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Where do we go from here?

Covid-19 is putting Guam's resilience to the test and envisioning the path ahead is nearly impossible even for economists

There are super typhoons. There are erratic saber-rattlings from North Korea. The people of Guam have learned when to shutter up, where to go and how to duck down in the event of a catastrophe. Guam has had several emergency drills that bring the island community into a perpetual state of readiness. Each time, the people of Guam would pick themselves up and dust themselves off.

But Covid-19 is a different story.

“This situation is worse than World War II,” Gov. Lou Leon Guerrero said during one of her daily video briefings. “In the history of past disasters and past crises, I am told this is the worst economic situation we have experienced.”

Teeming with tourists just two months ago, Tumon is now an empty nest filled with eerie silence. Photo by Mar-Vic Cagurangan

Since Guam’s first three Covid-19 positive cases were detected on March 15, the tally has continued to rise, further straining the island’s abysmal health care system and putting the island’s resilience to the test.

The coronavirus contagion, which has affected nearly 800,000 with close to 38,000 deaths worldwide as of the last week of March, continues to spread around the world, leaving thousands of bodies and economic carnage along its path.

For Guam, whose volatile economy is largely dependent on tourism and military investments, predicting the track ahead is nearly impossible. Referring to history to find a template for recovery is unavailing.

“I don't know how Guam fared during the Great Depression, but although it had nothing like the economy we have today (mostly agrarian, not service-oriented), the Japanese attack and occupation was more disruptive, but we have not reached the end of this crisis,” said Joseph Bradley, chief economist and vice president of the Bank of Guam.

The coronavirus crisis is difficult to compare to others, according to David John, president of ASC Trust and former chairman of the Guam Chamber of Commerce. Guam has had many storms and a major earthquake that have caused major damage to the local economy, but the countries that feed local tourism were untouched by these events, “so when Guam was open for business tourists began to return quickly,” John said.

Previous experiences proved that while a super typhoon may have left the island in shambles, John said, Guam’s economy could bounce back in three to six months — thanks to the Federal Emergency Management Agency money that allowed the island to rebuild. “Net-net,” he added, “typhoons can create a short-term economic boom cycle.”

The Covid-19 pandemic is an uncharted territory. “Even after we have the green light to allow tourists to return, it is unknown what the appetite for travel will be until potential vacationers feel safe to leave home,” John said. “I am not a tourism expert, but getting the economy back is as much a psychological question as it is a health-related question.”

Joseph Bradley

Guam tourism was still showing robust performance at the onset of coronavirus in Wuhan, China in late December and early January. According to the Guam Visitors Bureau, January arrivals finished strong with 157,479 visitors, surpassing last year and becoming “the best January” in the island’s tourism history. It didn’t take long for the spread of coronavirus to take on pandemic proportions, resulting in mass flight cancellations that caused Guam’s arrivals to plunge 15 percent in a matter of days. In the following weeks, the tourist district of Tumon has become a ghost town.

“No matter where I look, I can't find a bottom. When all this is over, and assuming that the world eventually returns to something like where it was six months ago, I think that it will still take several years for the industry here to recover,” Bradley said.

Around the world, people are already experiencing a substantial decrease in disposable income, hence luxuries like vacations will be fairly far down on the list of things that people will catch up with, Bradley said. “Although it will taper off after a while,” he added, “I think that potential travelers in our more familiar markets will be ‘gun shy’ that they won't want to stray too far from home until the memory of the dangers associated with Covid-19 fades.”

The Covid-19 attack definitely brings a major shock to Guam’s $5.9-billion economy, which has been stable over the past decade. The economy’s annual growth rate may be a bit low— between 1 percent and 2 percent— but it stays afloat.

The University of Guam’s School of Business and Public Administration had projected a 1 percent growth in 2020, which it said would be driven largely by employment opportunities from the 2020 Guam Census and the opening of the 340-room Tsubaki Tower. The forecast was made before the world became aware of what was lurking in Wuhan.

The $180-million luxury hotel, which was designed to draw the high-end market to the island, was scheduled to open on April 25, but the Covid-19 crisis has disrupted the grand opening. "Unfortunately, The Tsubaki Tower will not open on April 25, 2020, due to the Guam’s government mandate to prohibit social gatherings and the closure of non-essential businesses due to Covid-19," the management announced.

Kailee’s Smoke and Grill, a booming two-year-old restaurant frequented by tourists in Tumon, is among the many casualties of Covid-19’s economic slaughter, abruptly shutting its doors on March 15. Its original plan was to continue operating throughout the month, still hopeful to get local traffic at least. But the situation didn’t get any better. “The final decision to close on the 15th was made on the 12th after trying Karaoke night and specials that only brought revenues below $500 a day,” said Denis Regnier, Kailee’s general manager.

