How the CNMI Government Brought Federalization Upon Itself

(This article was originally published in the March-April 2008 issue of MP Magazine under the title "The Issue of Federalization")

By David B. Cohen

“In a court of law, you can’t beat a station wagon filled with nuns.”

That line is from the classic television comedy series “All in the Family,” which featured a “lovable” bigot named Archie Bunker. In one episode, Archie is involved in an auto accident. He’s determined to sue the other party for as much money as he can get. He hires Sol Rabinowitz to be his lawyer, because Archie believes the stereotype that Jews make the best lawyers and “Sol Rabinowitz” is the most Jewish-sounding lawyer’s name he can find in the Yellow Pages. Archie is heartened to learn that the other party’s lawyer, Fitzroy, is not Jewish but Irish. When the parties meet, however, Fitzroy asserts that it was Archie who caused the accident and he has witnesses who will testify to that fact. “Who are these witnesses?” asks Rabinowitz.

“A station wagon filled with nuns,” replies Fitzroy.

At that point, Rabinowitz immediately quits the case, grabs his briefcase and heads for the door. Archie asks him why he’s quitting, and Rabinowitz replies with an “old Jewish saying”: “In a court of law, you can’t beat a station wagon filled with nuns.”

I was reminded of that episode when I heard of the recent verbal attacks in the Commonwealth of the Northern Mariana Islands (CNMI) against the Catholic social service organization Karidat and Guma’ Esperansa, the women’s shelter that Karidat operates on Saipan. The critics of Karidat and Guma’ Esperansa have challenged the credibility not only of nuns, but of priests, the Catholic Church, Sisters of the Good Shepherd, social workers and human trafficking victims. They are all being attacked for speaking openly about the plight of human trafficking victims in the CNMI.

According to a recent letter by Greg Cruz, President of the indigenous rights group Taotao Tano, the advocacy of Guma’ Esperansa and others on behalf of human trafficking victims is part of a political conspiracy to win passage of legislation that would bring the CNMI’s immigration system under federal control. Is he correct? That depends on whether you believe the nuns, social workers and human trafficking victims, on the one hand, or the politicians and others who are criticizing them, on the other hand. Who do I believe? I believe Sol Rabinowitz. Getting into a credibility contest with nuns just isn’t worth it.

This is but one in a long line of examples of how some opponents of “federalization,” as it is known, may have undermined their own cause in their single-minded determination to defeat federalization. As I write this, a bill to federalize the CNMI’s immigration system is still being considered by Congress. Whether or not that bill passes, I’m concerned that some of the participants in the federalization debate are doing needless and lasting damage to an island community that I care very much about.

Let me be clear: I do not claim that federalization opponents are causing damage simply because they are opposed to federalization. Federalization is a complicated issue on which reasonable people can disagree. Reasonable, principled arguments can be made on both sides. I’ve struggled with it myself. My concern is that the way some advocates are manifesting their anti-federalization zeal may be damaging to the community and to their own objectives.

Almost everyone in the CNMI is familiar with the federalization issue. Under the Covenant through which the Northern Mariana Islands joined the United States as a Commonwealth in the 1970s, the CNMI was initially given control over its immigration system. However, Congress expressly reserved the right to put the CNMI’s immigration system under federal control at any time and in any manner. Although some have recently asserted that the Covenant’s concept of “self-government” limits Congress’s authority to control immigration in the CNMI, that is clearly a misinterpretation of the Covenant.

The Covenant negotiators from the Northern Marianas sought to initially control their own immigration system because they were afraid that the islands’ indigenous Chamorros and Carolinians would be overrun by foreigners that could be admitted under U.S. immigration law. Ironically, at the behest of foreign business owners, the CNMI would ultimately use its control over immigration to admit so many foreign guest workers that the locals became a minority in their own islands.

The importation of guest workers was driven largely by the garment industry, which eventually grew to generate annual revenues of over $1 billion and provide 35 percent of local tax revenues. As far back as the Reagan Administration, the Federal Government expressed concern about working conditions in the garment industry.

The Clinton Administration, responding to mounting evidence of garment industry labor abuses, launched an all-out effort to federalize the CNMI’s immigration system. The effort was spearheaded by the Department of the Interior’s Office of Insular Affairs, which generally administers the Federal Government’s relationship with the CNMI and its other territories. Al Stayman was OIA’s Director at the time.

The CNMI government, with the support of the garment industry, fought the Clinton Administration’s federalization effort. They hired lobbyist Jack Abramoff, who in turn enlisted the support of his powerful friend in Congress, Majority Whip (and later Majority Leader) Tom DeLay. The battle over federalization became pitched, nasty and personal. In one newspaper interview, then-CNMI House Speaker Ben Fitial repeatedly referred to Danny Aranza, Stayman’s like-minded successor, as a “jerk” because of their difference of opinion over federalization.

In 2001, Republican Frank Murkowski’s bill to federalize the CNMI’s immigration system passed the U.S. Senate unanimously. The Bush Administration issued a letter expressing “strong support” for the bill. However, DeLay opposed the bill and it never came to a vote in the House.

By the time I took over the Office of Insular Affairs as Deputy Assistant Secretary in June 2002, things had thankfully calmed down. Fitial, backed by the garment industry that once employed him, lost to Juan Babauta in the 2001 gubernatorial race. Babauta was perceived as a reformer, and even some of the strongest proponents of federalization were willing to give him the benefit of the doubt.

Meanwhile, the garment industry had made a great deal of progress in curbing labor abuse since the 1990s. Much of this was driven by reforms that the CNMI had enacted under pressure from the federalization proponents in Congress. During Babauta’s tenure, the Federal Government and the CNMI government worked very well together to address important immigration issues. We asked them to establish a refugee protection system. They did. We asked them to enact a tough statute to fight human trafficking. They did. We asked for their commitment to cooperate with our efforts to fight human smuggling. We received it—in writing.

Things were far from perfect in the CNMI, but they were much better than they had been and they were heading in the right direction. No one in Congress was seriously pushing federalization during this period.

When Ben Fitial was elected governor in 2005, some were concerned that he would try to undo the progress that had been made on labor and immigration issues. I, for one, was willing to give him the benefit of the doubt. After I met with him early in his term, I believed that he understood that weakening worker protections would provoke a negative reaction from the Federal Government and would undermine his efforts to stimulate the economy. I very much shared Governor Fitial’s concern about the economy, and we developed a positive working relationship.

Fast forward to November 2006, when the Democrats took control of both houses of the U.S. Congress: Some of the strongest proponents of federalization, particularly Congressman George Miller and Senator Jeff Bingaman (for whom Al Stayman now worked), were now in a position to move that agenda forward. Unlike me, they were not willing to give the Fitial Administration the benefit of the doubt.

The Senate Committee on Energy and Natural Resources, now chaired by Senator Bingaman, called a hearing in February 2007 on CNMI labor and immigration issues. I was called to testify on behalf of the Bush Administration, and essentially was going to have to answer the following question: “The Bush Administration expressed its strong support for federalization in 2001. Is that still your position?”

That was a complicated issue for me. When I say that the issue was complicated “for me,” a bit of clarification is in order. In one sense, my personal opinion didn’t matter because I was only authorized to testify on behalf of the Administration with testimony cleared by the Administration. However, it was my job to initially propose what I thought the Administration’s position should be, draft testimony to reflect that position, and then work to get that position and testimony cleared by my Department, the White House and all relevant departments and agencies. I wasn’t always able to get clearance for everything I proposed, but I had a very good success rate. In that sense, my personal opinion did matter, because it was the most important determinant of what the Administration position would ultimately be. For that reason, I always tried my best to be as fair and open-minded as possible in formulating the opinions that would become the basis for my recommendations to the Administration.

