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COMMONWEALTHOF THE NORTHERNMARIANA ISLANDSE C O N O M I C R E P O R T O C T O B E R 1 9 9 9

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10/99

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About Bank of HawaiiBank of Hawaii is the principal

subsidiary of Pacific CenturyFinancial Corporation, a regionalfinancial services holding companywith $14.6 billion in assets and morethan 180 business locations. Throughour trans-Pacific network of offices,subsidiaries and correspondents,Bank of Hawaii provides a full rangeof financial services to businesses,governments and consumers in fourprincipal markets: Hawaii, the Westand South Pacific, Asia and selectedmarkets on the US Mainland.

Whether you are interested intrade finance, working capital loans,correspondent banking, foreignexchange, real estate investment orestablishing operations in anothercountry, Bank of Hawaii can open upa world of new businessopportunities for you. Please visit ourInternet website at www.boh.com formore information.

We are pleased to present this economic report on the Commonwealth of the Northern Mariana Islands(CNMI). This publication provides an overview of current economic conditions and an analysis of factors that arelikely to influence the economic future of the Commonwealth.

Bank of Hawaii’s involvement in CNMI dates back to 1971, when we first opened our doors on Saipan.Since that time, the Commonwealth has grown to be one of the Bank’s more dynamic markets in the West Pacificregion. In recent years, CNMI’s economy has faced challenges due to the Asian crisis. We are confident,however, that it will continue to thrive in the midst of this period of change.

Bank of Hawaii’s report on the economy of CNMI is part of an ongoing series of analyses of the Pacificisland markets we serve. We offer this analysis as a resource for political and business leaders, investors, analystsand other decision-makers who share our confidence in CNMI’s future.

We encourage you to visit the economics section of Bank of Hawaii’s Internet website at www.boh.com forother reports and updates on Pacific island economies. We look forward to participating in the economic futureof the region and to working with you as you set financial goals and achieve your objectives.

Aloha,

Lawrence M. Johnson Richard J. DahlChairman of the Board & President andChief Executive Officer Chief Operating Officer

TO OUR CLIENTS AND FRIENDS:

Lawrence M. Johnson Richard J. Dahl

COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS

2 Bank of Hawaii ^www.boh.com&

Contents

The Federalization of CNMI 4

The Federalization Controversy 4

Population, Labor Force and Employment 5

Average Wages, Household Income and Standard of Living 6

Macroeconomic Review and Forecast 8Review of 1997Review of 1998Review of the First Quarter of 1999 and Forecast

Economy by Sector 12Garment ManufacturingTourism

Current SituationThe Search for More Airline SeatsExperimenting with Commercial Gambling

A Regional Perspective 17The Asian Crisis in RetrospectExcess CapacityThe Reason Behind the ExcessOpen Institutions and ProsperityThe Place of Social ValuesThe Pivotal Role of Japan in East Asia

The Irreversible Global Village Path

AcknowledgmentsThis report was written by Wali M. Osman, with grateful acknowledgement to the Offices of Governor and LieutenantGovernor of CNMI, CNMI Departments of Commerce and Finance, Marianas Visitors Authority, Hotel Association of theNorthern Mariana Islands, Commonwealth Development Authority, Saipan Chamber of Commerce, numerous individuals inbusiness and government who shared their perspectives, and especially Bank of Hawaii, CNMI.

Cover photos: Saipan International Airport, Marianas Visitors Authority; Outer Cove Marina, Saipan, Jack Hardy; HyattRegency Hotel Saipan, Jack Hardy.

In-text photos: Jack Hardy.

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ECONOMIC REPORT OCTOBER 1999

Bank of Hawaii ^www.boh.com& 3

COMMONWEALTH OF THE NORTHERNMARIANA ISLANDS (CNMI)

Population1999 (first quarter estimate): 79,4291995: 58,8461990: 43,3451980: 16,780CNMI Population Growth Rate (1980-99):

8.5 percent per yearSaipan Population Growth Rate (1980-99):

8.8 percent per year

EconomyCurrency: US dollarIncome sources: garment manufacturing, tourism

(including experimenting with commercialgambling), trade and services

Estimated Gross Island Product (GIP) in 1999: $664.6 million

Per capita GIP in 1999: $8,3671999 Population of 16 years age and older: 54,5411999 labor force: 46,1831999 employment: 43,6511999 unemployment rate: 5.5 percent Minimum wage: $3.05

Political StatusUS commonwealth since 1978Head of Executive Branch: Elected GovernorBi-cameral Legislature (Senate & House)US-style judiciary

Land AreaTotal 176.5 square milesLargest Island: Saipan (46.5 square miles)Home to 90 percent of population: SaipanSecond largest island: Tinian (39.2 square miles)Third largest island: Rota (32.8 square miles)Inhabited Island: 5Total Number of Islands: 14

Distance from:Honolulu: 3,700 milesSan Francisco: 5,800 milesTokyo: 1,500 milesTaiwan: 1,400 milesSeoul: 2,000 milesManila: 1,500 miles



THE FEDERALIZATION OF CNMI

The Commonwealth of the Northern MarianaIslands, located in the Northwestern Pacific Ocean, is theU.S.-affiliated territory closest to Asia. It is 125 milesnorth of Guam, 1,500 miles from Japan, 1,400 miles fromTaiwan and 2,000 miles from South Korea. CNMIconsists of 14 islands, five of which are inhabited, with atotal land area of 176.5 square miles spread over about264,000 square miles of ocean.

CNMI was a part of the United Nations TrustTerritory of the Pacific Islands (TTPI), administered bythe United States after World War II until it was dissolvedin 1994 when its last member, Palau, became a sovereignnation. The Covenant that created the Commonwealth ofthe Northern Mariana Islands and attached it to theUnited States became law in 1978.

In the years since the Commonwealth wasestablished, CNMI’s institutional makeup has had uniquefeatures. CNMI has the elements of a U.S. territory, astate and an independent nation, all in one. CNMIcitizens are U.S. citizens, but do not vote in federalelections and do not pay federal taxes. CNMI receivesgeneral federal aid as states and territories do, but nolonger receives any special subsidy as it did in the first 15years after it became a U.S. commonwealth. The lastCovenant payment of $10.3 million was made in 1992. Ina purely economic sense, CNMI is more independent thanany other U.S.-affiliated territory in the Western Pacific.

CNMI residents enjoy the protection of U.S. lawsand institutions, as well as a comparatively high standardof living. But CNMI’s exemption from certain U.S.immigration, naturalization and labor laws, granted at thetime of Commonwealth, has given it the autonomytypical of sovereign nations.

The U.S. commitment, provided for in theCovenant, was that the Commonwealth was to come into

being “in political union with and under the sovereigntyof the United States of America.” But by allowingseparate immigration, labor and wage laws in a U.S.-affiliated territory whose citizens are U.S. citizens, theCovenant inadvertently created what has become “acountry within a country” with respect to CNMI’spopulation and work force. These circumstances are nowa matter of national political debate.

On May 30, 1997, President Bill Clinton intensifiedthe debate by sending a letter to then CNMI GovernorFroilan C. Tenorio. In it, the president indicated that hewould ask the U.S. Congress to extend Americanimmigration and labor laws to CNMI because of“continuing, disturbing labor, immigration, and lawenforcement practices” that Washington considersinconsistent with American policies and values. The letterrecalled that the Covenant provided that U.S. laws regardingimmigration, naturalization and the minimum wage wouldbe extended to CNMI at some later time and this, thepresident indicated, was the time to start the process.

THE FEDERALIZATION CONTROVERSY

In the midst of a severe economic downturn causedby a rapid decline in tourists from East Asia since late1997, CNMI has been engaged in the struggle against whatis now routinely being referred to as “the federal takeover.”Both the CNMI government and businesses haveconsumed a great deal of time and energy resisting it.

As indicated in Bank of Hawaii’s 1997 CNMIEconomic Report, the legal basis for extending U.S. law to CNMI is straightforward, as provided for by theCovenant that created the Commonwealth of the NorthernMariana Islands. Less well understood are the economicconsequences of a “federal takeover,” especially if thegarment industry, which is at the core of much of thecontroversy behind federalization, decides to leave CNMIbecause of changes in global trade rules and regulations.

While the garment industry is credited withpreventing an economic depression in CNMI followingthe decline of its tourist industry, its future in theCommonwealth is far from certain, regardless offederalization. The two main advantages formanufacturing garments in CNMI, low-cost foreign labor and duty-free sale in the United States, are causesfor criticism and subject to remedial action in the contextof global trade issues.

Changes in tariffs, import duties and subsidies, fromfarming to manufacturing, are main topics of current globaltrade liberalization talks at both bi-lateral and multi-laterallevels. Once these issues are clarified by the World TradeOrganization (WTO) or regional economic and trade pactssuch as Asia-Pacific Economic Cooperation (APEC),CNMI may lose its unique advantages, forcing garment-makers to seek other low-cost markets.Susupe coastline, Saipan. Photo: Jack Hardy



Supporters of the status quo for CNMI convincinglyargue in both Washington and Saipan that CNMI is aspecial case operating legally within U.S. and CNMI laws.As long as CNMI adheres to accepted market principlesand its own laws and does not violate any U.S. laws,proponents argue, it has the prerogative to determine itsown economic destiny within the United States.

This camp cites American Samoa, another U.S.territory, where control of immigration and labor mattershave been allowed to reside in local authority. Indeed,American Samoa has its own wage and immigration lawswhich it enforces with federal approval and financial aid.However, since the number of alien workers in AmericanSamoa is small and the territory’s labor practices have notgenerated mass media publicity, American Samoa has nothad the national political exposure the way CNMI has.

Arguing for federalization, equally convincingly, areadvocates of the “fair rules” doctrine, especially amongU.S. labor unions of manufacturing activities similar tothose in CNMI. The main argument of this camp is thatpaying workers less than U.S. minimum wages andallowing duty-free sale of their products in the UnitedStates amounts to a special subsidy to which no other partof the country is entitled. In fact, critics of certain U.S.trade practices (such as subsidies to American producersand consumers) cite CNMI as an example of the doublestandards in which the United States engages.

CNMI’s resistance to federalization andWashington’s effort to rectify a situation that has attractedsuch adverse publicity and criticism for the United Stateshave combined to create an atmosphere of tension,mistrust and misplaced priorities. Except for a fewgarment-makers who have expanded their investment inCNMI despite continuing controversy, many businesseshave held back, taking a “wait-and-see” attitude, whichhas exacerbated the economic downturn.

