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By Aldwin R. Fajardo

KOROR, Palau (October 16, 1998 - Marianas Variety)---The merchandise trade deficit of Palau is expected to remain high, unless the country minimizes its importation of raw materials as well as capital and consumption goods.

Wali Osman, Bank of Hawaii vice president and in-house economist, predicted that the country's merchandise trade deficit will continue to be large, Palau being a net exporter of tourist services while remaining a net importer of goods.

Despite this, the economist said, Palau does not face serious problems emanating from its foreign sector transactions.

Osman said the drop in the country's exports as a share of gross domestic product (GDP) from 20.4 percent to 9.9 percent during the 1990 to 1996 period may create an unfavorable trade balance.

In 1996, Palau exported $14.3 million in terms of fishing fees and small quantities of goods, which was significantly lower than 1990 exports, which amounted to $17.1 million.

While total exports are declining, importation of goods increased from $32.3 million in 1990 to $72.4 million in 1996.

As a percent of GDP, the country's trade deficit rose from 15.2 percent in 1990 to 58.1 percent in 1996.

Osman said Palau did not fare well in both counts, adding that two factors should be considered for a more accurate assessment.

He explained, however, that trade balance is only one part of a country's international accounts.

"Palau earns foreign exchange from tourism, which does not, and should not, show up in merchandise trade."

He pointed out that this is reflected in the country's total balance of payments. He also said a portion of import costs have been covered by grants and soft loans which Palau receives from the United States, as well as other major economies.

Osman also mentioned Palau's small and declining foreign debt as a significant economic factor, which explains why the country does not have credit problems in global capital markets or pressure to pay debt service from exports.

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