Cover Story
But For The US Territories, They're Bracing For The Worst
Northern Mariana Islands
Saipan is bracing for the worst economic situation, as outlooks for both tourism and garment industries are dim due to the ripple effect of the September 11 crash attacks on the World Trade Center and the Pentagon. The Northern Marianas Visitors Authority disclosed that continued cancellation of travel reservations has slashed the number of tourist arrivals in the Northern Marianas.
On average, Northern Marianas has been losing 804 inbound tourists daily since the September 11 terror attacks, or a daily average decline of 49 percent.
- ADVERTISEMENT -
However, several visitor industry forecasts warn that those numbers are not expected to return to normal before the fourth quarter of 2002. "The Northern Marianas is in a very real economic crisis, and without a timely concerted recovery effort, the tourism sector will continue its downward spiral. The effect on the economy as a whole would be staggering," said SEDC chair Joe Camacho.
The worsening economic situation, along with rising budget deficit and plunging government revenues, is foremost among the priorities that the incoming administration of Governor-elect Juan N. Babauta will have to address beginning January.
GUAM
Guam policymakers have taken a hard look at a critical report recently released on the state of Guam's economy by Bank of Hawaii economist, Wali Osman. In the past few years, Osman notes that gross business receipts from all business activities in the territory have been reduced by about 25 percent to US$3.6 billion. Other notable data includes an almost 15 percent unemployment rate (triple that of the United States), a shrinking construction industry (down 500 jobs from last year's figure of 4400), a decreasing military presence, increased crime rates, and a reduced workforce due to early retirement incentives and poor labour conditions. Guam's economy is perilously teetering as the island's two primary markets - Japan and the United States - are in recession. The rebound for Guam isn't likely to occur this year given Japan's all-time high jobless rate - 3.3 million people are out of work - and household spending falling to 3.3 percent. Consequently, the Japanese have reduced their travel plans accordingly.
A reduced cash flow to hotels has seriously impacted projected revenue streams to the territorial Department of Revenue & Taxation.
PALAU
Since 1994-95, Palau's economy has been largely driven by payments from the United States-Republic of Palau Compact of Free Association agreement. This began with a whopping US$192 million in the compact's first year, including US$70 million for a national trust fund which has nearly doubled in size.
Government expenditures of these funds kick started a fair amount of private sector activity, mainly in tourism, construction, and various sorts of investment.
Tourism, a big revenue generator for Palau, was down for the year and took a bigger dive after September. But the huge new dolphin facility located in the Rock islands, a short speedboat ride from Koror, is expected to help tourism rebound. Sport fishing will also see some development in 2002. In addition, Japan Airlines is seeking to expand the number of flights to Palau, and Taiwan's travel industry began efforts in November to revitalise travel to Palau as a desirable option. These two nations provide the bulk of Palau's tourists.
Palau attracts foreign investment of both small enterprises such as restaurants and beauty shops and large schemes such as golf courses, airlines, and banks of various degrees of credibility. Virtual pachinko and other gambling games will be available to international players from Palau via Internet.
Midcorp's Alan Seid teamed up with a Japanese-based firm to hatch this project which claims it will earn a net profit of US$42 million in its third year. Seid is now working with Hawaii's Aloha Airlines to begin Palau Rock Island Air which will compete with Continental Airlines for the Japanese tourist dollar. It may succeed given its plans for lower fares and routes to both Manila and Micronesia.
Finally, the permanent Koror-Babeldaob Bridge now opened to traffic, has improved access to Babeldaob. The Babeldaob road, however, won't be completed until 2004.
This will open up the 153-square mile island of Babeldaob for investment and development - assuming Palau's various clans can agree on land leasing arrangements.
MARSHALL ISLANDS
Locking up a satisfactory long-term funding agreement with the United States government remains the highest priority - and greatest challenge - for the Marshall Islands in 2002.
With the late 2003 expiration of guaranteed funding from Washington DC rapidly approaching, the administration of President Kessai Note will be hard pressed to get a pact concluded, particularly as the Marshall Islands has just submitted a 15-year strategic development plan to the United States for consideration.
But while the tight deadline for the funding talks is a huge challenge for both sides, in other areas the Marshall Islands government has had some good news. Debt payments that were sucking more than US$20 million annually to United States banks -about 20 percent of the national budget - ended September 30, leaving the Marshall Islands with its best financial outlook since the early 1990s.
Not only does it have access to the money previously going to pay debts, the final two years of Compact funding is paid at an average level for the first 15 years, which has meant a bump up of about US$3 million annually through 2003. Coupled with strong support from Taiwan, the government has had the wherewithal to embark on numerous overdue school building, road and airport renovation projects throughout the country. The Marshall Islands government has chosen to invest about US$14 million of this "extra" money in a newly created inter-generational trust fund, for which it is seeking additional donors.
The trust fund will be one part of the Marshall Islands' pitch to the United States for future funding, and the substantial contribution that the government has made should increase donor confidence about the country's seriousness in savings after 15 years when the opposite was the case. But can the Marshall Islands develop a productive economy where none has existed for the past 50 years? There are some small positive signs: in late 2001, the second harvest in as many years of pearls by local company, Robert Reimers Enterprises, suggesting the economic potential of this lucrative aquaculture product; a steadily increasing flow of divers to Bikini Atoll's sunken World War Two fleet; and a dramatically increased number of divers from Japan.
FEDERATED STATES OF MICRONESIA
Like their Marshallese neighbours to the east, the Federated States of Micronesia is facing a difficult deadline for completing negotiations on a new, long-term funding from the United States. The Federated States of Micronesia-United States negotiations are much further along than in the Marshall Islands. But they have also revealed a deep chasm between the Federated States of Micronesia's expectation and need for aid, and the United States willingness to provide it. While the Federated States of Micronesia negotiators have been seeking a long-term funding pact over a 20-year period worth about US$2 billion that would include annual United States contributions to a new government trust fund, the United States has issued a counter proposal offering less than 60 percent of the Federated States of Micronesia's request. Importantly, too, while the Federated States of Micronesia sees the need for a 20-year trust fund period, to adequately build up the corpus to fund future government services, the United States has held firm to a 15-year limit - a period of time which the Federated States of Micronesia negotiators say won't work financially.
The pressure will mount on the negotiators to get a funding package to the United States Congress by mid-year 2002, in time for it to gain congressional review and inclusion in the fiscal year 2004 budget planning that normally takes place early in 2003.
- Aldwin R. Fajardo, Bruce L. Campbell, Donald Shuster and Giff Johnson contributed to these reports.
