA World Factbook 2000. <http://www.cia.gov/cia/publications/factbook/geos/rm.html>. Accessed April 2001.

U.S. Department of State. Background Notes: Marshall Islands. <http://www.state.gov/www/background_notes/marshall_ 0007_bgn.html>. Accessed September 2001.

—Michael Hodd

CAPITAL:

Majuro.

MONETARY UNIT:

United States dollar ($). One U.S. dollar equals 100 cents. There are notes of 1, 2, 5, 10, 20, 50, and 100 dollars. Coins come in denominations of 1, 5, 10, 25, and 50 cents and 1 dollar.

CHIEF EXPORTS:

Fish, coconut products, and shells.

CHIEF IMPORTS:

Foodstuffs, machinery and equipment, fuels, beverages, and tobacco.

GROSS DOMESTIC PRODUCT:

US$105 million (1998 est.).

BALANCE OF TRADE:

Exports: US$28 million (1997 est.). Imports: US$58 million (1997 est.).