Debt isn’t as dangerous as lousy policy

The Commonwealth has dug itself a bit of a fiscal hole, with a debt of $80 million or so being a topic of conversation, as the cost of government operations has continued to exceed the government’s revenues.

Should this $80 million scare us? Is this debt monster going to pull us from our beds and beat us to death? Will the CNMI grind to an economic halt, where we’re all forced to forage for coconuts on the beach and we’ll be wearing signs on our backs saying “Will Work for Food”?

I don’t think so. Sure, the debt is reason for concern, but hitting the panic button wouldn’t be a bright idea.

There are three scenarios here. One, the CNMI could throttle back on government spending so much that is runs a budget surplus, and the debt is eroded. That, of course, won’t happen, for reasons rooted in the political landscape here.

Scenario two, and this would be the bleakest of all: The tax burden on business and consumers goes up, in order to pull more money into government coffers. This would only serve to run more businesses and businessmen off the island, which would reduce the tax base, further deepen the debt, and throw us into a graveyard spiral.
Tax policy is serious stuff, and should be approached with a measured and analytical eye; by contrast, a knee jerk, panicked reaction to the debt would freak out our businesses, many of which are pretty well freaked out already.

Scenario three: The Commonwealth grows its way out of the debt. Improved economic policy creates a better business environment, which creates more business activity, which creates more tax revenues, which will help reduce the debt. In this scenario, the CNMI essentially thinks its way out of the problem, using sound economic policy as the fiscal Silver Bullet. And why not? It worked in the U.S., it can work here–at least in theory, the most questionable premise of all being if anyone really gives a darn here about perusing sound economic policy.

The tourism pros I’ve talked to are confident that Japanese activity will pick up here. And as far as Korea goes, they’re looking at economic growth on the order of eight to 10 percent over the next year, which will directly translate into a major increase in tourism activity from that sector.

We are, therefore, looking at tourism finally turning the corner here, which will be a fiscal boost to the CNMI government. The garment industry continues to chug along with quiet competence, providing a solid industrial base that is productive and reliable.

The overall industrial forces, then, are positive. The only issue is whether the Commonwealth will shoot itself in the economic foot at this critical opportunity to get things back on track.

There’s no use bemoaning the debt: It’s here, we can’t eliminate it instantly, and what’s done is done. So let’s look to the future and not fixate on the past.

In summary, the good news: if (if) the CNMI can keep from getting deeper into the fiscal hole, and if (if) it can improve the business climate here, the debt will eventually fade away. The bad news: the clock is ticking, and without a substantial change in the way economic policy is forged, the financial footing of our fair shores will continue to erode.