The NMI’s recent economic history

By William H. Stewart
Special to the Saipan Tribune

Third of six parts

Long after the Pacific war, the economy of the Northern Marianas remained stagnant and by the early ‘70s the administrative headquarters of the Trust Territory of the Pacific Islands on Saipan dominated the island economy as the principal employer, with only 22 percent of the work force employed in the private sector. Prior to 1973 there was little hope for a tourist industry as the Japanese government, preoccupied with their own recovery, had placed currency restrictions on foreign exchange, which limited the amount of money a Japanese citizen or firm could take out of the country to the equivalent of only $742 a year. By 1981, with the exception of a small but growing tourism sector, the economy had experienced little development.

In the years immediately following the conclusion of World War II, the destroyed economies of the former belligerents, and those of the territories on which the war was fought, were reconstructed. By the early ‘60s, many had become virtual economic cornucopias producing wide varieties of goods and services—but not so on the islands of Micronesia. The reconstruction of the economy of Saipan was long in occurring, with the result that the area was the last of the former battlefields to recover from the devastation. This process did not really start until around 1978, some 33 years after the termination of the Pacific conflict. Indeed, it was the introduction in 1969 of jet aircraft to Saipan, and Continental Air Micronesia in particular, that was probably the single most important factor in the future development of what were once remote and isolated islands in the Pacific. Jet aircraft distorted the traveler’s impression of time and distance and brought the islands closer to major market areas in Asia.

The CNMI’s fascinating history is largely unknown to many otherwise knowledgeable people in the United States and elsewhere. The islands’ history in many instances is far more interesting and intriguing than the history of some states in the Union, as the islands have played a significantly more prominent role in world affairs and geopolitics than many individual states.

As the 60th anniversary commemorating the end of Pacific hostilities in 1945 is being observed, one is struck by a strange irony—U.S. government expenditures of a billion dollars within the Northern Marianas aside—large private “mainland” American investment is somewhat conspicuous by its absence in the islands. It is something of a paradox that it has been largely private capital from a former defeated adversary rather than the wealth from the victor that has resulted in the reconstruction of Saipan’s economy. Considering that the Japanese presence on the islands extended for a period of only 30 years as compared to more than half century for that of America, it is surprising that the geographic and economic ties between these islands and Japan were re-forged in the ‘70s. On any given day in the Commonwealth there are probably more Japanese present than non-indigenous Americans. It must be said, however, that it is stability assured by the American flag and the U.S. rule of law that provided the safe business environment for Japanese and other foreign investment to flourish in the Commonwealth.

The great boom period in Japan from 1985 to 1991 fueled Saipan’s economic growth. Throughout the last half of the ‘80s, Japan registered huge annual trade surpluses, had an ever strengthening currency and one of the lowest interest rates in the industrialized world. Japanese banks overflowed with money, much more than they could accommodate by re-lending in Japan itself. It was this money that went abroad and around the world to finance a myriad of projects. Millions were invested in the Northern Marianas to launch the islands’ important tourism sector.

By the early 1990s America’s economic slowdown and Japan’s growing financial problems acted to discourage Japanese investment at previous levels in both the continental United States and the various affiliated Pacific islands. By the end of 1995, Japan faced tight credit, sagging real estate values and a plunging stock market. The decline in the stock market, combined with the property “bust” in Japan, significantly eroded capital and reduced Japanese banks’ ability to lend at previous levels forces—as a political entity affiliated with the United States, a thriving U.S. economy and a strong dollar is desired—but the reverse is true with respect to the area’s tourism-based economy, since a strong dollar erodes the competitiveness of the area’s Japanese-based tourist industry, thereby making the Commonwealth more expensive for the visitor when an increasing amount of yen is required to purchase the dollar.

To be continued

(William H. Stewart is an economist, a historian, and a military cartographer.)