CNMI YEAR-END REPORT : IS PARADISE LOST?

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By Cookie B. Micaller

SAIPAN, Northern Mariana Islands (December 31, 1998 - Saipan Tribune)---In a downtown tourist strip where hordes of people used to descend on a beehive of stores and hotels, Mary Anne's clothes shop remains one of the few that is still surviving by the day through the hard times gripping Saipan.

Standing outside, she tries to wave passers-by streaming through the sidewalk into her store, its glass facade plastered with cardboard signs announcing sales discount of up to 50 percent. But few take notice or buy.

If business remains bad, Mary Anne says she has no choice but to close shop like hundreds of others which have folded up in recent months on the sidelines of the worst economic contagion to hit this once bustling Pacific island paradise.

For years, planeloads of tourists used to descend and splurge on this U.S. commonwealth's fine beaches and bars, but the financial crisis that started plaguing much of Asia and the world last year held back the flow of tourists - the lifeline of Saipan's tourism-dependent economy.

Now, officials led by Gov. Pedro P. Tenorio are in a frenzy trying to save the faltering economy. With political rifts and disputes with the United States, the CNMI's main economic provider, the job appears daunting.

Many local officials and businessmen liken the predicament to a stack of dominos starting to collapse on each other. With the collapse of tourism, all others are starting to fall.

"Our biggest problem is our cash flow. It is very limited. Business are closing down. People are receiving less so the government is receiving less taxes," said Tenorio, who took office in January.

Although austerity programs have been put in place, the situation is at best, alarming, according to Tenorio.

Stricter fiscal discipline imposed

In a first strong sign of where the economy isheading, the local chief executive announced in November that he was cutting down the government's spending limit by $32.5 million in anticipation of a 13.4 percent drop in revenue collections for FY 1999 after five years of uninterrupted growth.

From a high of $248 million in Fiscal Year 1997, finance officials projected revenue collections to reach $216.75 million during the current fiscal year. The amount was just over money collected in FY 1995.

This will translate to an across-the-board reduction in appropriation to all departments and agencies beginning next month.

The decision was precipitated by the continuous double-digit drop in visitor arrivals since late 1997, the first time the half-a-billion-dollar tourism industry has showed a lackluster performance in years.

The decline was even worse during the Gulf War in 1990, when security conscious Japanese canceled travel plans to the Northern Marianas.

"After the elections, we knew we would inherit a lot of problems. But little did we realize the severity of the Asian crisis," said Dr. Jose T. Villagomez, Tenorio's campaign chairman and chief political adviser, adding, "The way the past administration spent money was no way an indication that there is crisis in Asia."

Compounding the financial woes is the ballooning deficit which has grown to a record $57.3 million since 1986. In FY 1997, the deficit took a huge leap under former governor Froilan C. Tenorio from $22.51 million the previous fiscal year, which according to a constitutional provision, must be retired in two years.

But with cash collections on the downtrend, the governor said retiring the deficit in 1999 was remote, and warned the figure could even swell beyond $100 million in FY 1998 because of revenue shortfall and unpaid bills left by his predecessor.

Combined payment for past obligations of the previous administration and tax rebates amounting to $55 million is enough to cover 25 percent of the current fiscal year budget.

Since early this year, the administration has frozen hiring, removed unnecessary government positions, reduced overtime and eliminated non-essential services. Savings

from austerity measures brought down expenditures by $12 million in 10 months.

But in a worst case scenario, Tenorio may have to expand the package of cost-cutting measures that may include up to 10 percent pay cuts and reduction in work hours of government employees in order to avert disruption in the delivery of basic services to the community.

According to Michael S. Sablan, the governor's special advisor on finance and budget, the austerity policies put in place are right on track. Cash collections that will be coming in January, he said, will determine whether further expenditure cuts will be carried out.

"If the collections go down, we will have to cut further the spending level," Sablan said.

Dealing with the economic malaise

Some observers say the government seems to be lost on how to deal with the commonwealth's economic malaise. The solutions underway or being proposed are at best a panacea.

"Under the circumstances, the government is doing a very good job in addressing the revenue shortfall, but they forgot to really address the economic problems," said bank executive Tomas B. Aldan. "They waited up to the last minute."

Under the administration's 100-day agenda, hardly did it mention anything about an economic plan. The creation of the Economic Recovery and Revitalization Task Force was more of an immediate response to the regional crisis ravaging the island as well as to businessmen hurting from the economic slowdown.

The task force is now preparing a blueprint that will attempt to diversify the tourism-based economy, first with plans to establish a free trade zone in the commonwealth that will cater to less labor-intensive industries.

Business leader Joe Ayuyu once complained of the government's slow response to the worsening economic condition, pointing out the apparent misreading of the real impact of the Asian flu by some officials.

Preparing for the worse

Although normally brimming with enthusiasm, Tenorio sounds resigned. "If only we had like 10 months or a year to prepare, we wouldn't have these problems," he said. "The Asian crisis hit us very fast even before we could prepare."

With no clear signs on where the economy is going, the governor said the Northern Marianas may have to take more of the bitter pills.

Next year, the government will put in place a drastic economic austerity program complimenting the present one. From pay cuts alone, the administration hopes to reduce spending level by $10 million.

Government positions are under review to determine where job cuts could be done in line with recommendations of the Executive Transition Committee to trim down the bureaucracy teeming with overlapping functions. In the past, 75 percent of the yearly budget had been spent for salaries of close to 5,000 employees under government payroll.

A number of laws granting salary hikes and additional benefits to government workers are being revisited by the Legislature for possible repeal or suspension.

According to Tenorio, he hopes the massive construction activities that are expected to take off under the Capital Improvement Projects will provide relief to the year-long economic distress.

Close to $100 million in federal and local funds will be infused into the economy starting February for the construction of various infrastructure projects in the Northern Marianas.

Gone are the good old days

Amid the bad times, Mary Ann can't help reminiscing the good old days.

There was a time when business was so good we were planning of buying the next two stalls beside my shop"' she said her voice cracking. "Now it seems I'll lose everything."

The problems plaguing the CNMI have taken away much of Saipan's allure. At night time, streets that once glisten under neon and spot lights are darkened and empty. Beach resorts are unkempt and the facade of Saipan, the commonwealth's tourism hub, is dotted with closed stores.

"Life was good then, I don't know if it will ever come back," says another store owner in Garapan.

For additional reports from The Saipan Tribune, go to PACIFIC ISLANDS REPORT News/Information Links: Newspapers/The Saipan Tribune.

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