OUTLOOK NMI faces greater challenges in 2001

The ability to turnaround the Commonwealth’s economy, which has turned sour due to external market and political pressures, will install the next CNMI governor and lieutenant governor into power as the Northern Marianas electorate prepares to select their new set of leaders next year.

If current economic situation persists in the next 11 months, the administration of Gov. Pedro Tenorio will leave the Commonwealth government in January 2002 with some $70 million in budget deficit he inherited from the previous regime’s excessive spending.

Political observers and business analysts believe the current administration’s failure to stabilize the island’s economy sealed the defeat of Lt. Gov. Jesus Sablan’s gubernatorial bid to Washington Rep. Juan Babauta during the GOP’s open primary in November.

Mr. Babauta will face Democratic Party’s standard bearer ex-Lt. Gov. Jesus Borja and former Gov. Froilan C. Tenorio of the Reform Party in the gubernatorial race during the general elections scheduled next year.

This, even as talks continue to circulate on incumbent House Speaker Benigno R. Fitial’s plans to run for the hotly contested gubernatorial seat. Mr. Sablan is also reportedly looking at pursuing his political dreams by running as independent candidate with incumbent Senate Vice President Thomas Villagomez.

Results of this year’s elections depend on which party’s platform conforms with the community’s desire to see the local economy flourish, following grim projections that both the tourism and the apparel manufacturing industries, the largest revenue-generating sectors for the CNMI government, will continue to face hard times.

Major industries

Japan Airlines projects stabilization of Japanese economy and the tourism market will take place by not later than 2001, citing surveys which indicate that almost 30 percent of Japanese citizens are not keen on taking overseas trips due to mounting concerns about personal and financial security.

The situation has been aggravated by a travel advisory issued by the Japan Ministry of Foreign Affairs in September 2000, which stated that Saipan is “not safe” for Japanese travelers. This pulled down overall visitor arrivals to Saipan by 10 percent in October, one month after the travel advisory was released.

This, even as the re-entry of Korean travelers to the Northern Marianas pushed overall visitor arrival figures in the first half of the year by three percent to 257,800 from last year’s average of 250,900 tourists.

Government records disclosed hotel occupancy taxes averaged $2.8 million in the first half of the financial year 2000, which translates into about six percent fall from the year ago’s semestral average of $3 million. Figures from the finance department revealed hotel occupancy taxes contributed $6 million into the overall revenues generated by the CNMI government in Fiscal Year 1999.

A review of official government figures will show that the first half of FY 2000 was the first time, since the financial year 1996, when semestral hotel occupancy revenues dipped below the $3 million-mark. Hotel occupancy rate fell seven percent to 58.9 percent in the second quarter of 2000.

Government records also showed garment exports to the mainland U.S. dipped 10 percent in the financial year 2000 to $238.92 million from the quarterly average $265.55 million worth of outbound apparel products in 1999.

Industry players and government finance managers anticipate the downward trend to persist as they project that the sector will now feel the adverse effects of the billion-dollar class action suit filed against Saipan manufacturers and criticisms from the federal government over alleged sweatshop conditions on the island.

The CNMI government is anticipating an average five percent reduction in annual earnings from user fees collected from garment exports beginning fiscal year 2000 primarily because of the controversies created by the class action suit.

Even without the controversial lawsuit, however, the Saipan apparel manufacturing industry is still expected to uproot from the island when the agreements that created the World Trade Organization takes into effect in 2005 and when U.S. trade quotas are lifted.

Primarily because of the class action suit, government revenues from apparel exports suffered a modest fall in the first eight months of the Fiscal Year 2000, dropping by 1.5 percent from last fiscal year’s $25.5 million to $25.1 million.

Compact-Impact

The continued migration of citizens of the Freely Associated States in the CNMI is also impacting the Commonwealth government an average of $15 million every year in total subsidies for various social services delivered to citizens of the three countries signatory to the agreement with the U.S.

The United States owes the CNMI government about $120 million in total funds for the reimbursement of the Compacts of Free Association’s fiscal impacts to Commonwealth coffers from 1986 to 1999.

Government estimates indicated there are more than 3,000 FSM, Marshalls and Palau citizens residing in the Northern Marianas, who represent about four percent of the CNMI’s overall population count of 69,000 in 1999.

Costs associated with providing public services to the citizens of the Freely Associated States represented about 15 percent of the total Commonwealth’s budget in FY 1999.

Major services impacted by the Compacts include the public health department, which spent 19 percent or some $7.5 million of its budget for services extended to FAS citizens; the Public School System which hosts 712 FAS students costing the government about $2.8 million.

The youth services division spent $196,000, or over a quarter of its overall FY 1999 budget, to FAS participants whose total number rose 19 percent in the last financial year, while the Department of Public Safety reported a decrease in the amount of expenditures associated with the hosting of FAS citizens in the Northern Marianas at $1.5 million.

The agreement with the Federates States of Micronesia and the Republic of Marshall Islands started in 1986, while that with the Republic of Palau was implemented in 1994.

Of the estimated $80 million-$108 million Compact Impact between 1986 and 1998, the federal government has reimbursed the CNMI government with measly $3.8 million in the form of grants released in 1992, 1993, 1994, 1995 and 2000.

In 1992, the CNMI government received $394,960 in total grants from the Department of the Interior; another $396,600 in 1993; $400,000 in 1994 and $1.6 million in 1995.

The U.S. government has been consistently allocating funds for the reimbursement to Guam of the impacts of the Compact of Free Association and nothing for the CNMI since 1996, until Insular Affairs Director Danny Aranza’s visit in the latter part of the year when he turned over $1 million to the Commonwealth.

The CNMI had been billing the United States government for the Compact-Impact reimbursements since the 1980’s but nothing has been finalized so far, and that the figure has already grown bigger.

This, even as the US Congress openly recognized that the federal government should reimburse the money spent by the CNMI in accommodating migrants from the Federated States of Micronesia, Marshall Islands and the Republic of Palau.

Under the Compact of the Free Association, residents from Pohnpei, Yap, Chuuk, Palau and Marshall Islands can migrate to US island-territories like Guam and the CNMI, as well as to the State of Hawaii without restrictions.

The agreement guarantees the provision of education, medical and other state benefits to the migrating Micronesians which will be shouldered by the local governments and will, in turn, reimbursed by the United States through Congressional appropriations.