As we prepared for the hearing, there was much to consider. On the one hand, although many serious problems remained, the CNMI had made a great deal of progress in improving labor conditions and the administration of its immigration system. On the other hand, the nose-diving economy had caused a drastic reduction in government revenues in recent years, casting doubt on whether the CNMI had the resources to properly administer its immigration system and protect workers’ rights. With the CNMI’s two major industries, garments and tourism, in simultaneous decline, guest workers were losing their jobs in record numbers. This placed unprecedented demands on the CNMI’s labor and immigration system at precisely the time when the resources available to meet those demands were rapidly evaporating.

On the other hand, I was very concerned about the potential economic impact of federalizing immigration in a manner that was not sensitive to the CNMI’s unique needs. I also tended to believe, all things being equal, that local control was better for the islands than a one-size-fits-all approach dictated by a Federal Government based thousands of miles away. Of course, all things are seldom equal.

If you had put a gun to my head in the weeks prior to that hearing and asked me whether I personally favored federalization, I would have said “no.” It would have been a close call, because of my concerns about the CNMI’s ability to continue making progress on labor and immigration issues in the face of a dwindling revenue base. My “no” would have been premised upon the assumption that the CNMI would continue to work collaboratively with us to address these issues. As I will discuss, I would soon lose faith in that premise, which in turn would push me from a close “no” to an emphatic “yes” on the issue of federalization.

The testimony that I ultimately prepared for the February hearing did not take a position on federalization. Rather, we essentially said the following: “We’re not suggesting that you federalize or that you not federalize. If you do decide to federalize, however, we urge you to take certain things into account.” The things that we urged Congress to take into account were as follows:

Ensure that national security and homeland security issues are properly addressed.
Minimize damage to the CNMI economy and maximize the potential for future economic growth.
Ensure that the new CNMI economy is not as conducive to worker exploitation and abuse as was the old CNMI economy.
Ensure that the interests of the long-term guest workers are properly addressed.
Carefully analyze the likely impact of major proposals before they are implemented.
Ensure that the people of the CNMI participate fully in decisions that will affect their future.

On national security and homeland security, we made it clear that this consideration had to trump all others in a post-9/11 environment.

On the economy, my testimony stressed the need to flexibly tailor any federalization bill to the CNMI’s special needs. This would become the basis for what we would later call “Flexible Federalization.”

My testimony was frank about how the CNMI’s old economic model—which was clearly on its way out with the garment industry falling victim to new international trade rules—was conducive to worker exploitation. The CNMI had many workers who had been there for a long time—some for more than 20 years. The longer workers stay in the CNMI, the more rooted they become there and the more they have to lose if they are ever required to return home. Many have minor U.S. citizen children who had never lived in the third world economies that their parents came from. Since the workers’ contracts must generally be renewed each year, those with much to lose have a strong disincentive to stand up for their rights. The CNMI had become oddly out of balance, with guest workers having become a majority with no political rights.

My testimony paid special tribute to long-term guest workers, and recognized their tremendous contributions to the CNMI. One of the things that has saddened me about the current federalization debate is the way that some have scapegoated guest workers and pretended that their views don’t count.

I will reveal now that the first draft of my testimony urged Congress, if it were to proceed with federalization, to consider allowing long-term CNMI guest workers to apply for permanent residence—green cards—on a one-time basis. I believed that if the U.S. was considering allowing certain illegal immigrants to eventually get permanent residence, then we should also offer permanent residence to legal workers who had done so much to make this small American island community a better place. The green card proposal was the only significant point in my original draft that I was unable to get cleared. It was not that my colleagues in the Administration were hostile to the idea. With the debate on national immigration reform about to commence, however, there was concern that proposing green cards for a small group of people might have a disproportionate skewing impact on the national discussion. The decision was made to let the national debate move forward before giving further consideration to granting green cards to the CNMI’s long-term guest workers. At the end of the day, I agreed that this was the right decision.

Let me stress that I am very sensitive to the concern that many Chamorros and Carolinians have about losing political control over their islands. The objective of maintaining political control for particular ethnic groups is actually un-American, but this is a very important issue for islanders throughout the Pacific who fear the loss of their land and their culture. I know this very well because of my Samoan heritage. I believe that the U.S. intended to respect the concerns of the indigenous people in this regard when it negotiated the Covenant. I did not believe, however, that granting guest workers green cards would threaten indigenous political control over the islands. I believed that the economy would find its own equilibrium, and that the loss of jobs in the CNMI would motivate many long-term workers to move elsewhere in the U.S. to find opportunity. Especially given that non-indigenous people cannot own land in the CNMI, I did not believe that guest workers would stay in sufficient numbers to take political control.

Was there a risk that too many guest workers would leave once they got their green cards? Sure, but this risk was outweighed in my judgment by the need to economically empower the guest workers. As long as guest workers only have the option of staying in their current job or returning to a third world economy, they are exploitable. They are afraid to complain and willing to work for the lowest legal wage. They hence bargain down wages in the private sector, making U.S. citizens willing to work only in the public sector. The result is the type of two-tier economy that the CNMI has ended up with. Workers with green cards have more options, and hence more economic power, and hence are less likely to depress wages.

I would later think of an alternative way to economically empower the guest workers, one that should have given the locals less concern about the risk of losing political control. The idea was to allow long-term guest workers who passed background checks to obtain the same status in the U.S. as citizens of the Marshall Islands, Palau and the Federated States of Micronesia. This status would allow these guest workers to live and work anywhere in the U.S. indefinitely as long as they didn’t do anything that made them deportable, such as committing a serious crime. It would not give the workers political rights, but they would remain eligible to obtain a green card in the normal ways—marriage, special qualifications, etc. Having the right to stay indefinitely, in fact, would increase for many guest workers the likelihood that they would eventually qualify for a green card one way or another.

I thought it was a good compromise. As most followers of CNMI politics know, not everyone shared my enthusiasm.

The fourth point that I raised in my testimony, that we should carefully analyze the likely impact of major proposals before they are implemented, has been largely misunderstood by opponents of federalization. These opponents assert that Congress should not pass federalization legislation until a comprehensive study is completed on whether or not to federalize the CNMI’s immigration system. The federalization bill being considered in Congress, however, offers a flexible framework that allows policymakers a great deal of latitude to adopt policies and regulations that address the CNMI’s particular needs. For example, the bill would allow the guest worker program to be extended indefinitely if necessary; it would establish a special visa waiver program for the CNMI and Guam; it would enable special new visa categories (for students or retirees, for example) to be established if appropriate. All of these decisions would be made by federal policymakers, with input from the CNMI government, after the law’s enactment. The bill directs federal policymakers to make these decisions in a manner that accommodates the CNMI’s unique needs and maximizes the CNMI’s opportunities for economic growth.

Congress has indeed requested the Government Accountability Office to conduct a study on federalization. That study, however, is not intended to help Congress determine whether or not federalization should occur; the Senators who requested that study had already concluded, for several valid reasons, that federalization should occur. Rather, the study is designed to guide the relevant policymakers in developing policies and regulations to implement federalization in a manner that will best serve the needs of the CNMI and of the nation as a whole. Ironically, although the CNMI administration has been urging Congress to postpone consideration of the federalization bill until the GAO study is completed, GAO officials initially were quite frustrated by their inability to obtain the information they needed from the local government. After word got out that GAO was considering writing to Congress about their inability to get sufficient information from the CNMI, the level of cooperation improved.

