Island economy to grow 1- 2 percent

Despite predictions that the island’s economy will hit rock bottom in the last quarter of 1999, the Northern Marianas is expected to post a growth of 1 to 2 percent next year, according to an economic report prepared by Bank of Hawaii.

But the report said the modest growth rate will still depend on improvement in tourist traffic. Specifically, it said more passengers from Korea will pull out the economy from distress.

The report, prepared by Dr. Wali M. Osman, regional economist of the bank, also said the local economy will increase to 3 to 4 percent in the year 2001. The bank’s economic analysis is made every two years.

“Had air service between CNMI and Korea continued, the impact of the Asian financial crisis on both Korean and Japanese travelers, while significant, would not have been as large,” the report said.

The CNMI lost an estimated 26 percent of the tourist market in 1998 with the termination of the Korean Air service in August 1997 due to the tragic crash in neighboring Guam island.

Tourist traffic to the CNMI tripled from 245,505 in 1988 to 736,117 in 1996. But by the end of 1998, the rapid decline in tourist traffic was back to where it had been in 1992.

The upswing in tourism during the eight-year period showed the industry the CNMI’s main economic comparative advantage. “However, its sharp decline in the past two years has shown how fragile and vulnerable that advantage was, due to its dependence on vital air transport links,” the report said.

The expected economic dislocation due to the serious drop in tourism growth was cushioned by the growth in the garment manufacturing industry.

“I believe that this practically saved the CNMI from a much larger economic problem. The growth of the garment industry in the last 18 months happened at the best possible time,” said Osman.

The island’s appeal as a base of operations for foreign investors is the combination of below-minimum U.S. wage rates and duty-free access to U.S. markets. With the expected removal of garment quotas under the new world trade order in January 2005, the CNMI’s comparative advantage vis-a-vis U.S. markets may soon end.

“The next question for the CNMI is planning on how to deal with the consequence. We need to start working now,” said Osman. To avoid a disruptive conversion, the economic report recommended that island leaders focus on economic advantage — based on its resources and potential for economic growth.

The report warned that any changes in the CNMI’s comparative economic advantages may drive garment-makers away, possibly without notice. When this happens, the economic and financial consequences for the CNMI will be incalculable, as the existing infrastructure may not be of immediate use to other industries in a tropical island.

Given the current circumstances, the report said garment manufacturers will most likely maximize their operational capacities and production within the framework while they still can.

As the garment industry scrambles to reach its full potential and maximize its gain, the gap left by the declining tourist market will have to be filled. “This is exactly what the CNMI needs to put the economy back on the long road to recovery,” the report added.

The report said the CNMI will have to continuously look for income sources beyond garment manufacturing and traditional tourist services. With available air transport, effective marketing, awareness and acceptance in the communities, commercial gambling offers such an alternative.

Unfortunately, the Tinian Dynasty Hotel & Casino has been having difficulty to survive since it opened in April 1998.

Due to its proximity to Asia, commercial gambling market in the CNMI has a huge potential to develop. However, this niche can be achieved more rapidly if each of the gambling islands had their own airport that can accommodate large aircraft.

“Whether or not it will work is as much a function of what CNMI can do as it is a function of market forces over which the Commonwealth has little or no control. As long as these markets retain some of their essential character as destinations and ecosystems, providing tourists with an experience they cannot get elsewhere at the given price, they will remain popular as tropical paradise with unique American-Pacific mixes of cultures and facilities,” the report said.