By Joaquin P.L.G. Cook, president and CEO of the Bank of Guam, and a member of the board of directors of the Guam Visitors Bureau

…or do we…

Joaquin P.L.G. Cook

I thought that title would grab some attention. While I don’t agree that it is true, at all, it seems that way based on the amount of effort that is going into reviving our tourism industry.  I reviewed my article from last year’s Top Companies issue and there really hasn’t been much change in what is happening in our region. I will give a brief update of some notable business moves over the last year, but would like to spend most of the article focusing on our tourism recovery and the importance of reviving it now.

First a quick snapshot of what the banking situation on Guam looks like.

As shown above, total deposits have been trending upwards since 2020. The increased amount of federal funds circulating from COVID assistance contributed to this through 2022.  Then there was a decline in deposits until May 2023 when the trend began to increase. The recent increase in deposits could be due to funds moving to TCDs offering higher rates due to increases in yields paid by financial institutions on Guam and it could also be because of increased military and federal spending associated with the buildup projects on-going.

Loans in Guam have been relatively flat since 2019. Loan balances have been decreasing since a peak in June 2020 from PPP loans on the books. The lack of demand is due in part to increasing interest rates as well as lack of opportunity in the community.  Aside from federal and military work, there is not much economic activity happening, a result of the sluggish recovery of our island’s tourism industry.

Deposits in the CNMI have seen a steady decline since a peak in 2021. Unlike Guam, the Northern Mariana Islands have not had the boost from military and federal activity while suffering from sluggish tourism recovery.  Because of this, deposits in the NMI have not held as well as they have on Guam.

Like Guam, loans in the NMI have remained relatively flat. Consumer loans have seen a steady decline, while commercial and real estate have stayed constant. Like in Guam, this is the result of a lack of business opportunities/optimism coupled with higher interest rates.

Unfortunately, there is no banking data available for the other island nations in our region: Palau, the Federated States of Micronesia and the Marshall Islands.

There has been positive news coming out of Palau, the FSM and the Marshalls.

All of their Compact negotiations have been finalized, with their agreements signed into law.  While I am not privy to all the details of each Compact Agreement individually, I know that the islands will be seeing a continuation of financial support coming from the U.S., with even greater access to federal programs and a little more autonomy when making decisions on how to spend the funds.

Each of these three island states is looking at receiving billions of dollars from federal assistance and from federal programs.  his money can be used towards infrastructure improvements, data connectivity improvements and other capital expenditures to help improve the lives of the residents of the islands.

The region has drawn a lot of attention from both the U.S. and Australian governments.  The geopolitical landscape that exists today makes all of the islands in the Pacific, including the West and South Pacific very important to the superpowers at play, namely the U.S. and China. In order to make sure that these nations remain allied with the United States and Australia in Asia, these two countries have taken great interest in many challenges facing these small, isolated island nations.

I recently attended a banking forum — the Pacific Banking Forum, in Australia hosted by the U.S. Treasury and the treasurer of Australia. The purpose of the meeting was to have all stakeholders from government, regulators, central banks and private banks from every nation and island in the Pacific get together to discuss the state of correspondent banking and to try to identify a path forward to alleviate a lot of the challenges many of the island nations are facing with banking in their islands.

As background, many of these islands rely on the presence of foreign banks or rely on accounts with either U.S. based or Australian based banks for access to the capability to trade in U.S. and/or Australian dollars. Many of these islands do business primarily in U.S. or Aussie dollars and because of this need access to banks to send and receive payments. In the last decade, there has been a movement known as de-risking, with many of the U.S. or Australian banks closing down branches and leaving the islands due to the heightened risks of operations, regulatory risks associated with operating in these environments and economic reasons.

In recent years, with the threats from China and North Korea in the region and the fact that many of these islands have had no choice but to look to alternatives for financial support and access to greater economies, the U.S. and Australia have placed greater emphasis on providing assistance with a renewed commitment to the region. This forum was the first time both governments have hosted such an event with the end result a commitment statement of all stakeholders to work towards improvements in this specific area.

This is important for several reasons but most importantly, it is indicative of the U.S. and Australia’s commitment to the regions and to ensuring that these island nations maintain their ties to the U.S. and Australian governments. This is important to minimize the threat of economic takeover by other nations. It is also important for the island nations because there is hope that they will be able to continue their connectivity to the U.S. and Australian banking systems, which is vital for their continued economic success. One of the biggest developments to result from all these nations working together is a common central bank to be hosted by the World Bank. Through this central bank, any island nation that is a member of the World Bank will be able to access check clearing and other electronic banking features via the World Bank.