The final point of my testimony, that the people of the CNMI should participate fully in decisions that will affect their future, is a very important one. As we had in the past, the Administration urged Congress to grant the CNMI the same level of representation in the U.S. Congress enjoyed by all of the other territories and the District of Columbia. Opponents of federalization say that the CNMI should be granted a delegate before Congress votes on federalization. They are correct. However, Congress has made extensive efforts to collect the views of all segments of CNMI society. They have heard diverse points of view from a divided community. Governor Fitial has testified against federalization. Resident Representative Pete A. Tenorio has testified in favor of it. While I respect Governor Fitial’s views, I believe that Representative Tenorio has demonstrated exemplary political courage on this issue: even though a majority of the CNMI’s population favors federalization, much of that majority cannot vote.

Even though it would have been much preferable for the CNMI to have been granted a delegate to Congress prior to passing federalization legislation, I ultimately came to conclude that the need to pass both the delegate bill and the federalization bill as soon as possible outweighed the merits of passing them sequentially. The factors that drove me to that conclusion are discussed later.

When I arrived for the Senate hearing on the morning of February 8, 2007, the gallery was packed. The hearing had been much anticipated; people were staying up late back in the CNMI to watch the live feed. I was the first of many witnesses, but my testimony was not the highlight of the hearing.

That distinction belonged to Kayleen Entena, a young lady from Laguna Province in the Philippines who had come to Saipan to work as a waitress in 2005. In a barely audible voice, she told her heartbreaking story of how she was forced into prostitution. Kayleen ultimately was rescued and sought refuge at Guma’ Esperansa. She was accompanied to the hearing by Lauri Ogumoro, the shelter’s director, and Sister Mary Stella Mangona of the Sisters of the Good Shepherd, both of whom also spoke eloquently about victims of human trafficking in the CNMI.

As compelling as the testimony from Ms. Entena, Ms. Ogumoro and Sister Stella was, the reaction of certain CNMI officials to that testimony probably did more to move my opinion than the testimony itself. As the ladies were testifying, certain members of the CNMI delegation were loudly sighing and rolling their eyes. Ms. Ogumoro had at one point cited the number of human trafficking victims that her shelter had recently served. A senior CNMI official accosted Ms. Ogumoro in the hall after the hearing and aggressively asked her what her “problem” was. This official claimed that Ms. Ogumoro’s numbers were wrong. My office subsequently verified that Ms. Ogumoro was indeed correct, and it was the CNMI government that was seemingly unaware of the scope of the problem under its area of responsibility. This incident reflected a tendency of federalization opponents to bully CNMI residents that did not agree with them.

I later learned that the Catholic Church on Saipan had been pressured to not let the ladies from Guma’ Esperansa travel to Washington to testify. That caused me tremendous concern.

I understand that the current CNMI administration opposes federalization—and not all of their arguments are unreasonable. I also understand that they desperately want to demonstrate that they are doing a good job at administering their immigration system, out of the fear that evidence to the contrary might be used against them by federalization proponents. That is not an excuse, however, for disrespecting a woman who suffered through what Kayleen Entena has suffered through, or trying to prevent her from telling her story. She has earned the right to tell her story. And Congress needs to know, as Ms. Ogumoro and Sister Stella informed them, that there are many Kayleen Entenas out there.

What’s ironic is that Kayleen Entena’s story is one story where the local CNMI authorities can take credit. Her case was investigated and successfully prosecuted by the local CNMI authorities. Federal Ombudsman Jim Benedetto, who has been demonized by federalization opponents, is the one that pointed that out to anyone who would listen. I’m the one that pointed that out in the press shortly after the hearing. Why didn’t the CNMI government point that out?

Here’s my theory: The current CNMI administration aggressively asserts that all criticism of the CNMI’s labor and immigration system is based upon “outdated information.” Consistent with that message, certain CNMI officials become indignant at the suggestion of any imperfection in the operation of their system. Perhaps some of these officials really believe that the CNMI is performing perfectly; perhaps others merely fear that the acknowledgement of any imperfection will be unfairly used against them.

Whatever is at the root of this mindset has led the current CNMI administration to put some unfortunate statements on the record. After I delivered testimony on behalf of the Bush Administration that suggested a high incidence of human trafficking in the CNMI, Governor Fitial’s advisers drafted an angry “supplemental statement” that purported to debunk the notion that human trafficking was a serious problem in the CNMI. They presented an “analysis” that supposedly demonstrated that the CNMI’s record of preventing human trafficking was actually better than the Federal Government’s record of preventing human trafficking.

The problem was that their analysis was completely wrong. Among other glaring errors, their analysis assumed that the CNMI had no human trafficking victims in a recent year other than the 36 female sex industry workers who were lucky enough to have been rescued and served by Guma’ Esperansa. These 36 women were a mere sample of victims in the CNMI—who knows how many victims have not been identified and rescued? Yet they compared this sample to the State Department’s estimated total for all human trafficking victims—including men, women and children trafficked for all purposes in all industries—in the U.S. On the basis of this completely inappropriate comparison (and other incorrect assumptions), they declared that they were doing a better job of preventing human trafficking than was the U.S.

The CNMI administration would have so much more credibility, and would earn so much more trust from the Federal Government, if they would simply acknowledge that serious problems still exist and pledge to work collaboratively with the Federal Government to build upon the substantial progress that has been made in recent years. I am not suggesting that the CNMI is doing nothing to prevent human trafficking. They need to do much more, but they have some recent victories which I have publicly applauded. However, how can we trust them to fully cooperate with us to address these problems if they are so intent on denying that these problems even exist anymore? And do they really think that anyone in Washington will believe that the situation is as rosy as they say it is, notwithstanding testimony to the contrary from nuns, social workers and human trafficking victims? Let me offer a corollary to Sol Rabinowitz’s rule: No one, and especially no politician (myself included), should ever pick a credibility fight with nuns, social workers and human trafficking victims. Even if the politicians are right (and the CNMI politicians are not right here), no one will believe them and they’ll only make themselves look bad. Ironically, it is the CNMI government’s fear of looking bad that is causing them to look bad.

It is possible to candidly acknowledge the problems that remain in the CNMI and still make a reasonable, principled case against federalization. Such candor would, in fact, enable the CNMI administration to argue its case with much greater credibility.

I believe that single-minded opposition to federalization had led to some tremendous missed opportunities. When my office drafted the federalization bill that Senator Daniel Akaka would eventually introduce, I ensured that it was loaded with special benefits for the CNMI that would help to secure the Commonwealth’s economic future. For example, our version of the bill would have made the CNMI permanently exempt from national limits on bringing skilled H-1 workers and other workers into the CNMI as long as local workers’ jobs were not being threatened. The Silicon Valley has been built on brilliant, creative, educated H-1 workers from around the world, but there is a tight cap on the number of H-1 workers that can enter the U.S. Making the CNMI permanently exempt from this cap could possibly have induced companies like Google and Microsoft to build a new Silicon Valley in the CNMI, providing locals with jobs, the opportunity to learn valuable skills and a chance at lasting prosperity. With no one from the CNMI supporting that proposal, Congress greatly scaled it back to a mere temporary exemption that has much less potential value to the CNMI than the provision we originally drafted.

The process of drafting the Senate’s version of the federalization bill helped me to overcome some of the concerns that I had about federalization. By drafting a bill that I believed to be very helpful to the CNMI, I was able to prove to myself (albeit not to everyone) that federalization could be designed in a manner that addressed those concerns in a manner that was as good for the CNMI as it was for America as a whole.

The CNMI administration’s fervent opposition to federalization has also led to a self-defeating antagonism towards the Federal Government. That antagonism only serves to solidify support in Washington for federalizing the CNMI immigration system. Like it or not, the Covenant leaves it up to the Feds to decide whether to assert control over the CNMI’s immigration system. That suggests that the Federal Government will only allow the CNMI to continue to control its own immigration as long as it trusts the CNMI to do the job properly—in a manner that will not threaten national security and homeland security, will not undermine the protection of human rights, and will not jeopardize U.S. compliance with its international treaty obligations.

