Islands Business - Cover Story: TOUGH YEAR AHEAD FOR PALAU, GUAM, CNMI

The territories' economic struggle will likely continue

Dev Nadkarni
The Northern Pacific insular territories of the United States of America have been struggling with their economies these past couple of years.

A recent analysis cited a lack of large industries, scarce natural resources, small domestic markets, limited infrastructure, skilled labour shortages, and an over reliance on federal grants to fund basic services as problems plaguing these territories.

Asian garment workers... on strike in Saipan

Some of these almost solely depend on garment manufacturing and tourism for their employment, production and exports.

Both these industries primarily employ by and large a foreign workforce at wages less than those earned by locals who are largely employed by the territories' own private sector. Many of such jobs therefore prove unattractive to locals and their dependency on foreign workers will only increase in the coming years.

In the past year alone, the Federal government pointed out that the territories' internal governments were to be blamed for years of fiscal mismanagement with spending far exceeding revenues thereby creating an increased dependence in federal handouts.

With hardly any corrective measures taken in the past year, this situation will only worsen in 2007 causing the federal government's stance to harden. And that will certainly be blamed on poor and delayed financial reporting-something the islands' administrations have been repeatedly accused of.

Some of the governments do not expect their garment and tourism industries to grow significantly and have already been contemplating getting into other economic opportunities. There is a proposal to start a casino to inject life into the flagging tourism sector.

Previous attempts to diversify into services like education (English courses for the Chinese) have been of little success but the Northern Marianas hopes to revive it this year.

The closure of Saipan University dealt a severe blow to the territories' reputation as a destination for education and will have to fight that perception.

An abysmally low minimum wage when compared to the United States or even for that matter other smaller countries makes employment in these territories difficult.

Besides poor controls, depressed local economies and Spartan infrastructure present challenges for investors to set up shop.

The recent collapse of the Pacific Savings Bank that went down with the life savings of several islanders in Guam does not help the territories' case.

Fiscally, the American territories can only look forward to a fiscally tough year ahead with an increasingly hardening stance from the federal government unless their local administrations are seen to address their complex issues with a meaningful plan and not seek even more handouts.