With all the progress happening on this front as well as the renewed and approved Compact Agreements between the United States and the Freely Associated States, I am quite optimistic for our brothers and sisters in Micronesia. They will have another 20 years of U.S. financial support in addition to federal programs. Government leaders in these areas are now tasked with responsibly deploying these funds for community improvement projects. There is much infrastructure improvement that can be done in these islands and they have the funds to do it. They also have funds they can deploy to help attract investors and create new industries to drive economic growth.  I really am excited to see how this changes the communities and helps the people of Micronesia.

The discussion above is very general. Additional research and reporting can be done on the World Bank initiative as well as the U.S. and Australia support of our island brothers in Micronesia and in the South Pacific. With the latest news as of the writing of this piece, Guam has been given the okay to attend Pacific Island Forum meetings as an associate member with the ability to raise concerns and be heard at the table.  From this, I expect we will hear more about the development of this issue and how the Pacific Island nations will be responding to the continued support and presence of the United States.

Now I want to turn the attention to my home, the Mariana Islands.  Guam and the NMI have seen little change in their economic condition since last year’s feature. Both continue to struggle with a crippled tourism industry, and both are turning to the U.S. government for support to keep the economies going until the tourism engine is up and running at higher RPMs.

I did a review of the Top 20 companies listed by Guam Business Magazine for the past 10 years and added all their top line revenues up each year. The graph looks like this:

I used the Top 20 companies because this group has a good cross section of local businesses from petroleum to restaurants to retail stores to hotels to construction companies.  As you can see from the graph, there has been an uptick in total revenues. The spikes in 2016 through 2019 are due to revenues of Imperial Pacific International in the NMI, when the casino was in the list. The recent pop in 2023 was driven primarily by the petroleum and construction industries, as well as other businesses with ties to the military buildup.

When I remove IPI from the listing and shift all companies up a place, the graph looks like this:

Removing the casino gives a better picture of the total revenues trend over the past 10 years. Again, the spike in 2023 is driven primarily by industry supported by the military buildup and federal spending.

It is important to note that the only hospitality industry business in the Top 20 of the list in 2023 is the Hilton Guam, and this is due primarily to the fact that many of the federal contractors and military related visitors stay at U.S. branded hotels. Pacific Islands Club, which had been among the Top 20 slid down the list in 2020 and has yet to come back into the Top 20. The Hilton Guam only returned to the Top 20 in 2023, as many of the large projects brought increased visitors from the U.S. to Guam. I would also add that inflation and the rising costs of goods and services have also led to heightened revenues. The increase in revenues in 2023 may not be attributed to increased performance.

Without a healthy tourism industry, we have had the highest grossing year based on a 10-year review.  The question I have is, do we need tourism??

In one of our meetings this year, one executive made a prediction that Guam could end up like the Guam he remembers post-Vietnam War, a military depot. Of course, at that time, Guam’s tourism industry had not yet been built. There were no hotels in Tumon and no infrastructure to support vacationers until the 1980s.

The thought did shock me. It turned my thoughts back to my comparison of our economy to a three-legged stool. Could Guam survive with just minimal tourists?  What would happen if our tourism industry never recovers? What would the financial impact be?  What would the social impact be? All these questions came pouring in and my final conclusion, one that most other business-folk on Guam would agree with, is that we need our tourism industry to be thriving to ensure the best possible lives and lifestyle for our island.

There is no question about it, we absolutely need to make sure our tourism industry recovers.

As was the case last year, many companies are doing well with all the military spending happening on Guam, but so many others are hurting because our tourism industry remains sluggish. Most of our local jobs are supported by tourism and industries related to tourism. Recently, many of our businesses have had to pivot to attract military clientele and contractors who are on island for federal work.  This has been a nice boost to keep our economy afloat, but I believe that we must rebuild our tourism industry to the levels we enjoyed pre-pandemic. We cannot continue to sit and wait for tourism to rebound.  We need to take action to help revive that economic driver. In the long run, tourism is our best option for prosperity for all on the island. When tourism is booming, more jobs are created and there is more money circulating throughout our economy.

This in turn leads to greater tax revenues for the government to maintain infrastructure, higher paying jobs for members of our community, lower crime rates and many other collateral benefits.