60 years in an economic nutshell: 1944 and beyond

After the Marianas were secured by American forces and the airfields constructed from which to launch the B-29 assault on Japan, the fighting continued elsewhere in the Pacific at Peleliu, the Philippines, Iwo Jima and Okinawa until the Japanese were convinced by the atomic bombing of Hiroshima and Nagasaki in August 1945 that hostilities between the United States and Japan must be ended. The war was formally concluded on September 2, 1945 aboard the battleship Missouri.

Even though the islands were taken from Japan by force of arms in 1944 the United States never acknowledged the islands as belonging to Japan in the first place. Germany had purchased them from Spain in 1899 and administered them as a colony until the start of World War One in 1914 at which time Japan, then an ally of the United States, moved into the Marianas and forced the German administration out. Following the World War One defeat of Germany in 1919 all of that country’s overseas colonies were stripped away with their Pacific islands assigned to Japan to be administered for the League of Nations. This status remained until 1944. When World War II ended, the American position was that the United States did not wage the war for territorial gain and that the U. S. could not legitimately take the islands from Japan claiming “victor’s rights” since they were never recognized by the U.S. as Japanese territory before, during or after the war.

The Northern Marianas, along with other Micronesian islands formerly within the Japanese Mandated Islands, were placed under the purview of the newly created United Nations’ Security Council to be administered by the United States as a strategic trust where the U.S. had veto power. The islands were first administered by the U. S. Navy and later by the Department of Interior.

The economy of the new Trust Territory of the Pacific Islands, as the area was then known, of which the Mariana Islands was a part, languished as they drifted into obscurity through the decades of the fifties, sixties and seventies. At one point in the fifties, Saipan was the site of the U. S. Naval Tactical Training Unit, a Cold War CIA operation to train personnel from selected Asian countries in the techniques of guerrilla warfare. This activity ended when the Headquarters of the Trust Territory Government was relocated from Guam to Saipan in July, 1962. As a result of this move a government headquarters of several thousand personnel responsible for administering 100 inhabited Micronesian islands scattered throughout 3 million square miles of the western Pacific Ocean served to stimulate the economy of Saipan to some extent, although to a limited degree.

In the early seventies representatives of the various island governments entered into negotiations with the United States for the purpose of eventually terminating the United Nations’ Trusteeship Agreement. These negotiations eventually evolved into four choices for the area’s future political status.

These choices were: independence; free association with the United States; maintain the status quo and remain under the trusteeship arrangement of the U N or become a United States Commonwealth.

The people of the Northern Mariana Islands in a plebiscite held in June, 1975 elected by a vote of 78.8 percent of those casting a ballet to accept the status of a United States Commonwealth under the terms of a negotiated Covenant. In so doing the Northern Marianas became the only former enemy territory emerging from the flames of war to elect by their own free will to remain under the American flag in association with the United States. Yet even today the Commonwealth has no elected voice within the United States Congress.

Since 1976 the United States has provided more than $1 billion to the Northern Marianas by virtue of the Covenant agreement and by way of extensive federal infrastructure projects for road surfacing, air and seaport improvement, hospital construction, etc.

Being affiliated with the United States brought many benefits. These advantages are in addition to the many freedoms enjoyed by American citizens under the United States Constitution, advantages which include benefiting from a myriad of social and economic programs made available by the U. S. Government such as: the U. S. postal system; life saving, search and rescue activities of the U. S. Navy and Coast Guard. Other benefits include weather service and typhoon warning systems, typhoon damage relief from a variety of agencies; food stamps; medical care; rent subsidies and the availability of low cost housing; loans for small businesses and higher education; agricultural services; children’s headstart programs, social security, diplomatic protection when traveling in foreign lands and many more programs and services.

Once associated with the United States the American judicial system’s rule of law inspired confidence among foreign investors and for the first time since its destruction in 1944 the private sector of the new Commonwealth started to slowly recover from the ravages of war.

As a result of U.S. Congressional action a large garment industry located in the islands and prospered as a result of the ability to export their products into the U.S. market free of U.S. import duties.