The verbal attacks that the CNMI has launched recently against the Federal Government, including the Department of Homeland Security, the Department of State, and the Department of the Interior, have caused federal officials great concern. In addition to angry denials about the human trafficking problem, federal officials are concerned by the CNMI government’s unwillingness to work with them on refugee protection issues. That causes a real problem, because the Federal Government is responsible for ascertaining to the international community that the CNMI has a properly functioning refugee protection program. It is simply unacceptable for the CNMI to deny federal officials the ability to do that.

A recent series of angry letters from the CNMI to the Federal Government has caused some federal officials to think along the following lines: “You are essentially calling us the enemy. How, then, can we trust you to cooperate with us on the issues that are important to us, such as protecting national security and human rights? If you harbor such antagonism against us and are so concerned about the possibility that you might look bad, how can we trust you to share all of the information that we need from you to satisfy ourselves that you are administering your immigration system in an acceptable manner? If you refuse to share information with us on your refugee protection program, how can we fulfill our duty under our international treaties to ensure that you are administering that program properly? Even if you really believe that your antagonism against us is justified, doesn’t that very antagonism undermine the trust that we need to have in you in order to allow you to continue to control your own immigration system? If that trust is undermined, would continuing to allow you to control your own immigration system not expose us to unacceptable risk?” This is essentially the thought process that led me to conclude that CNMI immigration must be federalized as soon as possible. And, lo and behold, that became the position of the Bush Administration.

The CNMI administration’s recent undisciplined expressions of antagonism against federal officials, departments and agencies might give some people the short-term relief of venting their spleen, but it has done immeasurable long-term damage to the trust that absolutely must exist in order for local control over immigration to continue. I say that more in sorrow than in anger. The CNMI administration has been urged by some of its allies to tone down its antagonism. Even if it belatedly does so, however, the damage is already done. The CNMI administration’s petulance to date has forced us to contemplate how much damage some future uncooperative local government could do to important U.S. interests, and has reminded us why we generally do not allow small towns to control their own immigration. Based upon my experience with the CNMI, I now believe that American Samoa’s immigration system should be federalized as well—but in a flexible manner that would address that territory’s unique needs (including liberal access to citizens of independent Samoa), just as we have tried to address the CNMI’s unique needs.

Speaking of antagonism, some in the CNMI have interpreted the candid discussion of the CNMI’s labor and immigration issues as antagonism against the indigenous people of the CNMI. There are feelings such as: “They’re criticizing us. They’re making us look bad.”

During my community forum with Taotao Tano last October, someone in the crowd said to me: “You’ve got it wrong, Mr. Cohen. We’re not the ones who are causing all of these human trafficking problems. It’s the foreigners.”

While I generally do not think it is good to scapegoat foreigners, I went with his premise. I responded: “I never said that it was the Chamorros and Carolinians that caused these problems. But I will say that no one has a greater interest than you in making sure that these problems get cleaned up. It’s like the people from Beautify CNMI who pick up trash on the beach. They are not the ones that left the trash there. But they clean it up anyway, because these are their islands, this is their home, they have love and pride for this place and they have to live here. It’s the same thing with these human trafficking problems. Don’t complain that it’s making you look bad. Leaving other people’s trash on the beach will also make you look bad. In either case, you can make yourself look good by cleaning up the mess that someone else left in your home. On human trafficking, you can help clean up the mess by holding your elected officials accountable. Insist that they stop denying that there’s a problem. You didn’t make the mess, but if you don’t care enough to clean it up, who will?”

I find it so ironic that an indigenous rights group is defending a status quo that has so utterly failed them. Local control over immigration has allowed the indigenous people to become a minority in their own islands. It has caused an entire generation of locals to be priced out of the private sector, and to become almost completely dependent upon foreigners to do the real work that keeps their society afloat. It has caused locals to lose their self-reliance and their self-esteem. It has created an exodus of locals to the mainland to find decent-paying jobs—an exodus that threatens the indigenous culture in these islands more than a thousand green cards ever could. The CNMI is a community in desperate need of change, for the locals more than anyone.

For me, the federalization debate has never been about favoring the guest workers over the locals or the locals over the guest workers. Everyone is in the same boat. Giving long-term guest workers permanent status will increase their options, which in turn will increase their economic power, which in turn will reduce their tendency to bid down wages, which in turn will increase the likelihood that locals can find good private sector job opportunities at home, which in turn will reduce the exodus of locals from the islands, which in turn will allow the indigenous culture to flourish in these islands for years to come. It would be a win-win situation, and it could happen if everyone starts to realize that they are in the same boat and if everyone starts to row together.

It’s time to stop picking needless and futile fights—with Uncle Sam, with foreigners, or with station wagons filled with nuns. A brighter future is at hand for those who do not fear the future, for those who have the vision and courage to seize it.

Accountability: Progress, Challenges, and a Call to Protect the Public Auditor's Offices

Keynote Speech of David B. Cohen, Deputy Assistant Secretary of the Interior, Joint Meeting of the Association of Pacific Islands Public Auditors and the Island Government Finance Officers’ Association, Honolulu, Hawaii, December 6, 2007.

Good morning. When I spoke before the Island Government Finance Officers’ Association on Tuesday, I noted that Priority 1 for the Department of the Interior’s Office of Insular Affairs is promoting private sector economic development in the islands, and Priority 1-A is ensuring accountability for public funds—particularly the Federal financial assistance provided to the islands by my office and others. On Tuesday, I spoke about Priority 1. Today, I will speak about Priority 1-A.

We say over and over again that accountability is one of OIA’s two top priorities, and we have backed up our words with deeds. For example:

• We worked with our colleagues in the Marshall Islands and the Federated States of Micronesia to negotiate a detailed, comprehensive accountability program for funds provided under the Compacts of Free Association.
• As part of our effort to implement the Compacts, we have established an office here in Honolulu dedicated to ensuring that there is accountability for Compact funds. We have also added personnel in the freely associated states for that purpose.
• We have revamped the way that we allocate Capital Improvement Project funds, instituting a competitive process that rewards good fiscal management.
• We have established the position of Accountability Policy Specialist at our headquarters in Washington, D.C.
• We have a longstanding contract with the USDA Graduate School to provide training for island officials, with an emphasis on financial management and improving compliance with the Single Audit Act.
• We have sponsored numerous conferences, workshops and training programs involving officials from the islands and our colleagues at other Federal agencies.
• We fund training for public auditors, including programs that enable personnel from the islands to work and train at various Interior Inspector General offices.
• We have revised our criteria for granting technical assistance to focus primarily on our top two priorities, including promoting accountability.
• We have greatly increased coordination with other Federal agencies to focus on improving the administration of Federal grant programs in the territories and freely associated states.
• We completely revamped OIA’s Financial Assistance Manual for the first time in a decade.

Our efforts, together with the hard work of our colleagues from the islands and our Federal colleagues, have yielded positive results. When I took office in 2002, not a single one of the 11 nations, states and territories that we serve was submitting timely or clean Single Audits. Today, the record on timeliness is almost exactly the opposite: only one of our 11 jurisdictions is not current with its Single Audits. In addition, Palau’s Single Audits have been timely and clean for the past three years, Pohnpei’s have been timely and clean for the past two years, and Kosrae became the newest member of the “Timely and Clean Club” this past year. Pohnpei is in a club of its own, having completed Single Audits for the past two years that were timely, clean and with no questioned costs. Pohnpei will soon be the rule and not the exception, and just as we all worked together to turn the situation around with regard to timeliness of audits, we will do the same with regard to cleanliness.

Although we very much value our positive relationships with our colleagues in the islands, we have taken tough action when tough action was called for. We have been forced to withhold grant assistance on a number of occasions. We hate to do that, because our grants fund important programs in health, education and other crucial areas. We recognize, however, that it is better to withhold funds and preserve them for future use than to release funds into an insecure environment, risking that they will never be properly used to address the needs of the people.

