Saipan: Then and now

[B][I]First of a four-part series[/I][/B] [B]From the Trust Territory period to U.S. affiliation[/B]

I suspect there are many people new to the islands along with some college students here and abroad who have little knowledge of the area’s relatively recent and turbulent economic history—not having lived it. The following essays present some of the highlights in somewhat abbreviated form.

That the islands have recently experienced both “boom” and “bust” over a rather short span of development since their affiliation with the United States, I do believe that the relationship assures—if for no other reason—that the U.S. cannot afford the embarrassment of having a third word economy under the American flag. Certainly not if it is to continue to offer the American model as an example for many underdeveloped economies to emulate.

Since the end of World War II the United States has spent untold billions of dollars in foreign economic aid in dozens upon dozens of countries throughout the globe in an effort to assist in lifting them from the depths of poverty. In some respects that was what the Cold War was about. I dare say that none have been the recipient of funds anywhere near the amount the United States has provided the Northern Mariana Islands from the period of the ’70s when the area was still under the jurisdiction of the Government of the Trust Territory of the Pacific Islands up to the present.

I doubt if anyone knows for certain the total dollar amount of the assistance made available to the NMI in a variety of forms either through the Covenant Agreement or direct financial monetary flows directly from various U.S. government departments as non cash assistance programs.

The islands have benefited from a myriad of social and economic programs made available by the U.S. government such as: food stamps; medical care provided virtually free of charge from the U. S. National Health Service; Medicaid and Medicare; rent subsidies; low-cost housing for the disadvantaged; loans for small businesses and higher education; agricultural services; children’s Headstart programs; Social Security, and many more programs and services of the various departments of the U.S. government. Add to the above the use of the U.S. Postal System with its cooperative agreements among the nations of the world; the benefits which accrue from drug enforcement capabilities and life-saving search and rescue activities of the U.S. Navy and Coast Guard. The weather service and typhoon warning systems, typhoon damage relief from a variety of agencies; diplomatic protection when traveling in foreign lands, and on and on—all not even pro-rated calculated and included in the direct financial support provided the NMI.

I think I’m probably as qualified as anyone to estimate the total financial contribution flowing to the NMI since 1970 when I first documented the need for a $5 million grant from the U.S. Congress for the island’s Economic Development Loan Fund (EDLF) a portion of which was later morphed into the Commonwealth Development Authority. From that time until the present I estimate that the islands have probably received almost one billion dollars in financial assistance from U.S. taxpayers beyond that provided by Covenant agreements.

That the islands have not been able to sustain a vibrant, self-sufficient, continuous economy in view of the huge expenditures made available to assist in this endeavor is unfortunate. Of course, many outside forces have had a serious impact upon the economy most of which have been beyond the control of the Commonwealth. It is entirely possible that the islands will forever be subject to the economic ebb and flow of economic tides periodically rising and falling as they effect the fortunes of island businesses and residents alike. Experience tells us these should be anticipated and appropriate contingency plans prepared, “rainy day” emergency funds you might say.

There is probably no other area under the American flag with a more fragile economy susceptible to the negative influences of outside forces than the Mariana Islands. The health of their economies are influenced by many external forces beyond their control of which a partial list includes, but not limited to: U.S. inflation rates magnified in the islands as a result of increase transportation costs; volatile fuel costs; fluctuating foreign currency exchange rates related to the U.S. dollar; political and terrorist attacks against the nation at large will often discourage tourists from Asia as will the area’s communicable diseases such as SCARS, Asian Flu, etc. and the high cost of living largely resulting from the time and cost of transporting goods and supplies great distances to the islands. Saipan is 5,300 nautical miles from San Francisco—3,200 n.mi. from Honolulu.

Following the Covenant agreement It was the mid-’80s which could be considered the “take-off” point for the economic “boom” which was to follow. Two serendipitous events occurred almost simultaneously both propelled by events far beyond the control of the NMI to influence —and both somewhat coincidental in an odd way probably never again to be repeated.

The first was the recognition by a number of garment manufacturers involved in “cut-and-sew operations” that they could manufacture their products in the CNMI and—as permitted by the U.S. Custom regulation known as of Headnote 3 (a)—export their goods to the huge United States domestic market duty free. This would ultimately result in more than 34 manufacturers by 1997 employing some 15,700 nonresident aliens and several hundred local workers.

The second event also occurred in 1986 at the Plaza Accords in New York when the United States as a result of huge trade deficits and other factors devalued the dollar in relation to the Japanese yen and other currencies.

By the end of 1987 the dollar had fallen by 54 percent against the yen. This had the effect of doubling the size of the Japanese economy almost overnight and was the “kick-off” for massive amounts of Japanese investment in the NMI’s tourism and other sectors soon resulting in tremendous increases in Japanese visitor arrivals. The islands had never seen anything like it and likely never will again.

It was during this period that one might be struck by a strange irony—United States government expenditures within the Northern Marianas aside—large private American investment was somewhat conspicuous by its absence in the islands. It is something of a paradox that, at least for a period of time in the ’80s , it was largely private capital from a defeated former adversary rather than investment of any magnitude from the victor’s private sector that resulted in the initial reconstruction of Saipan’s economy.

The only U.S. investment at the time was made by Guam’s Bob and Ken Jones in Saipan’s Royal Taga Hotel and a cattle ranch on Tinian along with several other business investment endeavors.

Considering that by the early ’80s the prewar Japanese presence in the islands had, for the most part, extended for a period of only 30 years (1914 to 1944), as compared to more than the equivalent of four decades by 1986 for that of America. It was somewhat surprising that the geographic and economic ties between the islands and Japan were reforged so vigorously in the decade of the eighties.

Surprising, until one considers the strong ancestral relationship Japan has with the islands. A relationship which should have be nurtured all along—and to some extent was, but I fear was also taken for granted particularly in later years as witnessed by the “bail-out” of many Japanese investors in recent years. More about the U.S. involvement next.

[B][I]To be continued.[/I][/B] [I][B]Editor’s Note:[/B] Bill Stewart is a former senior economist for the NMI and has privately authored several books including: “Saipan In Flames”, a WW II account; the “Business Reference and Investment Guide to the CNMI” and several hundred thousand tourist and historical maps of Saipan, Tinian and Rota distributed free by MVA and island businesses. His other investment promotional materials published by the government include:“Introducing the Northern Mariana Islands – An American Doorstep to Asia”; and “Tourism Investment Opportunities in the NMI.”[/I]

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[I]William H. Stewart is an economist, historian and military cartographer.
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