In a letter dated February 9, President Surangel Whipps Jnr of Palau expressed his concerns about the potential consequences of further delays in economic assistance from the United States. The President warned that this delay is making some local leaders more inclined to consider sacrificing diplomatic ties with Taiwan in exchange for financial support from Beijing.

Palau, an archipelago consisting of over 500 islands, is among the 11 countries that currently maintain diplomatic relations with Taiwan. However, the President highlighted that there is growing willingness to explore closer ties with China, which views Taiwan as a renegade province.

The current situation has arisen as the US Senate failed to include funds pledged by US President Joe Biden in a recent foreign aid package. The bipartisan $95 billion foreign aid package, primarily focused on expediting aid to Ukraine, did not include money for Palau and two other Pacific island nations under the newly negotiated Compact of Free Association (Cofa) with the United States.

The Cofa, which was initially signed in the 1980s, grants the US military access to the land, air, and sea of these three Pacific island nations in exchange for financial aid and various other provisions. President Biden had pledged a significant budget of US$7.1 billion over 20 years in order to counter China's increasing influence in the region. However, these funds have become caught in the prioritization of aid for Ukraine, Israel, and Taiwan's defense against possible aggression from Beijing.

The delay in approving the Cofa funding has serious implications for Palau's economic stability. The nation's struggling economy, burdened with high debt, inflation, and a decrease in tourism due to the ongoing pandemic, is in urgent need of financial support. President Whipps noted that the longer the funding remains unapproved, the more it benefits China's Communist Party, which has already expressed its willingness to provide economic assistance to Palau in exchange for a shift in alliances.

The President also pointed out the strategic significance of the US military presence in the region through Cofa, stating that it helps safeguard shipping lanes that China covets. The presence of US forces in this area, according to military experts, is estimated to be worth approximately $100 billion in terms of crucial security and defense capabilities.

As the Biden administration marks the two-year anniversary of its Indo-Pacific strategy, officials are increasingly recognizing the importance of the Cofa as a key component of their regional approach. Ely Ratner, the assistant secretary of defense for Indo-Pacific security affairs, emphasized that the Cofa pacts present a significant opportunity for Congress and the administration to collaborate and ensure its approval.

With the fate of Palau's diplomatic ties and economic stability in the balance, it remains to be seen how the US government will address these funding challenges and support its Pacific allies, while also countering China's influence in the region.