We have excellent working relationships with the governments of almost all of our island communities. This enables us to work through some very difficult issues. A while back, we made the very difficult decision to put American Samoa on high risk status. We imposed a very high bar to have that status lifted: Two consecutive timely and clean Single Audits, two consecutive balanced budgets, and sufficient progress on American Samoa’s fiscal reform plan. The plan was adopted pursuant to a Memorandum of Agreement for fiscal reform that I signed with the late Governor Tauese Sunia. Governor Togiola Tulafono has embraced these conditions as a challenge and an opportunity for his government to greatly improve its ability to serve the people of American Samoa. He wants American Samoa to meet those conditions and in so doing become a model for fiscal management in the islands. For our part, we have responded with substantial technical assistance to help American Samoa develop the tools and skills necessary to effectively manage its government finances.

In Kosrae, we have supported a process, involving the new government of Kosrae, the new government of the Federated States of Micronesia and the USDA Graduate School, to address an urgent fiscal crisis. With financial assistance from our office and the FSM National Government, Governor Robert Weilbacher, his team and the Kosrae legislature have taken painful and courageous steps to restore that state to fiscal health.

We are working with FSM President Manny Mori and Governor Wesley Simina to support a similar fiscal recovery plan that is being developed for Chuuk. We had previously worked with the Chuuk State Government and the FSM National Government to establish the Chuuk Financial Control Commission to review and certify all transactions involving Compact funds. OIA has placed a full time accountant in Chuuk to ensure compliance.

All of us working together have made significant progress to improve accountability and fiscal management in the islands. We have a tremendous way to go, however, before the overall performance of the islands in fiscal management could be called acceptable.

I am proud of the progress that we have made together to improve accountability because we have done so in the face of daunting challenges. Each of our insular areas has small populations and educational systems that range from significantly below to very far below mainland standards. The best and brightest often have to leave the islands to find decent job opportunities. As a result of all of these factors, each of the insular areas has a severe shortage of the type of educated talent that is necessary to ensure good fiscal management. As you can tell by looking around this room, there are many educated and talented people in the islands. There just are not yet enough of them.

In the islands, talent pool shortages cannot be solved by attracting people over from the next town or the next county. The islands have to shore up deficiencies in critical skill areas by enticing people to travel thousands of miles from home. The islands typically do not have the resources to provide a sufficient financial incentive to entice talented people to do this.
Almost all of the insular areas are made up of multiple islands, in some cases in the hundreds or thousands. This creates the additional challenge of providing essential government services to people on several islands, some of them remote. It requires duplication and makes it harder to achieve economies of scale. All of this further drains resources that are needed to attract good talent.

I do not offer these observations as excuses. However, we cannot do our jobs effectively if we do not have a proper understanding of the challenges that we face.

Are some of the islands’ fiscal management problems caused by corruption? Of course, but there is corruption all over the world, including on the U.S. mainland. The corruption that exists in the islands only makes it harder for the islands to address the challenges that I have just described.

For all of these reasons, it has taken a great deal of work by all of us to achieve the accountability gains that we have achieved in recent years, and it will take a tremendous amount of additional work to raise ourselves up collectively to an acceptable level. We are committed to doing that work.

One thing is clear: Our efforts cannot succeed unless each of our island communities has a strong, active, independent, conscientious, properly staffed and properly funded public auditor’s office. The management of public funds is a complicated business, and regular, impartial review of our work is essential to ensure that good value is received for the people’s money.

OIA has taken steps to encourage each of the island governments to strengthen their public auditor’s offices. For example, we rate each of your public auditor’s offices and use that in our determination of the amount of grant funding that various jurisdictions will receive.

To be frank, however, I am not satisfied. None of us should be satisfied. We still have jurisdictions that have not had a qualified public auditor in place for an unacceptably long period of time. We still have public auditor’s offices that do not have the staff or budget to do an effective job. We still have public auditor’s offices that are too vulnerable to political retaliation.
Protecting the auditors is always a challenge. The problem is that auditors routinely have to be critical of those who have control over their budgets, personnel decisions and other important matters. And, speaking for the finance officers’ side of the room, there is not one of us, myself included, that has not been ticked off from time to time by the work of an auditor. The problem is that each of us has a tendency to believe that we are perfect, and that anyone with the gall to suggest otherwise obviously does not know what they are talking about. Or perhaps they are criticizing us out of irrational hatred or jealousy. Why would they be jealous of us? Because, as noted earlier, we are perfect. Most of us, however, are able to take a deep breath and get beyond those sentiments. Once we do so, it becomes easier to appreciate the way in which the auditors keep us on our toes and help us to do a better job of serving the people. And just as we are not really perfect, auditors are not perfect either. However, their imperfect attempts to do their job are essential to our ability to improve in our imperfect attempts to do our job.

Earlier, we notified each of your governments that the failure to have a public auditor’s office meeting minimal standards would eventually result in a loss of eligibility for OIA technical assistance funds. Today, I would like to start a process where we all work together to flesh out that concept. I would like all of us—finance offices, public auditor’s offices, the USDA Graduate School, Interior’s Inspector General’s Office, OIA—to work together to craft clear, objective and reasonable standards that must be met in order to ensure continued eligibility for technical assistance funds. The objective will be to ensure that public auditor’s offices are protected in their independence and are properly funded and properly staffed with qualified people, starting from the very top. We will work together to establish reasonable time frames and reasonable procedures. We have no desire to cut off technical assistance funds simply because a public auditor’s office is not perfect, or does not meet the “gold standard” in terms of budget and staffing. We simply want to ensure that public auditor’s offices are not allowed to fall so far as to become irrelevant, unable to perform their role in any significant fashion. Sadly, that has occurred in at least some of our jurisdictions, and that is the problem that we must work together to address.

We are about to spend an entire day together, and hopefully I have given us something to talk about. To the extent that our agenda is too crowded to make significant progress on this topic today, let us resolve to carry on this conversation by email and other means as we work toward our objective.

The process that I have proposed today will be an important step in our effort to improve accountability for public funds in the islands. We should be proud of the progress that we have made to date, and continue to be committed to making progress in the future. We will definitely continue to make progress as long as we remember why we are here: To make life better for the people of the islands.

Thank you.

Getting in the Way of Prosperity: The Seven Deadly Sins

Keynote Address by David B. Cohen, Deputy Assistant Secretary of the Interior, Annual Conference of the Island Government Finance Officers’ Association, Honolulu, Hawaii, December 4, 2007.

Thank you for inviting me to speak. As always, it is an honor to be here with you. Ever since I took this job in June 2002, we have been consistent in expressing the top two priorities for the Office of Insular Affairs. Priority 1 is helping the insular areas promote private sector economic development. Priority 1-A is promoting accountability, particularly for the Federal financial assistance that we provide for the islands. Normally, when I speak before this group, I speak about Priority 1-A. There is an obvious relationship between Priority 1-A—promoting accountability—and your jobs as government finance officers. Today I would like to speak about Priority 1, because I believe that there is also an important relationship between your jobs and the urgent need to promote private sector economic development in the islands.

Why have we made private sector economic development Priority 1? The reason is that in most of the insular area economies, there is an unsustainable imbalance between the public and private sectors. In a healthy economy, a strong private sector creates jobs and generates income and wealth, which can be taxed at a reasonable rate to fund essential services for the public. The private sector dominates the economy. In many island economies, this model is turned on its head: The economy is dominated by the public sector. Since the public sector generally is a consumer and not a producer of wealth, this type of economy can only be sustained with outside subsidy. I have referred to these island economies as being “upside down in the middle of the ocean”. These economies will have to get right side up in order to get their heads above water.

