Marshall Islands
Year Of Living With Uncertainty
Marshall Islands Facing Major Economic Challenges
This is a year of uncertainty in the Marshall Islands. With a national election looming in November, President Kessai Note’s slim parliamentary majority will face its biggest test yet.
A key issue for the government: can it—or ultimately will it want to—sign a proposed Compact of Free Association 20-year funding package with the U.S. in time to replace the current pact that expires on September 30 after 17 years? If it doesn’t it will be the first time since shortly after World War II that the country has been without guaranteed American funding.
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With the September 30 deadline putting increasing pressure on the government to conclude a deal with Washington, the Marshall Islands at press time had not reached agreement with the U.S. on rental payments for use of Kwajalein for missile testing, overall trust fund and grant funding, inflation adjustment of U.S. funding and access to U.S. disaster relief. The Marshall Islands leadership appears resigned to the fact that the U.S. will control all money decisions in the new Compact period.
Some critics argue that what’s important is not the September 30 expiration but negotiating a long-term funding package satisfactory to the country. Former Finance Minister Tony deBrum and Sen. Christopher Loeak, a Kwajalein leader, have called on the government to take the time needed to hammer out a new deal—even if it goes past September 30 and requires a one year U.S. Congressional appropriation. But the day after September 30, without a new Compact funding package, may be the Marshall Islands version of never-never land. Note has said repeatedly that the government will not allow the guaranteed funding flow to lapse—with an election just six weeks after this magic date, his government’s political survival may depend on it.
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The Marshall Islands is facing a dramatically altered economic environment as it heads into 2003 and a new U.S.-funded period, possibly the last. Bank of Hawaii’s pullout from Majuro last November merely confirmed a trend that has become increasingly obvious to local observers.
Fallout from the mid-1990s sale of passports to Asians continues to escalate in Majuro, with small-to-large Asian-owned businesses increasingly dominating the private sector. Asians have taken over what used to be a Marshallese industry of “mom and pop” convenience stores. But even the largest locally owned retail stores are suffering their biggest losses ever. Marshallese business executives say that without government intervention several of the largest locally owned retail stores might not survive the year.
While the competition has moved to fever pitch with the arrival of dozens of new businesses, the pie everyone is cutting into has shrunk significantly. Many Marshall Islanders, who receive U.S.-funded quarterly rental payments for use of the Kwajalein lands, or compensation payments from nuclear test-affected islands or claims, now live in the United States. So a serious chunk of money that once circulated within the nation is now exported without ever touching down in the Marshalls.
A labor report issued by the government’s National Training Council late last year concluded that 600 to 1,000 new jobs are needed every year to accommodate the number of young people eligible for work. But jobs have been static at about 10,000 for the past 10 years. In terms of job-creation, the fish loining plant that opened on Majuro in 1999—a joint venture of PM&O shipping lines and StarKist—has provided close to 400 jobs, albeit relatively low-paying ones. The operation is injecting several million dollars into the local economy through wages, taxes and services. The company has continued to increase its production of tuna, which is shipped to American Samoa for canning.
Though government employment has increased under the Note administration, in the mid- to late-1990s, under an Asian Development Bank-pushed reform program, the Marshall Islands cut nearly 30 percent of its government workforce—a move that reverberated through the economy and stimulated the exodus of islanders to Arkansas and other locations in the U.S.
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When the 1999 national census was conducted, and came up with a count of just less than 51,000, tabulators immediately assumed they’d grossly under-counted the population. With a projection, based on the previous census, of 65,000 Marshallese by 1999, the number didn’t seem credible. But recounts in Majuro, Ebeye and the outer islands confirmed the original figure, forcing recognition for the first time of the out-migration to the U.S.
Meanwhile, last year the Marshall Islands experienced its lowest levels of copra production since statistics began being collected in 1951. Since copra—dried coconut meat—is the source of income for one third of the population that lives on remote outer islands, it had a serious impact on the quality of life. It’s not that copra isn’t available; the crash in production was caused, largely, by inadequate intra-country shipping services.
