CDA chief speaks out on debt relief bill

The Commonwealth Development Authority was not consulted or given an opportunity to express a position on this legislation during the Senate session, nor was a hearing scheduled so CDA could be heard before its passage. However, CDA officials met with members of the House to address several concerns of the proposed bill. We vehemently opposed the passage of the Debt Relief Bill because of the serious consequences it would have on CDA and the citizens it serves.

The CDA as the financing arm of the Commonwealth must successfully continue its role to stimulate the Commonwealth’s economy by the financing of major Capital Improvement Projects and investing in its people.

One of our key responsibilities is to guarantee the planning and financing of Capital Improvement Projects in the Commonwealth. With a rapidly growing population and increasing sophisticated business needs, it is more important than ever that essential infrastructure be upgraded. CDA would be unable to play any role if the relief bill became law.

After years of tremendous growth, the Commonwealth only recently started to experience the economic downturn. For most people living in the Commonwealth, it came as a complete surprise. Some did not recognize the impact that the Asian economic crisis would have on the Commonwealth. There is no doubt that the decline of tourism and the garment industry triggered a huge reduction in government revenues and impacted future economic opportunities.

Our goals shifted from new projects to providing technical assistance to existing businesses, thereby ensuring our clients and other private entrepreneurs would have the skills and knowledge to cope with the dramatic economic shifts we are now experiencing. We realize that people succeed when they receive assistance in obtaining comprehensive training and support services. This program is being implemented and it is working, but would be derailed by the passage of the debt relief bill.

Funding lies at the very core of maintaining CDA’s ability to provide its citizens services and programs. It is important as an autonomous agency that we maintain our self-sufficient status; we do not rely on the General Fund for any operational costs and funds for loan programs. This would have to change if the debt relief bill was passed.

The CDA does not take away land but we are simply foreclosing on the security that all borrowers are required to put up as a collateral for the loan, if they defaulted. The real spotlight should be directed toward the commercial borrowers and businessmen and women who have signed promissory notes, mortgages and loan agreements to abide with the terms and conditions of their loans. These business people understood very well that failure to pay their loans on time would result in the foreclosure of the security that they have put up as collateral.

The Legislature should not be passing laws to forgive CDA’s delinquent borrowers. CDA should be and is working with its clients. If a client decides not to work with us, we are faced with the obvious alternative of foreclosure. Aggressive corrective action is essential for effective problem loan workout. In every instance, CDA first attempts a workout plan with a problem borrower under agreed-on objectives and time limits. We work with clients to develop a repayment program justified by supporting documentations. Most often the borrowers ignore the agreement or squander this opportunity to create their own relief.

Management has long been acknowledged as the primary cause of business failure. To use an economic crisis as a means to forgive a loan is not accurate. An economic crisis can happen at any time; it is unpredictable. Most of the defaulted loans were seriously in arrears even before we heard of 9/11 or SARS or the Asian economic crisis.

The board and the management will not be fulfilling their duties and responsibilities if they do not properly follow the loan policies and procedures and their fiduciary duties as mandated by law. If we do not act and vigorously oppose the Debt Relief Bill then we at CDA are not following our own policies and procedures and, most importantly, our fiduciary duties to protect the integrity of the funds so that CDA can continue to promote and stimulate the local economy for the benefit of the Commonwealth.

It is our practice to do our job and that is to follow our loans policies and procedures and fulfill our fiduciary duties. If we do not do our job, or if the debt relief becomes law, then the CDA will no longer exist.

Unlike a private financial institution that is responsible to its shareholders, CDA answers to the CNMI citizens. CDA is the custodian of these monies for the citizens of the CNMI and for the future generations. We have to fulfill our fiduciary duties and follow our policies and procedures that we have developed as our standard operating policies.

The reason for providing the carefully limited list of our legislator’s financial or personal interest to the Governor is simple. Legislators with an interest in a bill “may not debate on or vote on the bill” (Article II, Section 15, CNMI Constitution). The disclosure made by CDA should have been made by the Legislature themselves. Their failure to disclose and then remove themselves from any discussion or vote on the bill forced CDA to act and correct this constitutional violation. CDA is appreciative of the support from the public and the administration for their action.

The very actions that CDA has recently embarked on call for improvements and increased efficiencies in the Commonwealth economy. Transfers of management and operations of an existing business from ineffective owners to ones investing their own capital spell for a much more productive and profitable venture. These means that the entire Commonwealth will benefit as a result of these adjustments, and all are done legally and equitably. Bankruptcy and other protection laws are already accorded to our defaulted clients and it is only fair that CDA protect the assets of the larger Commonwealth citizen.

The challenges are many, but it is my firm belief that we can turn the economic crisis into a time of opportunity and we will prevail. The key to our success will be on our ability to identify opportunities and define and implement the solutions. Our success will be measured in ways that our community responds to the current crisis. If our responses generate innovation and re-establish the Commonwealth as a good place to do business, then we will have succeeded.

Maria Lourdes S. Ada
Executive Director
Commonwealth Development Authority