With proposals now in both houses of the U.S.Congress, it is very likely that federal labor and immigrationlaws will be extended to CNMI, though in stages, and notwithout due process. With such a change pending, it is ineveryone’s interest that CNMI business and governmentleaders look ahead and plan for an orderly transition.

POPULATION, LABOR FORCE ANDEMPLOYMENT

In the two decades since CNMI came into being, itsdemographic, economic and social structures have changeddramatically, and so has the world in which its people andmarkets operate. CNMI’s long-term comparative economicadvantage lies in its location near East Asia and its politicaland economic links to the United States, rather than inlow-cost imported labor. Yet, when CNMI opened itsdoors to foreign capital and labor, it was transformed froma small economy supported largely by subsistence and

government to a large regional destination and a garment-manufacturing haven.

CNMI’s population growth can only be characterizedas explosive. Its total population increased 373.4 percent in 1980-99, yielding an annual growth rate of 8.5 percent.This is by the far the highest known population growth ratein the world, especially in comparison to the 2.5-4.0 percenttypical of the Pacific’s developing economies, which werealready considered high. Population growth rates for mostof the developed world, of which CNMI is technically apart, range from 0.7 to 1.0 percent.

In 1980, CNMI’s total population was 16,780. Itincreased to 43,345 in 1990 and 79,429 in the first quarterof 1999, with Saipan accounting for 90.4 percent of thetotal. Saipan’s share in 1999 is only slightly higher thanthe 89.7 percent share in 1990. This is mainly because alarge majority of CNMI’s foreign labor works on Saipan,the Commonwealth’s commercial, government and civiccenter as well as its garment manufacturing capital.

Given the concentration of economic activity onSaipan, the island has absorbed most of both U.S. andCNMI infrastructure funds and attracted the majority offoreign workers. Thus Saipan has led the islands inpopulation growth. In 1980-99, Saipan’s populationincreased 393.4 percent or 8.8 percent annually, followedby Rota whose population grew 265.8 percent (7.1percent annually). Tinian had the lowest growth rate of6.8 percent with a total population increase of 249.4percent in 1980-99.

In the first quarter of 1999, Saipan’s totalpopulation was 71,790, of which only 42.0 percent or30,154 persons were U.S. citizens. The other 58.0percent or 41,636 were temporary foreign workers.

Since population has increased mainly as a result of

CNMI PopulationSaipan Rota Tinian Other Islands Total

1920 2,449 651 112 186 3,3981925 2,639 487 180 187 3,4931930 2,915 644 43 227 3,8291935 3,194 788 24 291 4,2971958 6,654 969 405 262 8,2901967 9,035 1,078 610 263 10,9861973 12,382 1,104 714 133 14,3331980 14,549 1,261 866 104 16,7801990 38,896 2,295 2,118 36 43,3451992 47,786 2,561 2,553 — 52,9001995 52,698 3,509 2,631 8 58,8461996 57,181 3,721 2,711 — 63,6131997 62,956 4,023 2,822 — 69,8011998 69,421 4,350 2,937 — 76,7081999 71,790 4,613 3,026 — 79,429

Source: CNMI Department of Commerce, Recent Trends in Population,Labor Force, Employment, Unemployment and Wages, 1973 to 1999,Draft #1, July 1999.

capacity is theoretically unlimited.A large majority of foreign labor works in the private

sector, while U.S. citizens make up only 12.3 percent oftotal private sector employment. Among the largestemployers in the private sector are garment-makers, hotels,restaurants, retail outlets other tourist-related serviceproviders, construction and building firms. Government,however, is the employer of choice in the local marketbecause of higher wages and other benefits.

U.S. citizens on Saipan make up 81.2 percent ofgovernment employees but only 3.5 percent of thoseemployed in manufacturing and 3.3 percent in construction.They also make up 55.0 percent of the unemployed. Theunemployment rate among Saipan’s U.S. citizen labor forcein the first quarter was 13.4 percent, as compared to 3.2percent among foreign workers.

It is clear that the growth rate of temporary alien laborover the years has overwhelmed that of the indigenouspopulation as well as that of all U.S. citizens. It also hascreated pressure on public infrastructure. Provision andupgrading of public infrastructure, to which the U.S.government makes a contribution, is a continuing concern.Since infrastructure use cannot be rationed among alien andnon-alien labor, the cost of providing and maintaining it hasbeen among the major issues in Washington.

AVERAGE WAGES, HOUSEHOLD INCOMEAND STANDARD OF LIVING

CNMI data on wages, household size, householdincome and living standards are often dated andincomplete. The main reason for these deficiencies islack of skills, not lack of data. However, the Departmentof Commerce launched a quarterly Economic Review



the influx of temporary foreign workers on Saipan, theisland’s labor force figures offer some insight to theCommonwealth’s demographic and economic evolution.In the first quarter of 1999, Saipan’s active population(persons 16 years and older) was 54,541, only 28.0percent of whom were U.S. citizens. Those in the laborforce (both employed and those actively seeking work)totaled 46,183, of whom only 22.6 percent were U.S.citizens. And only 20.7 percent of the 43,651 totalpayroll workers were U.S. citizens, while 79.3 percentwere temporary foreign workers.

The legal minimum wage is $3.05 (59.2 percent ofthe current U.S. minimum wage of $5.15) and what isproduced is sold duty-free in the United States. Sincethere is no limit to what CNMI can sell in the U.S., sales

Saipan Population by Citizenship2nd Qtr 4th Qtr 1st Qtr

1973 1980 1990 1995 1998 1998 1999

All Persons 12,486 14,549 38,896 52,698 69,421 68,958 71,790US Citizens 10,325 11,195 17,171 23,585 31,010 30,640 30,154

Born in CNMI 9,544 10,239 14,378 19,096 26,523 25,644 24,710Born in US orOther Territory 781 956 1,968 3,411 3,329 3,283 3,543

Born Abroad ofUS Parents — — 212 175 93 220 199

Naturalized Citizens — — 613 903 1,065 1,493 1,702Non-US Citizens 2,161 3,354 21,725 29,113 38,411 38,318 41,636

PermanentResidents — — 2,056 3,248 3,883 5,700 5,478

Temporary Residents — — 19,669 25,865 34,528 32,618 36,158

Source: CNMI Department of Commerce, Recent Trends in Population, LaborForce, Employment, Unemployment and Wages, 1973 to 1999, Draft #1, July 1999.

15,000

20,000

Citizens

10,000

5,000

30,000

35,000

25,000

0Persons

16+ YearsIn Labor Force Employed Unemployed

Saipan Labor Force in 1995

Non-Citizens

15,000

20,000

Citizens

10,000

5,000

30,000

35,000

40,000

45,000

25,000

0Persons

16+ YearsIn Labor Force Employed Unemployed

Saipan Labor Force in 1999

Non-Citizens



earlier this year, as well as a special report, Recent Trendsin Population, Employment, Unemployment and Wages,1973 to 1999 (July 1999), and an annual StatisticalYearbook, all in a concerted effort to provide detailed andtimely data. But more is needed.

Recent Trends, however useful, does not providepopulation, labor force and wage data for the 1973-99period for CNMI as a whole. CNMI data is availableonly for the 1973-95 period, while the 1973-99 data arelimited to Saipan. Still, this information will be helpfulto analysts.

In the first quarter of 1999, the average (mean)wage rate on Saipan was $4.31 in non-durablemanufacturing (mainly garments), $5.41 in construction,$5.50 in hotel and motel services, $5.99 in retail sales,$10.33 in finance, insurance and real estate and $12.94,by far the highest, in public administration.1

The average for all workers of age 16 or older in1999 was $7.27 an hour, down from $7.36 in the last

quarter of 1998, but slightly higher than 1995’s averageof $7.20. The drop from the last quarter of 1998 ismainly the result of the stagnant economy.

In comparing wages, salaries and other incomeflows, the customary measure is the median, rather thanthe mean average. The median reflects the middle of therange, where half the wage earners are above and halfbelow this level. Mean, on the other hand, reflects thestatistical average derived by dividing total wages bytotal workers.

Since a large majority of Saipan’s workers earnwages near the lower end of the wage scale, the $7.27average (mean), presents a distorted view of the wagerange and the gap between the two ends of the scale. As such, it provides little toward understanding andassessing differences among the various components ofthe labor force, their wages and their implications forbusiness and economic activity.

Another more useful measure is the medianhousehold income. For Saipan, it was $19,698 in the firstquarter of 1999, $18,376 in the fourth quarter of 1998,$18,689 in 1995 and $21,457 in 1990. In comparison,the mean household income was $34,864 in the firstquarter of 1999, $29,979 in the fourth quarter of 1998,

Saipan Labor Force Participation and CharacteristicsUS Citizens

US Citizens As PercentU.S. Citizens Non-U.S. Citizens Total As Percent of Total

2nd Qtr 4th Qtr 1st Qtr 2nd Qtr 4th Qtr 1st Qtr 2nd Qtr 4th Qtr 1st Qtr of Total 1st Qtr1995 1998 1998 1999 1995 1998 1998 1999 1995 1998 1998 1999 1995 1999

Persons 16-Plus Years 14,072 15,429 15,324 15,251 29,774 36,686 36,337 39,290 43,846 52,115 51,661 54,541 32.1 28.0In Labor Force 10,020 9,591 10,383 10,428 27,520 33,239 32,946 35,755 37,540 42,830 43,329 46,183 26.7 22.6Employed 8,745 8,024 8,894 9,039 26,067 32,447 31,733 34,612 34,812 40,471 40,627 43,651 25.1 20.7

Percent 87.3 83.7 85.7 86.7 94.7 97.6 96.3 96.8 92.7 94.5 93.8 94.5 — —Unemployed 1,275 1,567 1,489 1,399 1,453 792 1,212 1,143 2,728 2,359 2,701 2,542 46.7 55.0

Percent 12.7 16.3 14.3 13.4 5.3 2.4 3.7 3.2 7.3 5.5 6.2 5.5 — —

Workers by Type 8,745 8,024 8,894 9,039 26,067 32,447 31,733 34,612 34,812 40,471 40,627 43,651 25.1 20.7Private Sector 4,044 4,099 4,705 4,618 24,797 30,996 30,291 32,913 28,841 35,095 34,996 37,531 14.0 12.3Government 4,300 3,480 3,775 3,970 718 825 890 917 5,018 4,305 4,665 4,887 85.7 81.2Self-Employed 378 412 414 451 488 478 537 752 866 890 951 1,203 43.6 37.5Unpaid Family Workers 23 33 — — 64 148 15 30 87 181 15 30 26.4 —

Workers by Industry 7,973 7,825 8,817 9,039 26,067 31,732 31,257 34,612 34,040 39,557 40,074 43,651 23.4 20.7Agriculture 23 1 31 90 348 166 428 511 371 167 459 601 6.2 15.0Forestry & Fishing 14 — 77 15 34 36 169 — 48 36 246 15 29.2 100.0Mining & Construction 158 159 141 108 3,469 3,000 2,758 3,212 3,627 3,159 2,899 3,320 4.4 3.3Manufacturing 338 489 621 512 7,432 13,717 13,412 14,253 7,770 14,206 14,033 14,765 4.4 3.5Transport & Communication 1,168 1,072 1,182 1,399 1,372 1,430 1,720 1,482 2,540 2,502 2,902 2,881 46.0 48.6

Wholesale Trade 169 149 108 243 349 601 329 689 518 750 437 932 32.6 26.1Retail Trade 1,100 1,094 1,168 1,355 4,362 4,311 5,038 4,595 5,462 5,405 6,206 5,950 20.1 22.8Finance, Insurance & Real Estate 325 397 399 362 398 510 432 473 723 907 831 835 45.0 43.4

Services 2,339 2,304 3,034 2,715 8,090 7,620 6,695 9,175 10,429 9,924 9,729 11,890 22.4 22.8Public Administration 2,339 2,160 2,056 2,240 213 341 276 222 2,552 2,501 2,332 2,462 91.7 91.0

Source: CNMI Department of Commerce

1CNMI Department of Commerce, Recent Trends in Population,Labor Force, Unemployment and Wages, Commonwealth of theNorthern Mariana Islands, 1973 to 1999, Draft #1, July 1999,p. 149.



