Wall Street turmoil hits NMI

Shock waves from the carnage on Wall Street have touched off a reaction in the CNMI, diminishing employee retirement accounts, freezing foreign investment plans, and threatening to hinder major projects that local leaders depend on to bolster the islands’ economy.

On Thursday, one year to the day after hitting an historic high, the Dow Jones industrial average plummeted 7.3 percent to close at 8,579.19, the first time it has fallen below 9,000 in five years. Thursday’s drop marked the seventh straight day of losses for the Dow, which has slipped 21 percent since Oct. 1.

At Saipan’s branch of the accounting firm Ernst and Young, Nhing Reyes said some of her clients have taken a substantial hit as stock values have dropped but the impact of this recent plunge on employees’ 401(k) retirement funds is affecting more people.

Marian Aldan-Pierce, head of DFS Saipan Ltd., also pointed to the trouble the financial crisis poses for retirement plans, saying many of her employees are watching the stock market closely to see whether the 401(k) funds they have accumulated might survive.

“For those of us in the private sector with a retirement fund, we’re just caught in a maze right now,” she said. “People will tell you not to make any changes but in the mean time, you’re watching your fund go down, down, down. A lot of our employees are worried about this.”

The CNMI Retirement Fund, the government’s employee pension program, is expected to see substantial losses this month in light of the stock market’s decline, according to administrator Mark Aguon. Yet the impact on the fund, he said, will likely be less severe than that seen in the market due to the fund’s efforts to diversify its assets and even convert some of its stocks into cash to prevent serious losses.

“The majority of our assets are still in the stock market and the market is taking a beating,” he said. “But, the loss for the Fund probably won’t be as bad as what you see in the market itself.”

An executive with the investment firm Merrill Lynch, he added, will give a presentation to the Legislature Tuesday on the status of the Fund. The presentation will be open to the public.

Meanwhile, Wall Street’s downturn has already hit the CNMI’s tourism industry by contributing to a record decline in the value of the Korean won in comparison to the American dollar. Korean tourism accounted for roughly a quarter of the visitors who traveled to the CNMI in the last year, according to statistics from the local tourism office, but hotels are now reporting Koreans are spending less on their island vacations because the won’s buying power is weaker.

However, the won’s downward slide—which reached its lowest point in a decade Thursday at 1,425 won per U.S. dollar—holds the potential to have far more serious consequences if it continues. Over the last eight days, the dollar’s value compared to the won has risen an estimated 40 percent.

“You can expect to see a freeze in Korean investment until this gets resolved because nobody’s going to want to invest overseas when you have to pay 40 percent more,” said Alex Youn, president of Ace Investment Group, adding that the fallout over the won could stifle Korean-backed real estate deals. “On the street, I’m hearing that a lot of real estate investors are just waiting for the won to stabilize.”

And investment capital for new development projects appears in short supply in the CNMI due in large part to the stock market’s turmoil, a factor that threatens to stall scores of major construction efforts on the horizon that some leaders have touted as a way to revitalize the now stagnant local economy.

Phillip Mendiola-Long of the Bridge Investment Group, a firm now in the early stages of developing one of those projects—a multi-million dollar resort on the island of Tinian—said investors are all warning that ripple effects from Wall Street’s woes could hinder such plans in the future.

“We are seeing a tightening in capital available for developments,” he said. “This means large developments going forward will have a difficult time getting financing or private equity funding for project development.”

To Mendiola-Long, the solution is a stimulus plan for the CNMI’s economy crafted through cooperation between the government and the private sector.

“Lock the leaders in the room, invite the business community and prospective investors and hash out what needs to be done in order to save our economy,” he said. “Our economy needs a stimulus plan…the leaders need to put that front and center now or we are going to be reeling from the lack of planning and action and then looking at each other to say: ‘What happened?’”