Kailee’s closure left 27 people jobless. The current situation does not give Regnier enough confidence that Guam will recover easily. “I don't see us getting out of quarantine earlier than end of May,” he said. “Businesses will be able to reopen sometime end of May or in June. And that’s for those that will be able to reopen.”

Rebuilding the tourist base is not likely to happen soon, Regnier said, noting that Guam’s main markets, Japan and Korea, are too cautious to give "the coast is clear" signal too soon. “Same goes for Taiwan,” he said, “and I think the China market is altogether gone, which honestly is not a bad thing.”

The Guam Chamber of Commerce’s survey of members showed 87 percent of businesses “are adversely impacted” by Covid-19. Most businesses have employed austerity measures, cut work hours and employee benefits, and implemented furloughs or layoffs. And as in the case of Kailee’s, many others have ceased operations entirely.

But the true picture of Guam’s economic landscape is currently not clear. The governor’s public health emergency declaration, which mandates social distancing to curb further spread of the coronavirus infection, has residents locked behind their doors and non-essential businesses shuttered up. Except for businesses that are determined “essential,” such as groceries, pharmacies, gas stations, and sanitation, most components of commerce are in limbo. This will continue if the governor decides to extend the shelter-in-place order beyond April 13.

Denis Regnier

“I hate to imagine the worst case scenario, but I guess it would be large-scale bankruptcies of tourism-related businesses such as restaurants, stores, and tour operators, causing a much longer term high unemployment rate, which would hurt both household incomes and tax revenues, which could lead to reduced government employment causing longer systematic problems to our economy,” John said. “Historical experience with similar large shocks suggests that the short-run economic damage may be considerable.”

In the short-term, John predicts, the economy will undoubtedly create a double-digit decline in gross island product. “How this affects the island after this passes is anyone’s guess, but I think it is fair to say there will be many businesses that will not be able to stay afloat,” he said.

On March 4, Gov. Lou Leon Guerrero unveiled a coronavirus economic relief package that includes deferment of business privilege tax payments, waiver of penalty for late payment of utility bills, and business loan offers. But the real magnitude of the crisis that later unfurled has rendered the administration’s economic relief pretty much negligible, if not pointless.

Guam senators have since rushed to introduce bills seeking to provide relief for residents and businesses. These bills include a proposal to reduce business privilege tax from 5 percent to 4 percent, cut the liquid fuel tax, and suspend the 2 percent deposit into the Rainy Day Fund, among others.

“When all you have is a hammer, everything looks like a nail,” Bradley said. “When you've tried everything you know and nothing works, doing something is better than doing nothing. That's what I'm seeing in the reactions of governments not just in the U.S, but around the world. They have the monetary and fiscal policy hammers, but the supply side of the global economy isn't anything like the demand side nail that they're so used to hitting.”

There is always Uncle Sam for Guam to run to. The territory stands to receive millions in federal grants to help address the health care needs of the local population, stimulate the economy, and provide safety nets for those who lost their jobs.

Under President Trump’s $2 trillion federal stimulus package billed “Coronavirus Aid Relief and Economic Security or CARES Act,” Guam anticipates to receive $111 million, which includes funding for Pandemic Unemployment Assistance and straight-to-the-pocket rebate, in the amount of $1,200 for each adult who made under $75,000 a year and $500 per child. The U.S. Small Business Administration is also offering low-interest loans to help businesses rebuild their capital.

“The federal dollars coming to the island will have a big impact in the short-term, allowing many companies to return to business and putting money in households’ pockets,” John said. “However, the longer this goes on, the more dangerous this situation becomes for our economy.”

David John

Bradley agreed. While it may help alleviate some of the effects of the pandemic, federal aid will not contribute much to the island’s economic reconstruction, he said.

“It is mostly a social welfare program and doesn't really affect the core of the problem,” he said. “Almost all of the available stimulus tools address the usual cause of economic contraction: inadequate demand.”

Increasing government spending, Bradley said, will help rebuild some of that demand, and lower interest rates to make it easier for households and businesses to stay afloat. “What we face now, though, is a deficiency in supply, and to control the spread of the virus by closing wide swaths of the economy simply reduces supply even further,” Bradley said.

As the Covid-19 predicament unfolds and lingers, John said, the crisis highlights the island’s economic vulnerability to external occurrences beyond Guam’s control. “The island relies on two industries for economic activity: federal spending through the military and social programs and tourism. A shock to either causes issues that spread very quickly,” he said.

There is a hard a lesson to be learned here. “Both the government and the private sector need to quit spending every dollar that comes in and start creating reserve buffers so that when the next crisis hits, and there will be another crisis, we have funds available to smooth the decline,” John said.

Once and for all, John said, Guam needs to strengthen its health care system. “If we have excess capacity at the hospital the governor may have had options to choose less drastic measures allowing the economy to stay open at a lower level of activity, but not shut things down,” he said. “Due to the crisis and shortage at the hospital, she had very little choice than to make the decision to shut down.”

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