$29,634 in 1995 and $35,452 in 1990.The difference between the median and mean

household incomes is a measure of income inequality. Asa general rule, the closer the mean and the median, thenarrower the income gap. Conversely, if the differencebetween the mean and the median is big, the gap betweenthe two ends of the income scale will also be large.

For Saipan, the 1999 median is only 56.5 percent ofthe mean, suggesting a wider gap in the average wagesand household income and, therefore, in the so-calledaverage standard of living. In contrast, Guam’s meanhousehold income in 1997, for example, was $42,835 and its median household income was $36,429, or 85.0percent of the mean.

The number of households in the income bracketsbelow the median level increased from 36.6 percent oftotal households in 1990 to 40.9 percent in 1999. Thenumber of households representing the median decreasedfrom 34.8 percent in 1990 to 30.8 percent in 1995, whilethe number of households at the upper end remainedpractically the same.

Assuming the household income numbers areaccurate, they show that the average standard of living onSaipan, as measured by either the median or mean income,was lower in 1999 than in 1990, in spite of moreemployees on payroll and more taxes to the CNMItreasury. The probable cause of such erosion appears to bean increasingly larger portion of the labor force engaged inwork at the lower end of the pay scale. Per capita incomeon Saipan in 1995 was $7,645, down from $7,721 in 1990(figures for more recent periods are not available).

Another indicator that helps understand changes inliving standards is household size, especially in relation tohousehold (family) income. If, for example, bothhousehold income and size remain the same, inflation will

erode the household’s purchasing power while deflationwill enhance it.

Aggregate population and household data forSaipan show that household size (number of persons in ahousehold) in 1999 was 4.6, the same as in 1998, andslightly down from 4.9 in 1995, which are reasonablenumbers. But in 1990, the household size was 6.4, a hugeincrease from 5.5 in 1980. It is not clear what factor(s)caused the rapid rise in household size between 1980 and1990, nor the even more rapid decline from 1990 to 1995.It is possible that the large numbers of foreign workersmay have distorted the household size since most of theworkers are single individuals.

The overall social, economic and sociologicalimplications of such a large number of foreign workersare too numerous and complicated, requiring carefulstudy. Existing evidence suggest, that this alien labor hasnot only skewed Saipan’s wage and income data towardthe lower end of the income scale, but also changedincome distribution in favor of the affluent.

MACROECONOMIC REVIEW ANDFORECAST

Review of 1997

Unlike Guam, CNMI has no official gross islandproduct (GIP) data, except for those generated by outsideconsultants or U.S. government agencies. However, aswith any other jurisdiction in the United States, CNMIhas a tax system in which transactions are subject to taxcollection and formal reporting. The total of taxabletransactions throughout the economy (also known as the

Saipan Household Income

Households With Income Percent Distribution

4th Qtr 1st Qtr 4th Qtr 1st QtrIncome Level 1980 1990 1995 1998 1999 1980 1990 1995 1998 1999

Number of Households 2,632 6,085 10,844 14,961 15,446 100.0 100.0 100.0 100.0 100.0

Less than $2,000 276 307 1,365 1,611 1,068 10.5 5.0 12.6 10.8 6.9$2,500-$4,999 429 319 524 614 647 16.3 5.2 4.8 4.1 4.2$5,000-$9,999 735 834 1,494 2,225 2,557 27.9 13.7 13.8 14.9 16.6$10,000-$14,999 457 765 1,331 2,010 2,045 17.4 12.6 12.3 13.4 13.2$15,000-$24,999 430 1,266 1,919 3,023 2,993 16.3 20.8 17.7 20.2 19.4$25,000-$34,999 164 852 1,267 1,627 1,760 6.2 14.0 11.7 10.9 11.4$35,000-$49,000 90 732 1,229 1,565 1,970 3.4 12.0 11.3 10.5 12.8$50,000-$74,999 31 538 928 1,166 1,278 1.2 8.8 8.6 7.8 8.3$75,000-plus 20 472 787 1,120 1,128 0.8 7.8 7.3 7.5 7.3

Median Income ($) 9,156 21,457 18,689 18,376 19,698Mean Income ($) 13,515 35,452 29,634 29,979 34,864

Source: CNMI Department of Commerce, Recent Trends in Population, Labor Force, Employment, Unemployment and Wages, 1973 to 1999, Draft #1, July 1999, p. 157.



tax base) provides a rough but useful measure of businessand economic activity. In the absence of GIP data, grossbusiness revenues (GBR), as measured by tax collections,offer a useful guide to assessing the economy’sperformance.

In retrospect, 1997 was CNMI’s best year of thedecade, despite Korean Air Lines (KAL)’s decision tostop flying to CNMI and Guam late in the year and therapidly worsening Asian financial crisis. In 1997, GBRgrew a healthy 17.3 percent from 1996.

While revenues did not increase in every category,growth did occur in the Commonwealth’s significantincome sources. Retail trade revenues rose 38.6 percentto $635.4 million from $458.5 million in 1996, andrevenues from services grew 78.1 percent to $349.0million in 1997 from $196.0 million in 1996. Alsogaining ground in 1997 was garment manufacturing,which received 10.9 percent more ($537.1 million) than

1996’s $484.3 million.Among major income sources losing revenues in

1997 were hotels and motels. They received $167.6million in 1997, down 1.8 percent from 1996’s $170.8million. Restaurant and bar revenues, on the other hand,were up 8.6 percent to $65.4 million in 1997 from $60.2million. The 5.6 percent drop in tourist arrivals in 1997(mainly in the last quarter of 1997), which caused thedecline in hotel income, apparently did not affectrestaurants due to local clientele’s increased spending inthis area, which made up for the loss of tourist income.

Another notable income source losing revenues in1997 was construction. Its income of $76.9 million in 1997was down 9.1 percent from $76.9 million in 1996.Professional services, including legal services, also lostrevenue in 1997. This area’s 1997 income of $136.5million was down 11.3 percent from 1996’s $153.9 million.

Growth in bank deposits, that reflected gains in GBR,

CNMI Major Indicators1996-97 1997-98 1st Qtr 1st Qtr

1990 1994 1995 1996 1997 1998 Change Change 1998 1999

(percent) (percent)Population 43,345 56,044 58,846 63,613 69,801 76,708 9.7 9.9 79,429Employment (CNMI) 25,965 — 34,812 — — 48,142 — — — 51,326Employment (Saipan) 23,807 — 31,560 — — 43,328 — — — 46,193

Banking Activity ($ Million)Total Deposits — 411.2 425.2 463.0 481.1 522.8 3.9 8.7 — —Total Loans — 200.3 216.3 280.2 239.4 304.7 (14.6) 27.3 — —

Public Finance($ Million, Fiscal Years)Revenues 116,749 152,962 203,650 226,701 248,036 233,684 9.4 (5.8) — —Spending 108,632 181,501 191,446 221,715 268,122 244,502 20.9 (8.8) — —Balance 8,117 (28,539) 12,204 4,986 (20,086) (10,818) (502.8) (46.1) — —

Gross Business Revenues ($ Million) 1,180.5 1,452.8 1,830.9 2,224.4 2,610.3 2,238.1 17.3 (14.3) — —Retail Trade 162.3 266.4 393.3 458.5 635.4 430.8 38.6 (32.2) — —Services 80.5 232.6 299.2 349.9 485.5 404.9 38.8 (16.6) — —Garment Manufacturing 162.5 250.3 209.3 484.3 537.1 656.4 10.9 22.2 — —Other Manufacturing 9.5 31.1 201.7 69.4 150.7 136.4 117.1 (9.5) — —Hotels & Restaurants 117.7 155.3 187.6 231.0 233.0 141.4 0.9 (39.3) — —

TourismVisitor Arrivals — 596,033 676,161 736,117 694,797 490,165 (5.6) (29.5) 134,207 129,457Estimated Spending($ Million) — 470.0 527.0 581.0 585.0 393.9 0.7 (32.7) — —

Hotel Occupancy (Percent) — 77.0 82.6 85.6 81.4 58.1 (4.9) (28.6) 58.9 58.4Average Room Rate ($) — 109.0 117.0 128.0 136.0 117.0 6.3 (14.0) 143.0 103.0

Building & Construction —Number of CommercialPermits — 122 402 409 484 576 18.3 19.0 152 122

Number of ResidentialPermits — 31 223 238 176 228 (26.1) 29.5 56 32

Permit Value ($ Million) — 13.7 67.5 94.6 77.7 63.3 (17.9) (18.5) 14.8 7.8

Source: CNMI Departments of Commerce and Finance, Marianas Visitors Authority and Hotel Association of Northern Mariana Islands.



in turn, signaled a healthy economy. They increased 3.9percent in 1997 over 1996, with time deposits growingthe most, increasing 8.5 percent. Total bank loans, on theother hand, dropped a significant 14.6 percent in 1997from 1996, with commercial loans declining 22.5 percent.Also down in 1997 from 1996 were real estate loans,dropping 6.8 percent. Consumer loans, however,increased a small 0.8 percent.