During the decade of the eighties foreign investment, mostly Japanese and Korean, flooded into the islands and by 1990 the private sector reported annual gross earnings of more than one billion dollars for the first time in the area’s history. Much of this money was generated by a thriving foreign owned garment industry and from young Japanese tourists visiting the island’s resorts. Many of the Japanese tourists are themselves the relatives of the Japanese soldiers who fought and died on the beaches and in the mountains, jungles and caves of Saipan sixty years ago.

How did it happen that for more than forty years following the conclusion of hostilities, the islands’ economic growth within the private sector remained virtually stagnate and as listless as the doldrums—then suddenly in the mid-eighties burst forth in unprecedented economic growth that was to change the landscape forever?

What occurred to initiate the unprecedented economic growth of some 18 years ago and then initiate an economic decline some 6 to 7 years later? Here’s how it all happened.

The CNMI benefited from a once in a lifetime economic windfall and one likely to never occur again.

For many years the United States ran huge annual trade imbalances with Japan. This was simply a result of the United States purchasing more Japanese manufactured goods than the Japanese bought from the U S. In an effort to make American produced goods less expensive with the hope that the Japanese would purchase more from U. S. manufacturers and agricultural producers, in 1986 at the Plaza accords in New York, the U. S. devalued the dollar in relation to the yen. In 1985 the average annual exchange rate of the yen was 245.6 to one dollar. It then fell to: 169.0, (‘86); 137.0, (‘87); 128.0, (‘88) and 135.0, (91). Dollars could be purchased for fewer and fewer yen.

By devaluing the dollar in 1986 it was believed this would stimulate exports to Japan which the Japanese would purchase with the immense sum of dollars they owned at that time.

However, U. S. manufactured products that the Japanese wanted were few indeed and their dollars continued to pile up. What did they do? They took their U. S. dollars—flew to the United States, (and elsewhere), and purchased real estate and other assets. This also occurred in the islands as they purchased prime real estate. The Japanese constructed hotels primarily to accommodate Japanese tourists, they operated Japanese tour buses to drive them around, created restaurants to feed them along with many small gift shops, ground tour operations, etc., to service their other needs.

The great boom period in Japan extending from 1986 into the early nineties also fueled Saipan’s economic engine. Japanese banks overflowed with money, much more than they could accommodate by relending and digesting in Japan itself. It was this money that went abroad and around the world to finance a myriad of projects. The millions invested in the Northern Marianas launched the islands on the road to a thriving tourism industry. It has been estimated that from 3/4 to one billion dollars in foreign investment flowed into the Commonwealth during the short period of about six years—most of it Japanese.

United States grants and monetary support aside, it was the wealth of a defeated adversary rather than that of American investors that was responsible for the initial growth of the Commonwealth’s private sector.

On Saipan, land which had been leased for $30 per square meter in 1986 increased in value to $300 per sq. meter or more by 1989 -’90 with beach front hotel sites ranging from $150 to $500 per square meter during the period.

All went well until the Japanese financial “bubble” burst in the early nineties and their speculative “house of cards” collapsed. As it turned out many Japanese firms defaulted on their loan payments having gambled that real estate prices would continue to rise.

Japan’s economic difficulties worsened as stock prices continued to decline sharply resulting in a slowdown in investment in the Commonwealth and elsewhere. The nation’s wealth in the eighties had been largely tied to grossly inflated paper values on the Tokyo Stock Exchange and, as values tumbled, stock prices fell dangerously low. At the same time Japanese visitor entries declined and those that did visit the islands became more prudent in their spending habits purchasing less expensive gift items and dining in less costly restaurants. The “boom” days were gone—a recession set in.

That was little over ten – twelve years ago and the Japanese economy is only now beginning to recover. Today many Japanese investors appear to be divesting themselves of their businesses in the Commonwealth. Hopefully, the economy of the Commonwealth will soon recover as well. The sixty year period since 1944 has seen destruction, reconstruction, “boom” and “bust.”

Today, as in the recent past, the economy has been supported by a large non-resident work force. In the year 2000 the composition of the population was approximately as follows: U.S. citizen indigenous (local)—17,400 (25%); non-indigenous U.S. citizens—8,700 (12%); all others (foreign)—43,200 (63%), total—69,200. There you have it, 60 years of island economic history in a nutshell. (William H. Stewart)