TO MITIGATE GARMENT PULLOUT CPA sets up reserve fund

The Commonwealth Ports Authority is setting up a supplemental reserve fund in efforts to obtain investment rating for its seaport bond and to mitigate the possible impact of the impending Saipan garment manufacturing sector pullout to its apparently worn out coffers.

CPA Executive Director Carlos H. Salas said the Ports Authority is working at making an initial $2.7 million deposit to the Seaport Reserve Fund within the year.

Mr. Salas told reporters CPA plans to deposit $700,000 to the Fund every year to reach the target $8 million in five years.

He pointed out that the Reserve Fund is being put in place to alleviate the anticipated drop in seaport revenues once the apparel manufacturing sector pulls out of Saipan in a period of five to seven years.

The impending pullout of the garment manufacturing industry, an anticipated result of the agreement that created the World Trade Organization since the United States will have to phase out its garment quota system by 2005, may cause the collapse of CPA’s seaport revenues beginning 2002.

Seaport revenues are projected to fall from $5.7 million in FY 2002 to $3.2 million in FY 2007 practically because 58 percent of the container movement activities in Northern Marianas harbor is buoyed by the garment industry.

“The garment industry’s pullout has been a threat for at least 10 years now, and it has remained a threat to the local economy in general, and the ports authority’s revenue-generating capabilities in particular,” Mr. Salas said.

He explained that the issue surrounding the possible pullout of the garment sector which is expected to have an adverse impact in the container movement was one of the major factors that affect CPA’s efforts to secure investment grade rating for the seaport bond.

Members of the CPA delegation flew to the mainland U.S. earlier last month for a presentation of the financial outlook for the Saipan seaport before two San Francisco-based bond rating companies.

Last year, ports authority officials failed to secure a rating for the CPA’s seaport division. It hopes to receive a BB minus rating for the seaport, better than the rating secured by the airport.

Once rated, CPA qualifies to get 20 basis points reduction in its bond interest rates, from 6.85 to 6.654, which translates to over $80,000 in total savings each year.

CPA received a BBB minus investment grade rating from Fitch IBCA for its more than $20 million airport revenue bonds sold in March 1999.