Commercial loans have recently dominated bankloans, averaging 58.8 percent of all bank loans in 1994-98. They ranged from a high of 69.1 percent in 1996 to54.3 percent in 1998. It is not clear why business loansdropped so significantly in 1997. However, the healthierGBR picture of the year may indicate that businessgenerated sufficient cash internally to fund theiroperating and capital requirements. Consumer loans, onthe other hand, averaged 29.0 percent in 1994-98, rangingfrom a high of 32.4 percent in 1994 to a low of 25.4percent in 1996.

Another notable aspect of CNMI’s banking marketis that deposits exceed loans by a wide margin. In 1994-98, the loans-to-deposits ratio averaged 53.6 percent,ranging from a low of 48.7 percent in 1994 to a high of60.5 percent in 1996. While there is no evidence tosubstantiate this, the large numbers of foreign workerswho repatriate most of their wages to their home marketsmay be inflating bank deposits.

Public finance also reflected a robust businessenvironment in 1997. Total CNMI government revenuesincreased 9.4 percent that year over 1996, but totalspending increased even more, 20.9 percent. This hugeincrease in spending turned a surplus in the previous yearinto a deficit in 1997, which continued in 1998 when theeconomy began to contract significantly.

Review of 1998

As measured by gross business revenues, the year1998 will be remembered as the year of CNMI’s steepestbusiness and economic decline since the Commonwealthcame into being in 1978.

CNMI practically lost its Korean market in 1998when no other carrier picked up the route that KALabandoned in 1997. At its peak in 1996, the Koreanmarket supplied 187,881 tourists or 25.5 percent of thetotal visitor count. In 1997, the Korean market dropped24.7 percent from 1996, nearly all of the loss occurring inthe last quarter. In 1998, the Korean market plungedanother 80.3 percent. As a result, CNMI’s total touristtraffic in 1998 dropped 29.5 percent from 1997, the worstdecline of any market in the region.

Visitors from Japan, CNMI’s largest source oftourists, had increased 2.1 percent in 1997, but dropped15.9 percent in 1998, due to the worsening Asianfinancial crisis. From its 1996 peak, total tourist count in

1998 was down 33.4 percent, contributing to a 14.3percent drop in the Commonwealth’s GBR that year.

While the ratio between GBR and GIP varies fromeconomy to economy, CNMI’s 14.3-percent drop inbusiness receipts probably meant a similar decrease inCNMI’s gross income as well. This appears to be themost severe damage caused by the Asian financial crisisamong all Pacific economies, except for Indonesia wherethe crisis prompted such a political upheaval that thecountry’s leadership was eventually changed.

An economic and financial meltdown would haveseemed inevitable for any destination losing one-third ofits tourists in 15 months. However, CNMI’s garmentmanufacturers continued to expand, adding new capacityand employees in 1998, which reduced the impact of theloss in tourist traffic. Without the garment industry’sgrowth in 1998, CNMI’s business receipt loss andultimately its overall financial and economic loss, wouldhave been much greater.

The 1998 data now show that signs of economicdecline were evident everywhere, in both business andgovernment. With the exception of garment manufacturing,which saw its GBR rise 22.2 percent from 1997, everyother source of business revenues was down. The dropranged from 2.2 percent in shipping to 54.5 percent ingasoline sales and 53.8 percent in professional services.

Hotel and motel revenues were down 44.0 percent,followed by retail sales, which dropped 32.2 percent in1998 from 1997. Restaurant and bar revenues, which hadrisen in 1997 from the previous year, declined 27.3percent in 1998 from 1997.

At the same time, total government revenues fellonly 5.8 percent, and public spending declined 8.8percent. Higher personal and corporate income andexcise taxes helped to minimize the loss in governmentrevenues. Most of the decline (15.2 percent) ingovernment spending occurred in other spending whilewages and salaries dropped only 0.2 percent in 1998.

One bright spot in 1998 was banking activity.Deposits increased 8.7 percent and loans a healthy 27.3percent. Commercial loans jumped 22.9 percent andreached their peak of the decade. Consumer loans wereup 16.3 percent and real estate loans an incredible 72.6percent in 1998.

Since most foreign workers deposit their wages,even if temporarily, in local banks, this large work force,most of which is employed, may have distorted CNMI’sbanking activity.

Review of the First Quarter of 1999 and Forecast

Signs through the first half of 1999 indicated thatbusiness and economic activities were still sliding, andthere was no clear evidence in July-August to show thatthis decline had reached a bottom. GBR for the first



quarter was $555.5 million. Annualizing this amountwould take CNMI’s total GBR back to the 1996 level,which was only slightly higher than in 1998.

Government receipts from all areas were stillfalling in the first quarter of 1999, except for user fees,which make up a small part of total revenues. Also downin the first quarter were building permits. However,imports and exports were up from the last quarter of1998. Imports grew due to the needs of a largerpopulation (work force), and exports were up mainly as aresult of further gains in garment production and sales.

Garment exports totaled $793 million in 1997 and

$1,042 billion in 1998, with $295 million in the lastquarter. In the first quarter of this year, totals reached$361 million, which, when projected, could mean $1.4billion for all of 1999. However, a lesser figure is likelysince the industry has already approached its peakcapacity for production and employment levels asdetermined by a new CNMI law.

The hotel occupancy rate in the first quarter of1999 was 58.4 percent, down slightly from 58.9 percentin the fourth quarter of 1998 which, in turn, was higheronly marginally from 58.1 percent for all of 1998. Onlytwo years previously, it at peaked at 85.6 percent. The

Trade19.9%

Construction6.8%

Services6.8%

Garments13.8%

All Others52.7%

Gross Business Receipts1990

Trade25.0%

Construction3.2%

Services18.1%

Garments29.3%

All Others24.3%

Gross Business Revenues of Major Sectors1998

Gross Business Revenues

1997-98($ Millions) 1990 1991 1992 1993 1994 1995 1996 1997 1998 Change

(Percent)

Retail Trade 162.3 264.2 283.1 347.6 266.4 393.3 458.5 635.4 430.8 (32.2)Wholesale Trade 72.4 81.8 103.3 43.4 125.8 133.3 153.8 154.6 129.6 (16.1)Construction 80.0 125.7 106.0 87.4 82.6 103.3 84.6 76.9 71.9 (6.5)Professional Services 29.4 36.1 34.7 34.3 71.8 103.2 153.9 136.5 63.0 (53.8)Other Services 51.1 82.6 67.6 75.3 160.8 196.0 196.0 349.0 341.9 (2.0)Garment Manufacturing 162.5 263.4 272.8 293.1 250.3 209.3 484.3 537.1 656.4 22.2Other Manufacturing 9.5 8.4 5.7 6.8 31.1 201.7 69.4 150.7 136.4 (9.5)Transportation 32.9 15.5 13.5 19.6 23.3 26.1 22.2 37.1 35.8 (3.7)Restaurants & Bars 29.9 36.2 38.6 44.4 48.1 51.4 60.2 65.4 47.6 (27.3)Hotels & Motels 87.8 93.9 118.1 111.7 107.2 136.2 170.8 167.6 93.8 (44.0)Gasoline Stations 6.4 8.9 10.6 8.8 8.7 6.9 5.5 4.8 2.2 (54.5)Land Lease 152.3 74.0 20.4 15.2 9.1 13.0 10.3 12.2 7.7 (36.3)Financial Institutions 20.5 14.6 10.1 5.9 0.1 27.7 49.6 51.7 49.9 (3.5)Shipping 8.5 13.5 13.0 3.0 7.8 7.9 4.2 5.1 5.0 (2.2)Agriculture & Fisheries 0.9 6.6 1.5 1.0 3.0 2.3 4.4 4.4 2.1 (51.9)Other Trades 274.2 369.6 341.2 301.0 256.6 219.4 296.8 221.9 164.0 (26.1)Total 1,180.5 1,495.0 1,440.0 1,398.5 1,452.8 1,830.9 2,224.4 2,610.3 2,238.1 (14.3)

Source: CNMI Department of Finance



average hotel room rate in the first quarter of 1999 was$103, down significantly from $143 in the fourth quarterof 1998 and $117 for all of 1998. The average rate was$136 in 1997 and $128 in 1996.

It is expected that the CNMI economy would reachbottom in the last quarter of 1999. A modest turnaroundmay begin then, provided that carriers regularly transportKorean tourists once again to CNMI. (As of September,Asiana Airlines increased its frequency of flights fromSeoul to Saipan from six days per week to seven.)Growth will begin again in 2000, though slowly, perhapsno more than 1-2 percent, picking up to 3-4 percent in2001.

With garment manufacturing near its mandatorypeak for both capacity (active licenses) and employment,any turnaround would have to begin with a turnaround intourist traffic, which would cause growth in businessreceipts, employment, taxes and the rest of the economy.

ECONOMY BY SECTOR

Garment Manufacturing

Garment manufacturing arrived in Saipan in the1980s and has grown to become the Commonwealth’slargest source of income and economic benefit to theCNMI government. Garments and tourism are CNMI’s

only two primary income sources.Unlike Guam, CNMI has no U.S.military base and gets no federal aid inconnection to the nation’s strategicconsiderations in the Pacific.

The appeal of CNMI as a base ofoperations for foreign investors is thecombination of below-minimum U.S.wage rates and duty-free access to U.S.markets. However, global and regionaltrade talks may soon end CNMI’scomparative advantage vis-à-vis U.S.markets. When that happens, thedisruption of so pronounced a two-tiereconomy is likely to be costly. To avoida disruptive conversion, it is time tofocus on CNMI’s comparative economicadvantage, based on its resources andpotential for economic growth. In thelong run, low-cost foreign labor, howeverwilling, which is essentially an artificial

2,000

2,500

3,000

1,500

1,000

500

01990 1992 1994 1996 1998

Gross Business Revenues ofMajor Sectors

Mill

ion

dolla

rs ConstructionServices

Garments

All Others

Trade

CNMI Banking Activity

1997-98 1st Qtr 1st Qtr($ Millions) 1994 1995 1996 1997 1998 Change 1998 1999

(Percent)

Deposits 411.2 425.2 463.0 481.0 522.8 8.7 517.2 529.4Demand 121.7 134.3 136.7 140.8 133.6 (5.1) 137.9 123.2Savings 165.5 150.7 163.2 163.2 192.5 18.0 175.4 204.2TCDs 124.0 140.2 163.1 177.0 196.7 11.1 203.9 202.0

Loans 200.2 216.4 280.2 239.4 304.7 27.3 278.9 294.6Consumer 64.9 64.7 71.3 71.9 83.6 16.3 83.0 80.4Commercial 120.0 133.3 173.5 134.5 165.3 22.9 163.3 164.5Real Estate and Home Improvement 13.0 16.5 34.0 31.7 54.7 72.6 31.8 49.3

Government 2.3 1.9 1.4 1.3 1.1 (15.4) 0.8 0.4

Interest Paid 24.0 33.0 35.0 39.7 37.7 (5.0) 10.0 10.3All Deposit Accounts 8.1 12.1 12.7 14.9 14.3 (4.0) 6.1 6.6By Borrowers 15.9 20.9 22.3 24.8 23.4 (5.6) 3.9 3.7

Source: CNMI Department of Commerce

400

500

600Deposits

300

200

100

01994 1995 1996 1997 1998

CNMI Banking Activity

Mill

ion

dolla

rs

Loans



comparative advantage, may not be available.Garments produced 29.3 percent of CNMI’s total

gross business revenues of $2.238 billion in 1998. Theindustry contributes 25-30 percent of all CNMI publicrevenues. In dollar terms, it is likely that garment makers inject $100-150 million into the local economy, inwages and benefits, taxes and fees, and local purchases.Calculating all of its direct and indirect benefits (andcosts) to the CNMI economy, garments easily compriseone-third of the economy today. Exports in excess of $1billion amount to 2.5 times the estimated total of $400million spent by CNMI visitors last year.

