• By Zaldy Dandan

In the name of fiscal balance


Saipan — Staring into the financial abyss, the Northern Mariana Islands government has enlisted the help of Graduate School USA in “assessing the size and nature of the CNMI’s current economic crisis and identifying potential solutions.” Graduate School USA or GSU aims to, among other things, “develop people and to make government more efficient.”

GSU is no stranger to the CNMI’s fiscal woes. Years ago, it drew up a report on NMI government finances and offered recommendations that are, on the one hand, ridiculously obvious (cut the size of government, reduce government spending, collect more government revenue); and, on the other, politically unfeasible (“Vote for me! I will lay off thousands of government employees and raise your taxes!”)

In April, GSU and the CNMI government hosted a four-day virtual “Fiscal Response Summit.” The participants included the top officials of the government’s three branches, financial analysts, economic consultants and business leaders. To start the proverbial ball rolling, GSU and the NMI government prepared a 14-page briefing paper that spelled out the extent of the problem and included a list of possible “solutions.” The briefing paper’s layout was easy on the eyes and included colored graphs and bullet-point statements. It was like a connect-the-dots puzzle that was already solved.

During the summit, a GSU economic advisor compared the NMI’s current financial crisis with the Cook Islands’ meltdown in the 1990s. He said the Cooks “tended not to set money aside and they relied on borrowing…. So there are a lot of similarities with the…CNMI.” And with a lot of many other jurisdictions all over the world as well.

In any case, the economic advisor said the CNMI should do what the Cook Islands did (drumroll please): reduce the size of government and raise taxes.

He did not say how exactly. It would probably be like asking Michelangelo how he sculpted his masterpiece, David. Michelangelo supposedly replied, “It’s easy. You just chip away the stone that doesn’t look like David.”

If reducing the size of government and increasing tax rates were “easy,” then they should have been proposed, passed, enacted and implemented already. But in this election year, is there even a single elected official or candidate for office publicly saying that the CNMI should lay off government employees, shut down government offices and/or programs, and require all of us to pay more taxes and/or government fees?

As for the Cook Islands, its people are citizens of New Zealand who can live and work in New Zealand and Australia. According to the Asian Development Bank, “This mobility impacts almost all the social and economic sectors in the Cook Islands. Emigration [the act of leaving one’s own country to settle permanently in another] is high, averaging 1.6 percent of the population annually during the past 18 years.”

The Cook Islands has a population of less than 18,000. But more than 62,000 Cook Islanders live in New Zealand, and over 6,000 reside in Australia. “The biggest long-term strategic issue facing the Cook Islands is the reduction in population resembling an average annual rate of growth of –0.5 percent, averaging about 322 people leaving each year.” In 2016, the CNMI, with a population of over 50,000, had a GDP of $1.25 billion. The Cook Islands? $299.9 million.

Different countries/territories/jurisdictions may share the same problems, but a one-size-fits-all approach may make things worse for some. So what were the cost-cutting/revenue-raising measures implemented by the Cook Islands? How did its government, which is democratically elected, pull it off? What was the public’s response?

In a paper published in the South Pacific Studies in 2008, Kanhaiya L. Sharma, a senior lecturer in economics of the University of the South Pacific, wrote that the Cooks had a government-based economy “in terms of employment and income generation for a long time. Private sector was less developed. People used to expect that the [government] would take care of them by providing employment and some social benefits…. Further, the public service was massively overstaffed over a period of time. In fact, it was operated on the basis of political patronage…. At last the economy reached the stage of bankruptcy and could not manage to pay even a month’s salary to its employees. This led to forced downsizing since there was no other option.”

No other option.

Is the NMI there yet?

Before downsizing in March 1996, Sharma wrote, there were 3,168 persons employed by the Cook Islands public sector. Through forced retirement, this number went down to 1,303 in May 1999 — a 59 percent decline.

Can it be done here?

Sharma noted that once the “reforms” were underway in the Cook Islands, a large number of residents, mostly young and skilled people, left and headed to New Zealand or Australia. “Higher-aged group and young children remained. Many empty houses and grounds were not maintained properly. It was difficult to pay the mortgages of the houses. Loss of public service wages of displaced workers, reductions in the wages of some of those remaining in the service, and reductions in child benefit payments made life difficult for the people to manage. The reforms also resulted in a reduction in the number of health professionals and quality of services. Similar effects were also experienced in the quality of education after downsizing.”

In the NMI, local residents are citizens of a huge nation with the world’s largest economy. Would a majority of CNMI voters uproot themselves and move to the states or the other territories in the name of “fiscal balance?”

That is the question.

In 2008, 12 years after a “brutal” downsizing, Sharma said public service in the Cooks was “still large by regional and international standards in terms of ministries, employee numbers and especially the wage bill [payroll].”

In 2018, Radio News Zealand quoted a former Cook Islands official who warned “of the threat posed by a burgeoning public service.” Don’t let the public sector get too big, he said. A few months ago, the Cook Islands opposition leader said the prime minister and cabinet officials should take a pay cut.

As for the Cooks economy, it is still tourism-based, and as of 2018, guest workers make up 20 percent of the population.

“And the end of all our exploring,” to quote T.E. Eliot, “will be to arrive where we started.”

Zaldy Dandan is editor of the NMI’s oldest newspaper, Marianas Variety, and is the author of three books available on amazon.com

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