Pacific Magazine > Magazine > November 1, 2006

Northern Mariana Islands

Nightmare Reality

Can The Northern Marianas Be Saved?

By Frank S. Rosario, SAIPAN

It now seems a long lifetime ago: in late 1976, then U.S. President Gerald R. Ford signed the Commonwealth Covenant that made the Northern Marianas Islands a permanent part of the United States.

The Northern Marianas had been since 1947 part of the Trust Territory of the Pacific Islands, a United Nations trusteeship administered by Washington.

By agreeing to seek Commonwealth status — in effect, a U.S. territory with special rights — leaders of the Northern Marianas formally acknowledged what had been obvious for years: they wanted everything to do with the United States and relatively little to do with the islanders of the Marshalls, Palau and what is now the Federated States of Micronesia, all of whom they’d been tied to as part of the Trust Territory.

Governor Benigno Fitial smiles as he signs the commonwealth’s 2007 budget. It is the government’s first approved budget since 2003. The commonwealth had been running on continuing resolutions. [Photo: Jacqueline Hernandez]

For Northern Marianas leaders, approval of commonwealth was akin arriving in the Promised Land. They became U.S. citizens. They eagerly looked forward to a growing economy, better living conditions, improved education and perhaps most important, opening the federal funds spigot in Washington.

The formal beginning of commonwealth status began in early 1978, when for the first time Northern Marianas residents swore in their own governor, Carlos Camacho, and an autonomous Legislature. That first administration’s operating budget was $5 million, most of which came from federal coffers. The future looked bright and unlimited.

What a difference three decades of self-government makes.

During that time, while commonwealth revenues grew an astounding 4,000 percent, government expenditures grew even faster. Today, the CNMI’s accumulated deficit is $174 million, having doubled in the last four years (most of that under the previous governor). And that doesn’t include more than $550 million in unfunded liabilities to the commonwealth Retirement Fund.

Today, the CNMI is in an economic free-fall, and by some estimates the bottom won’t be hit for another one to two years. The once vibrant garment industry is contracting so quickly that some industry officials are preparing contingency plans to shutter the half-dozen remaining plants within 12 months. Tourism, which once saw visitor arrivals grow by double digits, is now collapsing at about the same rate.

In short, the government is broke, the commonwealth’s power utility can’t keep all the lights on all the time, and the private sector is on the ropes. The Northern Marianas has no choice but to try to remake itself.
 
What happened to the “golden boy” image of the U.S. insular areas, which received over a billion dollars from the federal government, not counting the excesses of the Japanese bubble economy?  What happened to the Northern Marianas that were supposed to be the “Bahamas” of Japan where millions of dollars in foreign investment mostly from Japan poured into construction of major hotels, golf courses, apartments and land transportation that supported tourism-based businesses? 

“We have no one to blame but ourselves,” says Joe Ayuyu, local franchise owner of McDonald’s, and one of the Northern Marianas’ most successful entrepreneurs.  Lack of government leadership, complacency by the public and private sectors, a large number of non-resident workers, anti-business regulations and the land-alienation clause restricting ownership to indigenous Northern Marianas residents are some of the issues being blamed by former and current politicians, businessmen and historians.

Veteran business executive David M. Sablan, who worked as a consultant in the 1975 Constitutional Convention, says the delegates decided back then to make the government the main employer of local residents as there were few local businesses and a lack of foreign investment.

“Personally,” Sablan says, “that was a premature position to take because now we’re facing a humongous size of government to manage the affairs of a small number of indigenous people.”

Thirty years ago, the resident population of the Northern Marianas was 14,000.  While government officials say the population now is about 70,000, more than half of whom are non-residents; others placed the figure at about 90,000 if you count illegal residents.

CNMI Washington Representative Pete A. Tenorio, a former lieutenant governor during the economic boom of the 1980s, says the CNMI now resembles “a Third World economic and infrastructure scenario.”

Without naming any one individual, Tenorio said some chief executives, once elected, forgot the real mandate of the electorate. “Instead of saving for the potential impact of unpredictable and disruptive changes in the global economy,” Tenorio says, “they failed miserably and instead, continued to implement economic and social policies without seeking professional and time-tested economic advice which could soften the impact of what we’re facing now.”
 