CNMI passed a law earlier this year to impose capson both the numbers of licensed manufacturers as well as their workers. Signed by the CNMI governor onMarch 26, 1999, it dictates “an absolute cap of 15,727non-resident workers in the industry distributed among

the licensed manufacturers...”2

This law also allocates the 15,727 workers licenseby license among the 34 current licensees, ranging from176 workers to 1,532. Only three firms employ over1,000 persons each. The average among all firms is 463workers. Excluding the three largest firms yields anaverage of 386 workers per firm. Since a license cannotbe granted without operations in place, the 34 licenseesrepresent nearly the full quota allowed by law.

The law states specifically that a license can neitherbe automatically renewed nor transferred. If an operatorstops production, regardless of reason, the license expires

CNMI Revenues and Expenditures(fiscal year 1997-98$ thousands) 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 Change 1999 2000

(Percent)RevenuesGross Business Revenue Tax 21,867 31,653 46,358 60,249 68,064 52,526 57,631 59,104 67,187 74,568 68,615 (8.0) 58,254 58,400

Personal & CorporateIncome Tax 17,789 14,828 9,172 26,206 22,124 23,824 31,019 47,386 56,288 46,564 47,239 1.4 45,740 46,771

Excise, Custom &Fuel Taxes 17,870 20,193 25,766 29,305 29,266 28,592 33,799 47,174 50,512 61,753 63,640 3.1 66,019 63,828

Beverage &Hotel Taxes 3,016 6,283 8,536 10,611 11,863 8,875 9,583 12,117 14,062 14,798 9,708 (34.4) 8,215 6,590

Other Taxes 1,631 0 251 1 0 8,318 2,890 3,110 2,892 3,196 1,896 (40.7) 1,622 1,840Tax Sub-Total 62,173 72,957 90,083 126,372 131,317 122,135 134,922 168,891 190,941 200,879 191,098 (4.9) 179,850 177,429

Total Service Fees 5,669 7,438 11,508 12,614 17,124 15,979 17,277 30,888 31,414 41,682 37,894 (9.1) 32,210 26,936Operating Transfers 3,099 1,349 2,172 1,033 708 535 763 3,871 4,346 5,475 4,692 (14.3) 4,692 6,504

Total CNMI Revenues 70,941 81,744 103,763 140,019 149,149 138,649 152,962 203,650 226,701 248,036 233,684 (5.8) 216,752 210,869US Covenant Funds 16,360 15,006 12,986 11,000 10,330 0 0 0 0 0 0 — 0 0Total Revenues 87,301 96,750 116,749 151,019 159,479 138,649 152,962 203,650 226,701 248,036 233,684 (5.8) 216,752 210,869

ExpendituresWages, Salaries& Benefits 42,049 41,882 46,145 57,547 72,075 76,524 80,218 91,442 102,944 114,180 114,001 (0.2) 104,058 104,058

All Other Expenditures 31,319 39,335 62,487 98,772 84,864 77,539 101,283 100,004 118,771 153,942 130,501 (15.2) 111,787 106,811

Total Expenditures 73,368 81,217 108,632 156,319 156,939 154,063 181,501 191,446 221,715 268,122 244,502 (8.8) 215,845 210,869

Revenues LessExpenditures 13,933 15,533 8,117 (5,300) 2,540 (15,414) (28,539) 12,204 4,986 (20,086) (10,818) (46.1) 907 0

Cumulative Balance (5,757) 9,776 15,866 10,565 16,470 1,056 (27,483) (21,869) (16,883) (35,469) (46,287) 30.5 (45,380) (45,380)

Reserves forEncumbrances,Related Assets,Continuing Appropriations& Inventories (11,929) (21,240) (22,729) (32,998) (32,223) (20,079) (17,213) (18,117) (17,990) (21,915) (21,915) — (21,915) (21,915)

Cumulative UnreservedBalance (17,686) (11,464) (6,863) (22,433) (15,753) (19,023) (44,696) (39,986) (34,873) (57,384) (68,202) 18.9 (67,295) (67,295)

Source: CNMI Department of FinanceNote: Data for FY 1999 and 2000 are CNMI Department of Finance projections.

2H.B. No. 11-315 which became Public Law No. 11-76, lines 10& 11, Eleventh Northern Marianas Commonwealth Legislature,Seventh Special Session, 1998.



immediately and is revoked permanently. The ceiling forgarment workers was established primarily as a result offederal inquiries, and secondarily to put in place avoluntary phase-out process.

Given current circumstances, garment-makers mustmaximize their operational capacities and productionwithin the legal framework while they still can.Coincidentally, as the garment industry scrambles toreach its full potential and maximize its gain, the deficitleft by the still declining tourist market will undoubtedlycontinue to be filled. This is exactly what CNMI needs toput the economy back on the long road to recovery.

Garment manufacturing is CNMI’s most criticalindustry today. It is also in a precarious situation. Anychanges in CNMI’s comparative economic advantagesmay drive garment-makers away, possibly without notice.If that happens, the economic and financial consequencesfor CNMI will be incalculable, as the existinginfrastructure may not be of immediate use to otherindustries of the tropics.

Tourism

Current Situation

CNMI’s tourism is in a critical transition, fromrapid growth to an equally rapid decline. In a relativelyshort time, from 1988 to 1996, tourist traffic to CNMItripled from 245,505 to 736,117. But in 1997-98, touristarrivals dropped one-third to 490,165. By the end of1998, total tourist traffic was back to where it had been in1992. Such an enormous and sudden decline isunprecedented in the Pacific.

In 1988-96, tourism became CNMI’s largestincome source and most dynamic industry, as well as itsmain comparative economic advantage. However, itssharp decline in the past two years has shown how fragileand vulnerable that advantage was, due to its dependenceon vital air transport links.

Had air service between CNMI and Koreacontinued, the impact of the Asian financial crisis on bothKorean and Japanese travelers, while significant, wouldnot have been as large. In January-June of this year,tourist traffic to CNMI was down another 2.0 percent.

In keeping with earlier growth trends, hotel roomsrose from less than 2,000 in 1988 to almost 3,000 roomsin 1992, peaking at 4,642 in 1998. Eighty-five percentof all hotel rooms in CNMI at that time were on Saipan.The Tinian Dynasty Hotel and Casino is thus far the onlymajor hotel built outside of Saipan. If future plansmaterialize, more hotels will be built on Saipan than onany other island in CNMI.

Occupancy rates for CNMI, which the HotelAssociation of the Northern Mariana Islands (HANMI)started reporting in 1992, dropped from 78.1 percent in1992 to 73.5 percent in 1993. Occupancy rates fluctuatedgreatly during this time, both as a result of rapidlyincreasing hotel rooms and growing tourist numbers. In1996, when tourist traffic peaked, occupancy rate was ata record 85.6 percent, higher than in most destinations inthe Pacific, with the exception of Guam. By 1998,occupancy rate was down to only 58.1 percent.

Total tourist spending in CNMI was estimated to bea record $587 million in 1996, reportedly dropping to $585million in 1997. In 1998, it fell further to an estimated$393.4 million, 33.0 percent below the 1996 level.

In addition, hotel, motel and restaurant employmentsuffered a decline of an estimated 25-40 percent. Some

600,000

5,000

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0

700,000

800,000

500,000

400,000

300,000

200,000

100,000

01986 19891980 1983 1992 1995 1998

Visitor Arrivals and Hotel Rooms

Visitor Arrivals CNMI Hotel Rooms

200,000

250,000

300,000Total Revenues

150,000

100,000

50,000

01988 1990 1992 1994 1996 1998

CNMI Government OperatingRevenues & Expenditures

Thou

sand

dol

lars

Total Expenditures



hotels have reduced staff and service to minimal levelsbecause of poor cash flow. This lack of funds has alsomade maintenance of existing facilities a challenge.Without robust cash flows, revitalization of the touristindustry will indeed be a difficult task.

Separating the industrial economy from the leisurelytropical tourist pursuits on the small main island of Saipanpresents CNMI with yet another obstacle to revitalizingtourism. The proliferation of garment factories anddormitories built to house the 40,000-plus foreign workershave created the type of congestion most tourists wish toavoid. This mix of an industrial city peopled by foreignworkers and trying to attract more visitors to this vacationparadise, is a new experiment in itself. It will be sometime before we know how this is going to work.

The Search for More Airline Seats

The search continues for new carriers and moreairline seats not only in CNMI but also throughout thePacific, as tourism is the region’s most promising sourceof income. There is no shortage of seats. In fact, thereare now more air carriers and more seats in the NorthAmerica-Asia/Pacific corridors than in the past. However,

the newly deregulated and highly competitive air servicemarket now dictates the regional airline market’s financialand logistical dynamics.

One factor that makes future seat availability in theentire Pacific a challenge is the costs and financial returnsrequired by air carriers with newer fleets. Most U.S.airlines as well as some foreign ones engaged in thePacific are rapidly upgrading their fleets to a new, moreefficient and technologically advanced generation ofaircraft, such as the Boeing 757, 767 and 777.

The new aircraft cost far more than theirpredecessors because they are much more technologicallyadvanced than anything on the market. To maximize theirreturn, these aircraft must be used only on routes that offerthe highest return per passenger mile. These routes arenormally long and busy due to their increasing popularity.