Many island economies have evolved in this manner for several reasons. For one thing, island communities—and small island communities in particular—face unique barriers to private sector economic development. These communities tend to have small populations, few resources and remote locations. That means that they are heavily dependent upon transportation systems to bring people and goods to and from their islands, and that transportation is likely to be significantly more expensive than it is in more populated areas. This, in turn, tends to make everything else on the island more expensive. The cost of doing business is therefore high.
Many island communities are subject to destructive weather patterns, and in the salty ocean air, the climate often corrodes what it does not destroy.

There are cultural and historical forces in play here as well. Pacific cultures, for example, are sharing cultures. The philosophy is “what we have today, we share today”. Pacific cultures do not have the selfish gene that triggers the generation of wealth in a free market economy. Sharing is a virtue and selfishness a vice, but enlightened self-interest has proven to a useful tool to enable societies to achieve a comfortable standard of living.

Ironically, the Pacific virtue of sharing, when combined with outside financial assistance, has helped to create the bloated public sectors that we see today in many island communities. The island instinct is to share financial assistance from donors in much the same way that food is shared. Since donors generally do not allow island governments to allocate their aid to people in the form of cash, they tend to allocate the aid in the form of public sector jobs. More aid tends to result in more government jobs. Since the Department of the Interior’s Office of Insular Affairs provides more aid to the Pacific islands than any other U.S. agency by far, we have been, inadvertently, the greatest U.S. contributor to this phenomenon.

The result is not only an oversized public sector, but also a public sector mindset where government jobs are deemed to be provided for the benefit of the recipients rather than for the benefit of the public. The public sector budget is not oriented to provide public service, but rather to provide public jobs. This means that the public as a whole tends not to receive good value for public expenditures, and donors tend to get frustrated when we attempt to measure the performance of our assistance.

In many island communities, outside subsidies and other distortive policies tend to make government jobs significantly higher paying than private sector jobs. This tends to encourage the islands’ best and brightest to aspire to public sector employment and look down on private sector employment. In some islands communities, the overwhelming majority of the indigenous workforce is employed by the local government and the lower-paying private sector jobs are filled almost exclusively by foreigners. These communities become two-tiered societies where a largely unproductive local government workforce is kept afloat by outside subsidies and outside labor. This type of arrangement, besides being economically unsustainable, can create tension within the society and give rise to a sense of dependence and helplessness in the indigenous population.

These problems tend to exacerbate themselves in a vicious cycle. A society that cannot sustain itself without outside subsidy generally cannot afford to invest in education, health, infrastructure and other essential building blocks of a strong and prosperous society. This lack of essential investment tends to weaken the private sector, sending the most talented locals overseas in search of opportunity and making the community more and more dependent on imported labor willing to work for lower wages.

These problems do not exist only in the islands. Small island communities are particularly vulnerable to them, however. These problems can be overcome by intelligent policy, strong leadership and a commitment to good governance. Overcoming these problems requires the development and maintenance of a business climate that enables business to create jobs, to foster prosperity and to assume its natural role as the engine that drives the economy.
That is where all of you come in. All of you are responsible for executing policy, and as any sports fan knows, good execution typically is the difference between success and failure. However, most of you also have sufficient stature within your local governments to have an important influence on the formulation of policy, and not merely its execution. When your respective governments consider reforms designed to improve the business climate, you are likely to be involved in the discussion. You might even be the driving force behind the discussion. With so many things beyond your control, it is all the more important for you as government leaders in small island societies to act with wisdom and political courage to address the things that you can control. Small island societies can successfully transcend their limitations, but there is little room for error.

One of the problems that I have observed with the relationship between the public and private sector in insular area economies is an inability of the public sector to get out of the way. That does not mean that island governments should abandon their duty to regulate business in a reasonable manner. It simply means that in some cases, government actions and failures to act needlessly obstruct economic progress. I have come up with a list of Seven Deadly Sins that could cause island governments needlessly to get in the way of the economic advancement of their own societies.

I will introduce the First Deadly Sin by noting something that most of us love about the islands: the unhurried pace. I remember overhearing a Samoan man and a Mexican man talking to each other about their respective cultures. The Mexican man said, “Mexicans are a hard-working people. New immigrants come to the U.S. and take jobs that Americans won’t take. In successive generations, they work themselves up from the working class to the middle class and beyond. Still, with some of my people some of the time, there’s this culture of ‘mañana’—tomorrow. What needs to get done can wait until tomorrow.”

The Samoan guy said, “Yeah, I think I know what you mean. In the islands, we always say ‘fai fai lemu’.”

The Mexican guy asked: “What’s that?”

The Samoan guy responded: “Well, I think it’s like your ‘mañana’, except without the sense of urgency.”

I remember hearing Willie Kostka, a Pohnpeian who heads a conservation NGO in Micronesia, poke good-natured at his fellow islanders. He said, “Haoles come to the islands and they see young men standing around and they think that islanders are lazy. We’re not lazy. We’re just patient.”

Well, the First Deadly Sin on my list of seven what I will politely call the Sin of Patience. Patience is indeed a virtue, unless one becomes excessively and discourteously patient with other people’s time. In business, time is money, and when government officials fail to act responsively in a timely fashion, it can drive away potential investment. Businesses greatly value a bureaucracy’s ability to process permits and licenses expeditiously and to respond quickly to inquiries and requests.

The Second Deadly Sin is the Sin of Complication. Needlessly complicated, protracted, redundant and even contradictory permitting, licensing and other regulatory procedures discourage the formation and retention of businesses.

The Third Deadly Sin is the Sin of Competitiveness. This sin occurs when the government sees a private company succeeding in a new type of business and decides that jumping into that business would be a good way to support its bloated public payroll. This is likely to result in both the private company and the government ultimately failing at the business. The private company is likely to fail because the government will not compete fairly. The government will fail because governments are notoriously bad at running businesses. The best way for a government to generate revenue from a profitable business is for it to get out of its way and tax it—reasonably.

The Fourth Deadly Sin is the Sin of Opaqueness. Government procedures should be transparent in order to inspire the confidence and full participation of the private sector. If good companies cannot be satisfied that they will be competing on a level playing field, they will stay away and the community will miss out on the capital, technology, know-how and economic activity that good companies can bring to the islands.

The Fifth Deadly Sin is the Sin of Favoritism. Favoritism comes in many varieties, including nepotism, where one favors one’s family; cronyism, where one favors one’s friends; xenophobia, where one favors one’s countrymen, and self-dealing, where one favors oneself. By creating an uneven playing field, it scares away businesses that can bring good things to the islands.

The Sixth Deadly Sin is the Sin of Fickleness. Businesses value consistency more than anything else. There is nothing more frustrating than policies that constantly lurch back and forth, to and fro, with the political wind.

The Seventh Deadly Sin is the Sin of Arbitrariness. Decisions made by government officials should be based upon objective standards applied consistently. Government leaders who retain too much discretionary power are in a position to benefit themselves at the expense of their constituents. It is best not to leave government leaders with too much discretionary power, as it is a strong invitation to abuse.

These sins are committed by government officials all around the world, not merely in the islands. They are certainly committed all across the United States by Republicans and Democrats alike. As I noted earlier, however, small island communities have a very narrow margin of error, and hence it is all the more imperative to avoid these sins. Those who commit the sins of Lust, Gluttony, Greed, Sloth, Wrath, Envy and Pride should seek forgiveness from God. Government officials who commit the sins of Patience, Complication, Competitiveness, Opaqueness, Favoritism, Fickleness and Arbitrariness should seek forgiveness from their own people.We all know that island communities face many challenges. It is important to remember that these challenges can be overcome. They can only be overcome, however, if government leaders do everything in their power to discharge their duties with the highest degree of skill, judgment, integrity and vision. Given everything that is at stake for the people of the islands, to do anything less than that would be a sin.