The bright signs in the Marshallese economy are largely private sector driven and tourism-related. Bikini Atoll, after a slight downturn in 2002 that was attributed to the September 11 terrorist attacks, is expecting its best year ever this year. Bikini Atoll Divers is already turning away scuba divers, as most of its March-to-November dive schedule is already booked. Rongelap Atoll, another nuclear test-affected atoll, is attempting to follow in Bikini’s footsteps to garner a share of the diving and sports fishing market. Rongelap recently completed the first phase of a U.S.-funded cleanup and resettlement program that has installed some of the best basic infrastructure anywhere in the country: power, fresh water makers, roads, extended and paved runway, dock and air conditioned base camp facility. Rongelap is in the process of adding thatched roof bungalows to lure visitors. Meantime, it is offering discounted fishing and dive packages.
Joining Outrigger Marshall Islands Resort and Hotel Robert Reimers, the newly opened 32-room Long Island Hotel has added to the selection of upscale accommodations on Majuro. Other atolls, notably Jaluit, the former German and Japanese headquarters in the Marshall Islands, have begun developing small-scale island-style accommodations, offering diving, snorkeling and land tours of World War II fighter planes, gun emplacements, bunkers and other facilities.
The Marshall Islands still counts its visitors by the dozen, which from the local business viewpoint hasn’t provided the critical mass to warrant better air service or to move tourism beyond its fledgling status. But from the visitor standpoint, this is an obvious plus as one can still find many white sand beaches—particularly on the remote and largely untouched outer islands—without a footprint.
Air Marshall Islands, after years of talking, finally in late December leased a Dash-8 turboprop aircraft, which can carry more than 30 passengers and service about a quarter of the runways in the outer islands. It will complement and expand the service provided by AMI’s 19-seat Dornier commuter planes. To date, tourist operations such as Bikini have been restricted to 12 people per week because of AMI’s inability to deliver more. A bigger plane offers the possibility of expansion, a development that is to everyone’s benefit.
Scuba divers from Japan have been one of the fastest growing visitor segments in recent years, largely as the result of efforts by Robert Reimers Enterprises, where dive master Satoshi Yoshii has established Majuro as a reliable destination for the Japanese market. But RRE CEO Ramsey Reimers says the government has to get serious about promoting tourism, particularly in terms of finding ways to generate better—read more direct—air service from such destinations as Japan. “Tourism, aquaculture and manufacturing are the future of the Marshall Islands,” he says.
Ironically, after about nine years of successful pilot project status, including harvests that have generated more than $100,000, the two main privately-run black pearl farms have been unable to attract the financing necessary to expand to commercially viable levels of production. Crucial to black pearl farming in the Marshall Islands is a hatchery, since unlike Tahiti where black pearls are a $100 million industry, there is an inadequate amount of natural oyster “spat” needed to sustain an industry. RRE is operating pearl farms on Arno and Jaluit, and Black Pearls of Micronesia, a joint venture between a Hawaii company and local investors, has a pearl farm in Majuro. While they are one of the few legitimate income-producing businesses in the country, they have yet to attract large scale investment or government attention, which has been devoted more to big-time tuna fishing deals and untried seaweed and sea cucumber efforts.
Every story about the Marshall Islands comes back to the Compact of Free Association with the U.S., the base from which the country lives. Through the Compact, the United States directly provides 55 percent of the government’s national budget (in the early stages of the Compact the percentage was higher), and adds countless millions of dollars through a variety of federally funded programs.
And this is why the ongoing Compact negotiations are of such critical importance. Extension of the lease for Kwajalein atoll ups the ante on the talks because it is a unique multi-billion dollar test range that is central to U.S. missile defense testing programs. Its boomerang shaped necklace of coral islands is dotted with radar and other sophisticated missile tracking equipment that is critical to the Bush Administration’s current push to deploy a limited missile defense system in Alaska by 2004.
Marshalls Foreign Minister Gerald Zackios calls Kwajalein a “make or break” issue for the Marshall Islands and negotiators have indicated they cannot sign off on a new Compact deal with the U.S. without a new Kwajalein rental agreement that is satisfactory to both the government and the landowners. Still, both sides are aware of the aid-dependency of the Marshall Islands and the September 30 expiration of guaranteed U.S. funding which increases the pressure on Marshall Islands negotiators to conclude a deal on U.S. terms.
The Marshall Islands has a tough several months of negotiating ahead to conclude the Compact and to get it approved in the U.S. Congress, and then a national election quickly following. The outcome of the first will have a major impact on the second, and the future direction for the Marshall Islands.