CNMI (and Guam) are in competition for moreairline seats with much larger markets with routes thatbetter enable air carriers to earn the return theirshareholders and lenders demand. Now that the market forair transport is so competitive, routes other than the mostprofitable will be a challenge for air carriers to serve.

One way in which some local, regional and nationalauthorities have kept their routes in service is to lower air

Visitor Arrivals by Market1996-98

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 Change

(percent)NumbersJapan 191,407 249,299 329,581 310,274 354,941 378,719 387,210 426,679 438,462 447,882 376,539 (14.1)US 44,686 58,631 70,054 74,530 79,641 78,720 80,959 98,593 83,989 75,153 60,566 (27.9)Korea 3,998 13,326 17,391 21,114 37,389 60,824 102,275 124,794 187,881 141,510 27,813 (85.2)Philippines 1,733 2,935 6,432 6,007 6,674 6,400 4,931 4,234 4,284 4,198 3,044 (28.9)Taiwan 379 301 808 4,475 13,295 9,459 7,404 7,086 6,077 7,035 4,161 (31.5)Hong Kong 572 924 1,313 2,711 4,771 3,506 3,258 4,717 5,193 4,369 4,897 (5.7)UK 374 433 486 689 627 764 726 557 563 614 675 19.9Australia 238 4,568 4,838 3,113 2,189 1,698 999 828 572 638 826 44.4Canada 154 219 349 401 343 452 511 470 675 675 550 (18.5)Germany 272 173 232 326 284 324 286 309 287 239 314 9.4Others 1,692 2,829 3,971 6,105 5,141 4,937 7,474 7,894 8,134 12,575 10,780 32.5Total 245,505 333,638 435,455 429,745 505,295 545,803 596,033 676,161 736,117 694,888 490,165 (33.4)

Percent SharesJapan 78.0 74.7 75.7 72.2 70.2 69.4 65.0 63.1 59.6 64.5 76.8US 18.2 17.6 16.1 17.3 15.8 14.4 13.6 14.6 11.4 10.8 12.4Korea 1.6 4.0 4.0 4.9 7.4 11.1 17.2 18.5 25.5 20.4 5.7Philippines 0.7 0.9 1.5 1.4 1.3 1.2 0.8 0.6 0.6 0.6 0.6Others 0.2 0.1 0.2 1.0 2.6 1.7 1.2 1.0 0.8 1.0 0.8Hong Kong 0.2 0.3 0.3 0.6 0.9 0.6 0.5 0.7 0.7 0.6 1.0Taiwan 0.2 0.1 0.1 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1UK 0.1 1.4 1.1 0.7 0.4 0.3 0.2 0.1 0.1 0.1 0.2Germany 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1Australia 0.1 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.1Canada 0.7 0.8 0.9 1.4 1.0 0.9 1.3 1.2 1.1 1.8 2.2Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: Marianas Visitors Authority



transport costs to carriers. Guam, for example, reducedairport landing fees and other costs while upgrading andmaintaining its airport facilities. More destinations in theregion will have to do this in the future to attract andretain their vital air transport links.

Experimenting with Commercial Gambling

More than half of the island of Tinian is leased to theU.S. military, but it has been opened up to development,and a large hotel and casino built by a Hong Kong firmopened there earlier this year. Tinian is currently the onlygambling island and everyone is waiting to see if thelarge casino will make it. The Tinian Dynasty Hotel andCasino, a 412-room hotel offering Las Vegas-stylegambling in both public and private rooms, is by everyaccount a world-class facility. Its location on one of themost pristine beaches in the Mariana Islands sets it apartfrom many other commercial casinos. But the timing ofits opening at the very end of the Asian financial crisiswas less than ideal.

Tourism StatisticsAverage Average Estimated

Saipan Tinian Rota CNMI Hotel Hotel TotalVisitor Hotel Hotel Hotel Hotel Occupancy Room Tourist AverageArrivals Rooms Rooms Rooms Rooms Rate Rate Spending Spending

(percent) ($) ($ million) ($ million)

1978 — 653 24 88 765 — — —1979 — 640 27 88 755 — — —1980 117,149 640 27 73 740 — — 58.8 501.921981 114,572 722 19 73 814 — — 59.0 514.961982 111,173 675 19 73 767 — — 56.7 510.021983 124,024 724 19 73 816 — — 67.0 540.221984 131,823 657 15 93 765 — — 71.2 540.121985 142,149 869 15 92 976 — — 121.6 855.441986 163,451 1,041 15 96 1,152 — — 134.0 819.821987 197,242 1,315 23 83 1,421 — — 154.0 792.831988 245,545 1,715 26 83 1,824 — — 244.0 993.711989 333,836 2,159 26 83 2,268 — — 318.5 954.061990 435,455 2,517 45 89 2,651 — — 419.7 963.821991 429,745 2,481 30 81 2,592 — — 428.3 996.641992 505,295 2,741 30 81 2,852 78.1 112.8 494.0 977.651993 545,803 3,048 42 109 3,199 73.5 114.8 506.9 928.721994 596,033 3,177 42 127 3,346 77.0 109.5 463.5 777.641995 676,161 3,240 31 187 3,458 82.6 116.8 538.4 796.261996 736,117 3,335 31 217 3,583 85.6 127.7 587.8 798.511997 694,888 3,627 31 223 3,881 81.4 136.1 585.0 841.861998 490,165 3,942 457 243 4,642 58.1 117.2 393.9 803.57

Sources: Hotel Association of the Northern Mariana Islands (HANMI) for hotel occupancy and hotel rates.Marianas Visitors Authority (MVA) for arrivals, tourist spending and hotel inventory.Notes:(1) The total spending figure for 1998 is a Bank of Hawaii estimate.(2) HANMI started compiling hotel occupancy and average rate figures in 1992.

A Saipan hotel.Photo: Jack Hardy

The Tinian Dynasty has operated at about 30-40percent capacity since opening. Considering the fact thatit is the only commercial casino in the region and not yetwell known, it has performed better than expected.However, direct flights to Tinian from either Hong Kongor Taiwan are needed to attract gamblers who wouldnormally go to Macao and other destinations in Asia.

Rota, which escaped WW II damage and remainspristine, has been set aside as an environmental preserveand is a potential future eco-tourism destination. It is notyet clear that the residents of Rota want a piece ofcommercial tourism. Although Rota residents rejectedthe idea of commercial gambling for the island in 1996,they may change their minds if the Tinian casino doeswell financially.

CNMI appears to have many advantages forserving the commercial gambling market with itsproximity to Asia, numerous islands and determination toseek alternative income sources within the Americansystem. However, this niche can be achieved morerapidly if each of the gambling islands had their own



airport that can accommodate large aircraft.Both Tinian and Rota have runways that are presently

served only by small commuter aircraft and not ready for large aircraft landings. Commercial and publicinfrastructure on the two neighbor islands has been kept atminimal levels so far, to preserve the natural landscape.Financial success of the Tinian casino could change all that.

CNMI will continually have to look for incomesources beyond garment manufacturing and traditionaltourist services. Commercial gambling offers one suchalternative, to the extent that issues of air transport,marketing, awareness, and acceptance within thecommunities themselves are addressed. Whether or not it will work is as much a function of what CNMI cando as it is a function of market forces over which theCommonwealth has little or no control. As long as thesemarkets retain some of their essential character asdestinations and ecosystems, providing tourists with anexperience they cannot get elsewhere at the given price,they will remain popular as tropical paradises withunique American-Pacific mixes of cultures and facilities.

A REGIONAL PERSPECTIVE

The Asian Crisis in Retrospect

The Asian crisis, the rapid fall of financial and assetmarkets in 1997-98, revealed two points:

• When markets get ahead of the underlying socialinstitutions, they can get both in trouble.

• The world has become a global village withdecisions made in New York and Tokyo havingimmediate impacts as far away as CNMI.

The crisis started in Thailand in the fall of 1997,moved to Hong Kong and Indonesia, then landed inKorea, causing severe damage along the way. Othersaffected were Malaysia and the Philippines. Japan and thePeople’s Republic of China showed signs of economicdistress later, but had a greater impact on the region andthe world. Only Taiwan remained relatively unaffected,mainly because of its openness and efficiency.

Casualties of the crisis included banks, otherbusinesses, workers, governments, traders and a range ofboth domestic and foreign concerns doing business inthese markets. The damage in Thailand, Indonesia andKorea was so extensive that the International MonetaryFund (IMF) had to inject $120 billion of emergencyfunds. Ironically, Korea, which became a member of theindustrial club the Organization for Economic Developmentand Cooperation (OECD) only shortly before the crisis,was now asking for a rescue customarily reserved forailing Third World economies.

While the East Asian economic crisis worsened,U.S. stock markets kept surging, although there were

significant drops in late 1998, with the Dow JonesIndustrial average falling 20 percent between July andOctober—the threshold for the bear market that signifiesuncertainty about the future of business and corporateearnings. However, with the IMF containment of theBrazilian crisis by the end of the year and injection ofmore funds into Russia after its financial systemcollapsed, uncertainty about the U.S.’s ability toneutralize the economic impact of Asia’s crisisdiminished, and the stock market took off once again.

Once Asia gets back on the track to growth, it willcontribute to prosperity in America and the Pacific.Economic recovery in Asia may be stronger and of longerduration if institutions are rebuilt to support open andcompetitive markets.

Excess Capacity

Asia’s excess capacity now stands at unequaledlevels. In the second half of 1998, it was reportedoptimistically at record rates: 63 percent in Indonesia, 61percent in Korea, 41 percent in Thailand and 37 percentin Malaysia.3 Eliminating this excess capacity, whichwould require time and markets, is also reflected innotable price drops in Asia last year. From January toAugust 1998, steel prices dropped 18 percent,petrochemicals 22 percent, hotels 35 percent, cars 25percent, electronics 35 percent, retail 40-70 percent,airlines 40-50 percent, cement 20 percent, shipping 20percent and property 30-40 percent.4 Consequently, mostof industrial East Asia now suffers from deflation.

The crisis has been prolonged because there was noready market for excess Asian goods in Asia itself orelsewhere other than in the United States. Cross-borderlinkages of the Asian crisis are poorly understood, as theyare both complicated and too recent. Intra-Asian tradegrew rapidly in the 1990s and became critical to Japan,Korea, Indonesia, Malaysia, Philippines, Thailand, China,Taiwan, Hong Kong, Australia and New Zealand. About40-50 percent of trade in East Asia is within the region.5

Now that China has decelerated and Japan is stagnant, thecombined impact of the dramatic fall in intra-Asian tradeand the Japanese stagnation has made the regional slumpdeeper and the recovery much more difficult.