Tenorio tells Pacific Magazine that past governors should be blamed for most of the CNMI’s problems “for in so many instances they become so stubborn and inattentive to real issues and real solutions, for alienating the business community and for not being too responsive in so many critical federal initiatives and concerns.”

Former House Speaker Heinz S. Hofschneider, who lost a four-way gubernatorial race last year to Benigno Fitial by 99 votes, says during the Japanese bubble economy in the late 1980s and early 1990s, everyone thought the good times would last forever. 

“The prosperity in itself is the beginning of what I called the overall complacency of the government and the people,” says Hofschneider. “When you put together complacency of the government and people lacking (good) leadership,” Hofschneider adds, “you have a disaster as a policy. And this is a good lesson (for today’s leaders).”

Commonwealth Public Auditor Mike S. Sablan says that lack of an approved budget as well as long-term planning contributed to the accumulative deficit now facing the government. “The problem has been that government expenditures have exceeded revenues over the same period,” Sablan says.

Lynn Knight, president of the Hotel Association of the Northern Mariana Islands (HANMI), says leaders failed to think long-term and invest in the infrastructure needed to support community and economic development. Knight, former president of the Saipan Chamber of Commerce and an executive with Tan Holdings, adds that Article 12, a provision in the commonwealth constitution limiting land ownership to people who are of Northern Marianas descent, caused land prices to tumble and turned off many foreign investors.

What can the Northern Marianas do to get itself out of this crisis? Here are some of the suggestions private and public sector leaders point to: Major government reforms in labor laws, minimum wage increase, reduction in the size of government, reduction in the number of non-resident workers and their replacement with local workers, and refocused tourism policies toward the CNMI’s major visitor market, Japan.

Some have already started, as the Public Auditor’s Office is leading a group to audit private sector jobs and identify initially 500 positions that could be filled with qualified local residents. All those interviewed for this article agree that the CNMI will continue its reliance of non-resident workers as there are not enough local workers to take their place.

Last year alone, 33,000 non-resident work permits were issued, mostly for garment workers. The remittance of non-resident workers topped $112 million in 2005, $9 million dollars more than the year before. Those are funds that could have stayed in the CNMI, had those jobs been filled by locals.

“We’ve allowed hotels, golf courses, garment factories to come in and we’re poorer than ever, with no jobs for the local population unless they have a government connection,” says Associate Judge Ken Govindo. “Most locals thought they had a constitutional right to a government job.  Now they realize that they don’t.”

Gov. Fitial earlier this year presented a five-year plan to bring in one million tourists a year to the Northern Marianas, a number Marianas Visitors Authority Board Chairman Jerry Tan called “challenging.” The CNMI expects to attract about 440,000 tourists, down from the nearly 600,000 at the height of the commonwealth’s appeal to the Japan market.

Washington Rep. Tenorio says the CNMI should start listening to leaders in Washington D.C., particularly the U.S. Congress. Inaction on the CNMI’s recent request of $140 million federal bailout is blamed on the loss of credibility and arrogance of previous CNMI leaders, Tenorio says.

“We need the federal government and not the other way around,” Tenorio says. “Policies that we interpreted as penalizing and punishments were never developed in a vacuum by the U.S. Congress and the administration,” he adds, “but rather they were the results of inability to communicate and to listen to countless advice and recommendations intended to resolve our mutual problems.”

Saipan Chamber of Commerce President Charles V. Cepeda says “negative attitudes” in the CNMI should change. Cepeda calls for the public and private sector leaders to forge a partnership and work together closely. He says the Chamber supports a limited minimum wage in certain job categories to give businesses the “flexibility” in their operations.

“The chamber is not saying all of our ideas are the answers to the economic problems of the CNMI.  But we would like to sit down and share our concerns (with government leaders) before changes are made in laws and regulations affecting businesses,” Cepeda says.

If the CNMI leaders, both in the public and private sector, could get together and agree on the economic course the islands should take, many predict the economy could rebound. But there’s a catch. Even the most optimistic of them say that under the best of conditions, that will take place within five to 10 years. And the reality is that the good times of the 1980s and 1990s are now at best, a distant dream.