Present condition of the NMI economy

The economy of the Northern Mariana Islands took a huge fall in 2005 (about four years ago) when Japan Airline, the major air carrier servicing the CNMI from Japan, stopped its regular air service to Saipan. The reason given for JAL’s decision to stop its air service to Saipan was its high operating cost which was spiraling upwards due to the escalating cost of jet fuel. In other words, the service to Saipan was no longer profitable for JAL. It was a business decision; and we know that air carriers, like any other business entity, are in business to make a profit, that is earn a fair return on their investment—not to continue operating at a loss.

The decision of JAL to end its regular air service to the CNMI had a devastating effect on the economy of the CNMI, whose key industry—tourism—is directly dependent on air service, particularly air service from Japan where most of the visitors to the CNMI come from. The Marianas Visitors Authority, which developed in 2006 a new Five-Year Plan with the goal of reaching an annual visitor mark of one million visitors by the Year 2010, had to revise its numbers and rethink its marketing strategy.

The visitor industry, as we know, is probably the most viable industry for the CNMI. It is not labor-intensive, like the garment-manufacturing industry that came to the CNMI 25 years ago to take advantage of the General Headnote 3(a) quota and customs duty exemptions that the CNMI has as a U.S. commonwealth. The garment industry single-handedly brought in thousands of guest workers from China and other countries. As a result, this huge influx of people resulted in a lopsided demographic imbalance for the CNMI. The huge population of guest workers from foreign countries was viewed very unfavorably by the federal government, particularly the U.S. Congress. But the industry was endorsed by CNMI government leaders because of the comparatively substantial revenue that it generated for the treasury of the CNMI government.

About four years ago, the garment manufacturing industry began the process of moving out of the CNMI, after the restriction on the movement of textile products worldwide was lifted by the World Trade Organization. Because of the free movement of textile products worldwide that began in 2005, the competitive advantage that the CNMI used to have over other textile-manufacturing countries ended. Even with the advantage that textile products produced in the CNMI have by being exempted from paying customs duty upon entry into the U.S., it is still cheaper to manufacture textile products in China, Mexico and other Third World countries.

The departure of the garment industry, soon after the departure of JAL, was the second major blow to the local economy and the CNMI government coffer. Both adverse economic events happened within the past four years. The CNMI government and our political and business leaders have been at a loss as to what could be done to resuscitate and revive the local economy. Local businesses have been reeling since from the dramatic downturn in the CNMI economy.

The local government had to institute measures to operate within the reduced government revenue that has declined by almost 40 percent over the past 10 years. Public services have been cut back drastically, and austerity measures have been taken by both the government and the private sector to cushion the impact of the long-running economic decline. Local businesses and CNMI residents have maintained a wait-and-see approach for about five years now; while at the same time wondering when they would have to fold-up and close shop. Some opined last year that the economic recession has bottomed-out. But the global financial recession that began in 2008 has in fact made matters worse.

If the CNMI economic recession has indeed bottomed out (which is clearly not the case), we may be at the bottom for a very long time, unless we begin to do something constructive to start turning our economy around. Such was the reason why I suggested two months ago that our leaders in government and business convene immediately a CNMI economic summit or conference so that we could discuss in earnest what needs to be done to turn our economy around. This paper is an attempt to set forth some possible solutions to the economic predicament the CNMI is in.