The Reason Behind the Excess

On the surface, the Asian crisis was a simple declinein market values of both real and financial assets, followed

3Far Eastern Economic Review, “Asian Indigestion,” October1, 1998, p. 12.4Ibid.5Far Eastern Economic Review, June 18, 1998, p. 12.



by sharp currency devaluation. However, a more completepicture begins with the fact that these markets focused onbuilding productive capacity without due regard to demand.(In the late 1980s, Hawaii and other Western Pacificmarkets saw a surge in speculative demand for building thatcreated excess capacity yet to be absorbed fully.)

There has also been what Federal ReserveChairman Alan Greenspan labeled “irrationalexuberance,” referring to a “bidding war” among stockbuyers based on speculation of better future performance,which contributed to a market rise. Because pricestability makes investing in financial assets relativelymore predictable, stock markets generally do better instable price environments. Although irrationalexuberance usually has a tangential impact, and no oneknows how to measure it accurately, speculation on whatthe future holds is a legitimate part of any market andmost human endeavors.

Open Institutions and Prosperity

Prior to the crisis, Asian markets followed Westerneconomic theory with more faith than some Westernmarkets did. Still, viewing Asian markets in the sameway as U.S. markets would miss one critical difference:U.S. markets reflect institutions historically more open,and that have become even more so since the GreatDepression, the Western equivalent of the current Asianeconomic crisis. Looking deeper into the roots of bothcrises would lead to a better understanding of whymarkets behave the way they do.

Markets reflect social, political and economicinstitutions as much as they reflect market signals (priceand cost) and mechanisms. Investing in Taiwan, forexample, means also investing in the institutions that makeup the social, political and economic structure of Taiwan asan economy, a market and a people. Generally, theseinstitutions are of two types: those arising from customs,traditions and habits, and those arising from secularprinciples by which people voluntarily agree to live andconduct their business. A distinguishing characteristic of thelatter is the recognition of individual liberty and freedom ofchoice and expression, the building blocks of anindividualistic culture and an open market economy.

In Asia, the American notion of constitutionalliberalism (respect for individual liberty within the rule oflaw) is a rather new phenomenon. Most Asian economiesoperate under customary institutions rather thanconstitutional ones. Doing business within customaryinstitutions carries the risk that personalities, rather thanprinciples, may shape outcomes. Thus business deals(legally binding contracts) would involve more thanmeeting technical and financial criteria as determined bymarket rules. This is the fundamental difference betweenAsian and Western business practices.

The Place of Social Values

American economic theory holds certain values(beliefs) constant. It postulates that, no matter what one’sprivate beliefs, more of an economic good is better thanless, and that market agents engage in transactions basedon both self-interest and mutual gain. Recognizing thatthese postulates may encourage greed as a natural humantendency that leads to excess, economic theory requiresrules and laws with universal applications in order for thevalue system to be held constant. The practical benefit ofthis system is that people of different beliefs can tradewith each other as long as there are mutually beneficialgains and agreed-upon rules of conduct.

However, since economic rules essentially have asocial basis, they can be manipulated. One way tominimize the potential risk of manipulation is to havewritten and enforceable laws governing economic andfinancial transactions. In most Asian markets, theunderlying institutions that support open and fair marketsare being developed. The People’s Republic of China, forinstance, plans to rebuild its banking system based on lawand to privatize hundreds of thousands of state-ownedenterprises.

The best example of market behavior causingfinancial and economic ills in much the same way as itdid in Asia was the 1930s U.S. Depression, preceded by the 1929 stock market crash. The most notableachievement of President Franklin D. Roosevelt’s NewDeal was the restoration of American capitalism withinthe rule of law. The institutional structure that eventuallyemerged still guides the economy today.

Once people’s faith in the market was restored,economic recovery began and lasted for decades. Asiacan rebuild its institutional foundations so peopleeverywhere have faith in the market, but the rules mustbe clear and enforceable. Further, conditions the IMF hasimposed on aid recipients include reforms that constitutethe foundations for the institutional rebuilding Asia needsto rejoin global markets.

The Pivotal Role of Japan in East Asia

The first time the term “the Asian Miracle”appeared in popular literature was in connection to theunequaled economic success Japan achieved after WorldWar II. The most distinguishing aspect of Japan’seconomic success was taking existing technology andadapting it to different markets worldwide.

The Japanese management style, now known astotal quality management (TQM), set world standards forlabor market stability, product predictability and employeeproductivity. Japan also invented what later becameprecision manufacturing, that is, testing individual piecesof complicated machines for defects before mass



production. Japanese car-makers integrated ergonomicdesign into car-making in the 1970s and set the standardsfor producing cars recognized worldwide for comfort andreliability.

These pace-setting industrial successes, coupledwith the Asian traditions of saving and investment,produced one of the most prosperous, productive andinnovative economies in recent history.

By the 1980s, Japan’s household and trade surpluseswere so large that Japan offered funds to deficit-driveneconomies such as the United States. At the height of theCold War in the mid-1980s, the U.S. borrowed as much as$250-300 billion a year to fund President Reagan’s defensebuild-up. Japanese savings alone practically funded thisbuild-up and, in the process, caused large trade deficitswith Japan. This led to a 50 percent drop in the value of thedollar against the yen from early 1985 to late 1987, and tothe prices of American goods being discounted by half.This cycle of events resulted in what is now known asJapan’s “bubble” economy of the late 1980s: investment inU.S. real and financial assets beyond what normal marketand financial rules allow.

With the collapse of the Cold War, Americanindustry quickly turned its attention to the civilianmarket. Thus began the 1990s boom that has taken theUnited States to the digital age and U.S. stock markets tonew heights in each of the last four years. As the UnitedStates entered the digital age full speed, Japan remainedon the same track it had been on for 50 years: perfectionin mechanical technology.

When digital technology began to penetrate everyaspect of both work and home life, the Japanese economywas unprepared. This slow transition to digital technologyhas become one of Japan’s biggest obstacles to joiningthe global economy of the twenty-first century.

Two factors make the transition to digital technologyin Japan difficult. The first is a generation gap. MostJapanese government and business leaders are from theolder generation that seeks consensus for moving forward.Younger Japanese managers are more in tune with the restof the world, which is rapidly moving toward economicintegration, especially through open markets. It was thebreakdown of the traditional Japanese consensus thatstalled efforts to manage the financial crisis resulting fromthe bubble’s burst.

The second factor is a Japanese demographicchange: nearly a quarter of the Japanese population isover the age of 60. This group not only includes themajority of decision-making leaders, it also controls most of the wealth in Japan. Their consent is required forany major change that may have national implications.

The transition to the digital age has been madeimmensely more difficult by the Asian financial crisis,which has set industrial East Asia back quite a few years.

With most of the financial crisis in Asia contained,

Japan is set to move onto the next track of masteringdigital technology. Once that happens, Japan will be backon the world stage as the globe’s legitimate third economicpillar, following North America and the European Union.The contributions China and the rest of East Asia willmake to the consolidation of the Asia-Pacific market in thetwenty-first century will benefit every market in the area,including the isolated and geographically scattered PacificIsland economies.

The Irreversible Global Village Path

The world’s move toward becoming an even closerglobal village is irreversible. The question is whether thevarious markets (in reality, the various peoples) can movetoward some universal rules of market conduct. Theanswer must be a definitive “yes,” because the alternativeis chaos and economic decline. As we work to develop anew universal economic theory for the global village,even closer links between Asian-Pacific and Americanmarkets must be forged. One way to do that is to helpbuild more institutions led by commonly agreed-uponprinciples. Once the rules become relatively uniformin all markets, they will reward success and failuresimilarly. As constitutional liberalism and open marketsfind acceptance in Asia, they will pave the way to themore harmonious market that the global village needs tofunction.


PACIFIC ISLANDS FACT SHEETUS DOLLAR-DENOMINATED ECONOMIES

Capital/Land Area Notable Distance

(square Geographic from MajorPopulation miles) Characteristics (miles) Currency Languages

GUAM 163,373 212 One island. Major US naval Agana/ US dollar English,base and regional trans- Honolulu 3,800 Chamorro,shipment center at Apra Tokyo 1,600 also Tagalog,Harbor. In hurricane path. Japanese

COMMONWEALTH 79,429 177 Saipan the largest island, Garapan, US dollar English,OF THE Tinian and Rota next, Saipan/ Chamorro,NORTHERN 14 others in the chain. Honolulu 3,700 CarolinianMARIANA ISLANDS 125 miles north of Guam. Tokyo 1,500(CNMI) US territory closest to Asia.

FEDERATED 105,506 270 607 islands and atolls, Pohnpei Kolonia, US dollar English,STATES OF 130 square miles, other major Pohnpei/ 8 majorMICRONESIA islands Kosrae, Yap and Chuuk. Honolulu 3,100 local(FSM) The 4 FSM states span 1,700 Hong Kong 3,100 languages

miles from east to west.

REPUBLIC 18,146 170 343 islands, the main group Koror/ US dollar English,OF encircled by a hundred mile Honolulu 4,600 Palauan,PALAU reef. Babeldaob 136 square Tokyo 2,000 Sonsorolese-

miles. 8 other inhabited Hong Kong 1,700 Tobianislands. Rock Islands.

REPUBLIC 62,924 70 34 coral islands, 870 reefs, Majuro/ US dollar English,OF THE highest elevation 33 feet Honolulu 2,300 MarshalleseMARSHALL above sea level, average Guam 1,800 dialectsISLANDS (RMI) elevation 7 feet.

AMERICAN 58,900 76 5 islands, 2 atolls. Pago Pago, US dollar English,SAMOA Pago Pago Harbor. Tutuila/ Samoan

Home of newest US national Honolulu 2,600park. In hurricane path. Los Angeles 4,800

TOTAL/AVERAGE 488,278 975

NON-DOLLAR ECONOMIESFRENCH 226,000 1,609 130 islands, mostly atolls Papeete, Tahiti/ French French,POLYNESIA in 5 archipelagoes. Tahiti Honolulu 2,800 Pacific Tahitian

the largest island, 400 Los Angeles 4,100 francmiles square, maximum Paris 10,400 (F CFP)elevation 7,464 feet. Tokyo 5,900

NEW 203,672 7,376 Main island, Grande Terre Noumea/ French French,CALEDONIA 250 miles by 30 miles (larger Honolulu 3,900 Pacific 30 Kanak

than the Hawaiian Islands Paris 10,400 franc dialectstogether), mostly mountainous. Brisbane 900Several small islands.