Thank you.

Guam's Military Expansion Must be Good for Guam and Good for the Neighborhood

Remarks of David B. Cohen, Deputy Assistant Secretary of the Interior for Insular Affairs, Public Policy Institute Distinguished Speaker Series, College of the Marshall Islands, Majuro, Republic of the Marshall Islands, November 30, 2007.

Yokwe. It’s a pleasure to be back in the Marshall Islands. Before I launch into the topic that I was invited here to speak about, I would like to offer a few remarks about the forum itself: the new Public Policy Institute of the College of the Marshall Islands.

To me, the fact that the College of the Marshall Islands has established the Public Policy Institute is a sign of the tremendous progress that this institution has made in a very short period of time. Three short years ago, this college was on the verge of losing its accreditation from the Western Association of Schools and Colleges, which would have almost certainly required it to close its doors. Closing the doors to this college would in turn have closed the door on the future to countless young Marshall Islanders for generations to come, depriving this country of its almost exclusive source of locally trained teachers, nurses and other professionals.
In the Fall of 2004, we convened an emergency task force that included the college, the Government of the Marshall Islands, my office, the good offices of the U.S. Ambassador, the Pacific Post-Secondary Education Council, and others. I personally attended the first meeting of the task force here in Majuro in October 2004, and we helped the College put itself on the road to recovery. A crucial component of that plan was an ambitious capital improvement plan to shore up deficiencies in the Colleges aging campus. The Nitijela approved a plan to provide $3 million annually to support this plan with Compact funds and funds from other sources. I had the pleasure of touring this campus earlier today and must say that I am astounded by the progress that has been made thus far and by the progress that is on the way. I toured the site of the future lab school for elementary and junior high school students here in Uliga who were forced to abandon their decrepit and unsafe former school site. This exciting plan will leverage resources in a manner that will simultaneously improve elementary and post-secondary education in the Marshall Islands.

Another urgent priority for our emergency task force was to find effective leadership for the College. A few months after our initial meeting, the College’s Board of Regents was preparing to offer the job to Wilson Hess, who had very impressive credentials as a college president in Maine. I happened to be in Majuro during Mr. Hess’s first visit to the Marshall Islands. He attended a Chamber of Commerce luncheon at which I spoke. I directed a few remarks to Mr. Hess. I essentially said that Mr. Hess, as a statesider, might soon be asked to consider moving his family thousands of miles away to a remote atoll in the middle of the Pacific. That would be a very difficult decision to make. I pointed out to Mr. Hess that in that room with us on that day were a number of bright, talented former statesiders who had made that very same decision and decided to make these islands their home forever. If I recall correctly, former statesiders in the room on that day included Al Fowler, Jack Niedenthal, Jerry Kramer, Giff Johnson, and many others. And I said to Mr. Hess, that if you want to know what’s so special about these islands that would inspire someone from the states to give up everything on the mainland and make this place their home, ask these people. And he did. And I don’t know what they told him, but whatever it was must have been compelling because he’s been here doing a great job for the past two years.

Three years ago, this College was grasping for a miracle just so it could keep the lights on. Today, with the Public Policy Institute, it has shown that it is no longer focused on merely surviving, but is actively seeking to make a contribution to the intellectual life of the Pacific. I don’t know if my speech tonight will advance that objective, but I believe that it’s inspiring that the College has put itself in the position to host such a program. I am very exciting about all of the wonderful things that this College will be able to do, all of the contributions that it will be able to make to this community, when it finally frees itself of the last vestiges of its academic sanction. I am confident that it will do so in the near future, and thank everyone who played a role in making it happen.

I’ve been invited to the Marshall Islands to speak about something that is planned to occur almost 2,000 miles away from here: the military buildup in Guam. That isn’t so strange when you consider the cultural, political and transportation links between the two Micronesian island communities, which are likely to cause events in Guam to be felt here in the Marshalls. That is especially true given the magnitude of what is planned to happen in Guam.
The title of my remarks tonight is “Guam’s Military Expansion Must be Good for Guam and Good for the Neighborhood.” This is a quote from my boss, Secretary of the Interior Dirk Kempthorne.

The Department of Defense is planning to transfer approximately 8,000 Marines and 9,000 family members from Okinawa to Guam at a cost of more than $10 billion. This cost will be shared between the U.S. Government and the Government of Japan. The existing U.S. Navy and U.S. Air Force bases on Guam will also undergo improvements costing additional billions of dollars.

The Department of the Interior has a great interest in these developments. The Department has two responsibilities that connect us to the realignment of Pacific forces. First, the Department of the Interior is responsible for generally administering the Federal Government’s relationship with the United States territories, and for administering the financial assistance that the U.S. provides to the freely associated states, including the Republic of the Marshall Islands, under the Compacts of Free Association. Second, the Department of the Interior chairs the Interagency Group on Insular Areas, which is tasked with coordinating Federal policy with respect to the U.S. territories.

The Interagency Group on Insular Areas, or “IGIA”, was re-established by President Bush on May 8, 2003 when he signed Executive Order No. 13299. The President designated the Secretary of the Interior as the presiding officer of the IGIA, and the Secretary of the Interior has offered the services of the IGIA to the Department of Defense to help coordinate Federal agency participation in this important base realignment project. In this regard, the IGIA has established a Working Group on Guam Military Expansion to address issues related to the military buildup. In addition to Defense and Interior, the Working Group includes the Departments of State, Agriculture, Health and Human Services, Labor, Justice, Transportation, Housing and Urban Development, Education, Veterans Affairs, Navy, the Small Business Administration, Office of Management and Budget, and others. We view the Guam relocation as a project of the Federal Government, not merely the Department of Defense. We are also working closely with the Government of Guam and Guam’s Delegate to the U.S. House of Representatives, and will be working closely with the leaders of other island communities as well.

The Department of the Navy has established the Joint Guam Program Office, or “JGPO”, to coordinate the planning and implementation of the buildup. JGPO is led by Retired Marine Corps General David Bice, who reports to the Assistant Secretary of the Navy for Installations and Environment, B.J. Penn. I work very closely with General Bice on the interagency coordination effort within the Federal Government and on coordination between the Federal Government and the Government of Guam.

General Bice and I host quarterly meetings of the Interagency Task Force, which was formed specifically to identify and address the impacts of the buildup on Guam. The most recent Interagency Task Force Forum was held last week at the Pentagon, and was attended by a delegation from Guam led by Governor Felix Camacho. The Interagency Task Force includes five subgroups that focus on (1) labor and workforce issues, (2) civilian infrastructure needs, (3) health and human services requirements, (4) the environment, and (5) socio-economic issues. Each of these subgroups has been working hard with the Government of Guam to identify issues that we will need to address in order to the buildup to proceed smoothly, and to develop strategies to address those issues. As we have become immersed in these issues, one thing has become abundantly clear to all of the participants: we all have a great deal of work to do.
I would like to speak in a little more detail on labor and workforce issues, since these issues present a potential opportunity for the people of the Marshall Islands.

The relocation of Marines from Okinawa will require the construction of a new U.S. Marine Corps base and other facilities to accommodate 8,000 Marines and 9,000 family members. It is anticipated that such construction will require 12,000 to 15,000 skilled construction workers. Currently, the number of journeyman construction workers that are labor-eligible on Guam is limited. It is estimated that 75 percent of such workers will have to come from outside of Guam.

