Crisis in stunning breadth •Garment industry provides only hope as tourism tumbles, says finance adviser

Scary. Alarming. Serious.

These were the words that were uttered by some members of the House of Representatives after Mike Sablan, special advisor for finance and budget, raised warning on the tight financial shape of the government yesterday.

Due to the unabated decline in tourist arrivals, the Northern Marianas anticipates further drop in revenues from the once robust tourism economy, leaving the garment industry as only source of steady income for the cash-strapped government, according to Sablan.

He warned legislators against devastating impact of the potential loss of the local garment manufacturing business which contributed nearly a quarter of the overall revenue collections in the CNMI in the past year alone.

While the economy grew to an unprecedented 4,800 percent over the past 20 years, Sablan said recent indications, such as the prolonged Asian recession and brewing political issues here, point to an unlikely recovery of the island within the next two to five years.

The number of visitors from prime markets of Japan and South Korea has plunged by about 33 percent in 1998 compared to the previous year and the trend is likely to continue up until year 2000, he said.

“Without question, the rate of the decline and the severity are unprecedented in our history,” Sablan told House members. “This will have a debilitating impact on our tourism industry.”

The reduction in tourism dollars and the hotel occupancy tax, according to the finance official, has been offset by a jump in revenues from garment business, particularly user fees which shot up by 19 percent largely due to a recent rate hike and the increase in merchandise volume.

The garment sector, whose gross income topped more than $1 billion last year, is the only industry with growing revenue share, but Sablan said this may shrink by next year due to the possible fallout of the lawsuits filed last month against local garment manufacturers and their U.S. buyers and retailers.

Garment leaders maintain some major U.S. apparel companies have pulled out their orders from local firms for fear of a public backlash from the class-action suits.

Budget cuts

As a result of this, Sablan warned the Tenorio administration may have to alter its revenue projections for the FY 1999 which had already been changed once last November when it slashed the budget package by 13.4 percent to $210 million due to the slowdown.

This will mean lower government spending level and further cuts in the appropriation of all departments and agencies — a situation that will force the government to trim expenditures and implement across-the-board salary reduction, he said.

But CNMI government is hopeful on the multiplier effects on the economy of the federal funds under the Capital Improvement Projects which ironically is being threatened by a 51 percent cut under Washington’s budget proposal for FY 2000.

Sablan lamented that among U.S. insular areas, the CNMI gets the least per capita amount of federal aid, falling behind American Samoa, Guam and the U.S. Virgin Islands.

He, however, cautioned against the federal takeover of local labor and immigration being pushed by the Clinton administration, saying it will “stifle economic growth, reduce locally generated revenues and throw the island back to U.S. funding.”

Reactions
In quick reaction to the report, Rep. Oscar M. Babauta said the leadership must seek solution to the economic problems.

“It’s scary,” said the chair of the Commerce and Tourism Committee, adding that lawmakers should rally together to address the worsening conditions.

“It’s alarming,” echoed Rep. David Apatang. “We have to find ways to help the administration as far as austerity measures are concerned.”

Rep. Karl T. Reyes, who heads the powerful Ways and Means Committee, said the government should be prudent in spending money from the dwindling coffers.

“We have to exercise austerity. It’s very serious,” he explained, adding that further cuts are expected in the personnel expenses which eat up about 75 percent of the entire budget.

Likewise, House Majority Floor leader Ana S. Teregeyo pointed out that several cost-cutting measure put in place by Gov. Pedro P. Tenorio since last year should be complemented with legislation to boost revenues.

“Realizing that the garment industry is the only contributing industry to our economy, the legislature has taken its position to support the garment sector at this time of our needs,” she said.

Rep. Melvin Faisao also suggested the administration should now comply with the public auditor’s recommendations of more efficient operations that will help generate savings of close to $23 million.

“It’s very important that the legislature must be aware of the how bad the situation is,” he said.