WALLIS 14,800 106 2 main islands, highest Wallis Island/ French French,AND elevation 2,493 feet. Honolulu 2,700 Pacific East Uvean,FUTUNA Paris 10,000 franc East Futunan

PAPUA 4,150,000 179,490 Eastern half of the island of Port Moresby/ Kina English,NEW New Guinea. Largest by far Honolulu 4,300 Tok Pigin,GUINEA Pacific island-state land mass. Cape York, Hiri Motu,(PNG) Other main islands New Australia 300 hundreds of

Ireland, New Britain and Tokyo 3,100 vernacularsBougainville. Hong Kong 3,100

COOK 19,600 92 15 widely dispersed islands Rarotonga/ New English,ISLANDS including volcanic peaks and Honolulu 3,000 Zealand Cook Islands

atolls. Rarotonga the largest Wellington 2,000 dollar Maoriisland 26 miles square. In hurricane path.

SAMOA 170,000 1,158 4 inhabited islands, 5 Apia/ Tala English,uninhabited. Highest point Honolulu 2,600 Samoan6,100 feet, Mt. Silisili on Suva 700Savai‘i. In hurricane path. Brisbane 2,500


GDP Per Major Major(US$ Capita Major Sources Sources

million GDP Income Political of External of Futurecurrent) (US$) Sources Status Investment Income

3,065.8 18,766 Tourism, US territory since 1898. Guam Organic US, Tourism, military, Act of 1950 conferred U.S. citizenship. Japan, servicestrade and Some push for commonwealth status. Koreaservices

664.6 8,367 Tourism, After WWI under Japanese mandate. In Japan, Tourism,garment 1947 became part of US Trust Territory of Korea, servicesmanufacturing, the Pacific. Since 1978 a Commonwealth Hong Kong,trade and of the US. Islanders are US citizens. USservices

215.8 2,045 US payments, After WWI under Japanese mandate. US, Compact statusgovernment In 1947 became part of US Trust Territory. Japan uncertain as ofservices, Became sovereign in 1979. In compact 2001. Fisheriesfisheries, tourism of free association with US as of 1986. development,

tourism

159.8 8,806 US Compact After WWI under Japanese mandate. In Japan, Compactpayments, 1947 became part of US Trust Territory. US money,tourism Became sovereign in 1994, in compact tourism

of free association as of 1994. Compactends 2044.

102.1 1,623 US payments, Kwajalein After WWI under Japanese mandate. In US, US military.Missile Range, 1947 became part of US Trust Territory. Japan Compact statusgovernment services, Became sovereign in 1979. In compact uncertain as ofcopra, fisheries of free association since 1986. 2001. Fisheries.

253.0 4,295 Tuna canneries, US territory since 1899. US Canneries,government services, Samoans are US nationals. remittances,remittances from USSamoans overseas entitlements

4,461.1 9,136

4,106.8 18,172 Payments from French controlled from the 19th century. Metropolitan FrenchMetropolitan Overseas territory of France since 1957. France transfers,France, tourism, Active independence movement. tourism,Tahitian pearls pearls

3,373.0 16,561 Payments from 1853 became a French possession. Metropolitan FrenchMetropolitan France, Overseas territory of France since 1946. France transfers,nickel, agriculture and Relation to France under review. nickel, tourism,ranching, tourism, agriculture,aquaculture aquaculture

25.0 1,689 French transfer French controlled from the 19th century. Metropolitan Frenchpayments, Overseas territory of France since 1961. France transferstrochus shells

4,957.0 1,194 Minerals, oil and gas, Under Australian & German control before Australia, Minerals, oil,forestry, agriculture, WWI. Administered by Australia after WWII. UK timber,tourism Independent within the British Common- fisheries,

wealth since 1975. The Bougainville tourismsecessionist movement ended by a formal treaty in April 1998.

50.9 2,596 Government Self-governing since 1965 New Tourismaid, services, in association with New Zealandtourism Zealand. Cook Islanders

are citizens of both CookIslands and New Zealand.

170.0 1,000 Agriculture, Under German control before WWI, New Agriculture,remittances from New Zealand after. New Zealand Zealand, tourism,abroad, tourism, trusteeship after WWII. Independent Japan lightmanufacturing since 1962. manufacturing


SOURCES: Central Intelligence Agency, The World Factbook, 1994; Norman and Ngaire Douglas, editors, PacificIslands Yearbook, 17th edition, Suva, 1994; Europa, The Far East and Australasia, 1994; Gary L. Fitzpatrick andMarilyn J. Medlin, Direct-line Distances, International Edition, New Jersey, 1986; International Monetary Fund,International Financial Statistics, June 1996; David Stanley, Micronesia Handbook, Chico, California, 1989; DavidStanley, South Pacific Handbook, 5th Edition, Chico, California, 1993; State of Hawaii Department of Business and

PACIFIC ISLANDS FACT SHEET (continued)Capital/

Land Area Notable Distance(square Geographic from Major

Population miles) Characteristics (miles) Currency Languages

FIJI 815,045 7,055 320 islands. Viti Levu 4,000 Suva/ Fiji English,miles square, Vanua Levu Honolulu 3,100 dollar Fijian,2,100 miles square. Major Sydney 2,000 Hindiislands are mountainous Tokyo 4,500and forested to windward.

KIRIBATI 82,400 266 33 islands scattered 2,400 Tarawa/ Australian English,miles east to west, 1,300 miles Honolulu 1,300 dollar Micronesiannorth to south. Almost entirely Tokyo 3,900low-lying atolls, Christmas Island the largest.

SOLOMON 393,000 11,197 850 mile long double island Honiara, Solomon English, SolomonISLANDS chain. 6 mountainous main Guadalcanal/ Island Islands Pijin,

islands, Guadalcanal 2,080 Honolulu 3,960 dollar more than 80miles square. Port Moresby 900 vernaculars

TONGA 99,000 386 Main islands volcanic, Nukualofa/ Pa‘anga Tongansome 150 coral atolls, Honolulu 3,10036 permanently inhabited. Brisbane 2,000

VANUATU 185,000 4,707 80 scattered islands, Port Vila, Efate/ Vatu French,several active volcanoes. Honolulu 3,500 English,Largest island Espiritu Santo Tokyo 4,100 Bislama1,500 miles square, highest point 6,158 feet.

NAURU 11,200 8 A single island with a 100 foot Nauru/ Australian English,high central plateau of now Honolulu 2,800 dollar Nauruannearly exhausted phosphate- Banaba, Kiribatibearing rock. 200

NIUE 2,500 101 Coral island rising 65 feet Alofi/ New English,from the ocean and another Wellington 1,800 Zealand Niuean130 feet to a central plateau. Suva 800 dollar

TOKELAU 1,800 4 3 atolls with islets 10 to 16 Nukunonu/ New English,feet above sea level. Honolulu 2,300 Zealand TokelauanIn hurricane path. Wellington 3,800 dollar

TUVALU 10,200 10 5 atolls, 4 coral islands, Funafuti/ Australian English,maximum elevation 16 feet Suva 700 dollar Tuvaluanabove sea level. Sydney 2,500

TOTAL/AVERAGE 6,384,217 213,565

GRAND TOTAL/ 6,872,495 214,540AVERAGE

HAWAII 1,205,126 6,423 4 main islands. Island of Honolulu/ US dollar EnglishHawaii 4,028 miles square, San Franciscohighest point of Mauna Kea 2,40013,796 feet. Mauna Loa and Los Angeles 2,600Kilauea on Hawaii both active Washington 4,800volcanoes. Maui 727 miles Tokyo 2,500square, Oahu 597 (Waikiki), Kauai 552. In hurricane path.


Economic Development, Data Book 1995, Honolulu, 1996; Peter W. Thomson, Trade and Investment in the SouthPacific Islands, Honolulu, 1989; World Bank, World Development Report, 1996; various Bank of Hawaii economicreports, 1992–97, and other sources. (Rev. 4/22/98)

For further information, contact Bank of Hawaii Regional Economist Wali M. Osmanat 808-537-8349 (phone), 808-538-4001 (fax) or [email protected] (e-mail).

GDP Per Major Major(US$ Capita Major Sources Sources

million GDP Income Political of External of Futurecurrent) (US$) Sources Status Investment Income

2,148.9 2,637 Sugar and other Annexed by Great Britain in 1874. Australia, Agriculture,agriculture, Became independent within the New Zealand, tourism,tourism, forestry, Commonwealth in 1970, rejoined the EU, mining, lightfishing, mining, Commonwealth in 1997. Japan manufacturinggarment industry

54.6 662 Agriculture (copra), Annexed by Britain in 1919. NA Fisheriesremittances, A republic within the British developmentaid Commonwealth since 1979.

343.7 875 Agriculture, British protectorate as of 1873. Australia, Agriculture,timber sales, Politically independent within the Japan fisheries,fishing and fish Commonwealth since 1978. tourismcanneries, aid

124.9 1,262 Agriculture, British protectorate as of 1900. NA Tourism,tourism Independent monarchy within the agriculture

Commonwealth.

247.0 1,335 Agriculture and Anglo-French New Hebrides Australia, Tourism,ranching, tourism, Condominium in 1906. Republic of Japan agricultureOffshore Finance Vanuatu within the BritishCenter, services Commonwealth established in 1980.

80.7 7,205 Phosphates and From 1919 administered by Australia. NA Investmentsinvestments Became an independent republic in fromfrom phosphates 1968. phosphate

7.1 2,825 Subsistence Self-governing since 1974 NA Tourismactivity, in free association withgovernment aid New Zealand.

1.2 667 Subsistence Non-self-governing territory NA Subsistenceactivity, administered by New activities,government aid Zealand beginning 1925. government aid

3.8 373 Subsistence Independent state within NA Subsistenceactivity, British Commonwealth activities,government aid since 1978. government

aid

15,694.5 2,458

20,155.6 2,933

35,146.4 29,164 Tourism, Annexed in 1898, became US, Tourism,services, a US territory in 1900, Japan, defense,trade, became a state in 1959. Australia services, government trade,

government

24

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Hard copies of this report can be obtained from Bank of Hawaii.P. O. Box 2900, Honolulu, Hawaii 96846 • Phone: (808) 537-8184 • Fax: (808) 538-4001.

www.boh.com

Information about Bank of

Hawaii and its parent company,

Pacific Century Financial

Corporation, as well as

economic information on the

markets we serve can be

found online at www.boh.com.

The website is rich, versatile

and easy to navigate.

No matter where you choose to do business in the Pacific we are there with:

• The products you need • The service you require • The local knowledge that’s crucial to your success.

Main office: P.O. Box 566, Saipan, MP 96950Tel: (670) 322-4200 • Fax: (670) 322-4210Internet: www.boh.com

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