Report: CNMI economy bleaker

The CNMI economy paints a bleaker picture this year than last year, mainly because of immigration federalization, another 50-cent increase in the minimum wage in May, and the demise of the garment industry, a new First Hawaiian Bank economic forecast says.

Adding to the toxic mix are the grim economic indicators and the land alienation provision of the CNMI Constitution that discourages immigration and foreign investment.

“It seems the now desperate CNMI economy must now, more than ever, find some way to reinvent itself. And the possibilities for this are increasingly slim,” said Dr. Leroy O. Laney, economic adviser to the First Hawaiian Bank.

Neighboring Guam, however, stands out as one of the few places in today’s world that has a brighter economic future, primarily due to a massive planned military buildup, said Laney.

“Nonetheless, Guam has not escaped the fallout from the global economic deterioration,” he said in a statement yesterday.

Laney, who is also a professor of economics and finance at Hawaii Pacific University, said last year’s economic report on the CNMI paints a bleak picture.

“This year, if anything, the situation is worse,” he added.

The eight-page economic forecast said the negative impacts of the federalization program described in the 2008 report have aggravated the situation, and the garment industry is now gone entirely. The gradual imposition of a U.S. minimum wage means that an economy that once survived on low wages must find some other means of support, it added.

Emerging markets for CNMI tourism will also be impacted negatively by the exclusion of both China and Russia from the federal visa waiver program scheduled for Nov. 28, 2009.

After Nov. 28, 2009, foreign workers whose contracts expire will be subject to U.S. immigration law. The CNMI minimum wage also will be raised in annual increments of 50 cents in May of each year until it reaches the federal level.

“Because the CNMI has survived on low wage labor, this will have a debilitating effect on its economy,” Laney said, and may see substantial population shrinkage as a result.

With significant economic growth now expected in neighboring Guam, even many local residents may leave to go where the jobs are, he added.

Another factor is the garment industry’s demise. In March 2009, the last factory closed for good. Thus, what was once a $1 billion industry with 34 factories ceased to exist.

The last user fee collected by the CNMI government came in February 2009 with only $746, down from about $3 million a month in the days before the industry started shrinking.

Without the garment industry, the CNMI economy now relies solely on tourism.

Laney noted that total visitor arrivals increased by a slight 2 percent in 2008, something of a rarity in these times. Japan arrivals went up 6.6 percent and Korea went up 2.6 percent due to increased air seats.

“With seats held constant in late 2008 and early 2009, Korea arrivals have been down well into double digits due mainly to exchange rate effects, just as for Guam,” he added.

Both hotel occupancies and room rates saw a slight increase in 2008.

“But another major problem now looms for the CNMI visitor industry. The new visa waiver problem includes Japan and Korea, but excludes China and Russia, and the CNMI has been counting on the latter two as emerging markets,” said Laney.

The CNMI economic indicators bear out the grim picture, including a 12-percent drop in vehicle sales, a 15-percent drop in bank deposits and a 13-percent decline in bank loans.

The First Hawaiian Bank’s economic forecast also said that Article XII of the CNMI Constitution, which restricts permanent and long-term real property ownership to those of Northern Marianas descent, “naturally…discourages immigration and foreign investment, discouraging the injection of new funds and talent into an economy that so desperately needs them.”

First Hawaiian Bank is one of the largest banks in Micronesia with three branches on Guam and two on Saipan. The bank has total assets of approximately $13.4 billion and ranks in the top 10 percent of all U.S. banks in terms of its strong credit quality, earnings and capital.

A complete copy of the 2009 Economic Forecast is available at www.fhb.com or any First Hawaiian Bank Branch.