Where will these workers come from? The fifty states could in theory provide all of Guam’s labor needs. However, because of Guam’s great distance from Hawaii and the U.S. mainland, we have not counted on being able to rely upon labor from the fifty states. Hawaii is by far the closest state to Guam, and its construction industry has been kept very busy recently. If construction workers in Hawaii can find all the work they need in Hawaii, it would be difficult to entice them to Guam. This is especially true because the pay scale on Guam is generally lower than that in Hawaii and the other U.S. states. It will be interesting to see whether the sub-prime mortgage issues that the U.S. economy has been dealing with lately will significantly dampen the availability of credit for commercial construction projects in Hawaii and the Western U.S., including Las Vegas. If this happens, and we hope that it doesn’t, it could result in a significant downturn in construction activity in the fifty states. This, in turn, could motivate more skilled construction workers from the fifty states to consider opportunities in Guam.

Other potential sources of labor for the Guam buildup exist in nearby Asian and Pacific nations, particularly the Philippines. I’m excluding the Marshall Islands and the other freely associated states here, as I will discuss them in a moment. These Asian and Pacific nations collectively, and in many cases individually, have more than enough skilled construction workers to satisfy all of Guam’s needs. Workers from these nations, however, require H-2B visas in order to work on Guam. H-2B visas allow the importation of temporary workers to the U.S. for temporary jobs, and nationally only 66,000 of them are issued annually. The Guam requirement for construction workers alone is approximately 20 percent of this nationwide cap. Clearly, without a change in the law, our ability to get the needed construction labor from these Asian and Pacific nations—again, excluding the freely associated states—will be very limited.

Well, such a change in the law has indeed been proposed. H.R. 3079, legislation that would federalize the immigration system of the Commonwealth of the Northern Mariana Islands, was recently approved by the U.S. House of Representatives Committee on Natural Resources. The version of the bill reported out of committee would exempt Guam from the national cap on H-2B visas, allowing Guam to bring in all of the construction workers that could be demonstrated to be necessary for the military buildup or other projects. The passage of this legislation in its current form is not yet certain. For one thing, the companion bill in the Senate, S. 1634, does not currently include the H-2B visa cap exemption for Guam. Also, the current CNMI administration is funding a vigorous lobbying effort to defeat H.R. 3079, notwithstanding the fact that it would offer the CNMI and Guam unprecedented flexibility within the U.S. system to bring in the workers, tourists and other visitors necessary to build a strong economy. An earlier lobbying effort by the CNMI government in the late 1990’s and early 2000’s resulted in the House defeating a CNMI immigration federalization bill that had been unanimously passed by the Senate. It should be noted, however, that circumstances are drastically different this time around.

The last potential source of labor that I will discuss is the one of most interest to most of you in my audience today: Citizens of the U.S. territories and the freely associated states, including the Marshall Islands. Although there are many legal and cultural distinctions between citizens of the territories and those of the freely associated states, I will discuss them together for two reasons. First, citizens from both the territories and the freely associated states can travel to and work in Guam without obtaining a visa. Second, the number of skilled construction workers from both the territories—especially the nearby Pacific territories—and the freely associated states is rather limited, giving rise to the challenge to train these potential workers as quickly as possible in order to avail of their access advantage for living and working in Guam.

That access advantage may effectively be erased if H2-B visa caps are lifted for Guam. Opportunities for newly skilled laborers from the freely associated states and territories could also be diminished if a downturn in the U.S. construction industry were to attract a higher-than-expected number of experienced construction workers from the U.S. mainland to Guam. In any event, however, if a significant number of workers from the freely associated states could become qualified for skilled construction jobs in Guam, it would be good for the freely associated states and good for the U.S.

As you know, the Compacts of Free Association allow citizens of the freely associated states to travel to the U.S., including its territories, without a visa and stay indefinitely to work, study or simply live. Guam has always received a significant number of migrants from the freely associated states, although most have been from Chuuk, other parts of the Federated States of Micronesia, and Palau. If you look at a map of the U.S.-affiliated Micronesian islands, the Marshall Islands are situated in the northeast corner, poised like an arrow pointing up at Hawaii and beyond to the U.S. mainland. The Compact migration patterns of the Marshallese have traditionally followed that arrow.

Officials from Hawaii have long complained that Compact migration puts a strain on their local resources for social services, law enforcement and infrastructure. For our part, my office has consistently pointed out that Hawaii receives a great deal of benefit from the Compact, and that many Marshallese migrants are contributing to the dynamism of Hawaii’s economy. Also, millions of dollars are paid each year to Kwajalein landowners for the right to use the U.S. Army base in Kwajalein, and it is logical to assume that a significant share of that money ends up in Hawaii. Still, it is true that Hawaii receives a significant number of migrants from the Marshalls and other freely associated states that may not yet have the skills to be net contributors to the economy. For that reason, my office is committed to provide $600 million over 20 years in “Compact Impact” grants to Hawaii, Guam and other Pacific territories that receive migrants from the freely associated states.

It is important to note that “Compact Impact” grants should not stigmatize communities from the freely associated states as being burdens on the states and territories to which they migrate. Thousands of Marshallese, for example, have migrated to Arkansas and Missouri to work for Tysons and other companies. There has been no outcry from those states that the Federal Government should provide them with “Compact Impact” grants. To be fair to Hawaii and Guam, however, Marshallese travel the great distance to Arkansas or Missouri for one reason only: to work. These Marshallese workers are net economic contributors to the communities in which they live. Most citizens of the freely associated states who migrate to Guam or Hawaii also do so to work, but because of the proximity of these places to the freely associated states, they could also be expected to attract a higher proportion, as compared to the U.S. mainland, of citizens who are not yet ready to be net economic contributors. If we could help some of these migrants and potential migrants to acquire the skills necessary to participate in the Guam military buildup, we would simultaneously be furthering a number of objectives. We would reduce the pressure on Hawaii and Guam to address the needs of migrants who do not yet have the skills to be net economic contributors. We would provide citizens of the freely associated states with skills which could be converted into good jobs, which in turn could take pressure off of the social service budgets of their home countries and the places to which they migrate, and create more income for their home countries in the form of remittances. And, not incidentally, it would help us find the labor necessary to implement the Guam military buildup.

Keep in mind that the job opportunities on Guam will not be limited to those 15,000 or so skilled construction jobs. The needs of Guam’s current population have already overrun the capacity of its civilian infrastructure, which will have to be significantly improved and expanded in connection with the military buildup and the population increase that will come with it. That population increase is estimated to be 35,000 to 40,000 people or more, an increase of over 20 percent, mostly civilians. All of these new people will need places to live, places to shop, places to dine, products and services to buy, roads to travel on, utilities to serve them. All of these needs will give rise to business opportunities and job opportunities. These people will also need places to visit for a change of pace, and many nearby island communities will be waiting to fill that need. Majuro is only a four-hour direct flight from Guam.

In order for the Marshall Islands and other island communities to be able to take advantage of this potential increase in tourism, they will have to make the commitment to make their islands pleasant destinations for tourists. Natural beauty is not enough. Tourists today expect good service, good amenities, good logistics, good infrastructure and an overall pleasant experience. In order to achieve all of this, the private sector, not bureaucrats, will have to take the lead. However, the private sector must be supported from the highest levels of government, which must be absolutely commit itself to provide a business climate that will enable the private sector to effectively develop the tourist economy. I have said in the past that Pacific economies are “upside down in the middle of the ocean,” with bloated governments suffocating the private sector rather than strong private sectors leading economic growth. For Pacific economies seeking to capitalize upon opportunities in the region, this model simply won’t do.

A number of citizens of the Marshall Islands and other freely associated states already have the skills to participate in the economic activity that is expected to be generated on Guam or otherwise from Guam, including tourism opportunities. Many more, however, will need to be trained. Clyde Bishop, U.S. Ambassador to the Marshall Islands, has stressed the need for this type of training. We don’t have much time, however. The construction required for the location of Marines is scheduled to start in 2010 and finish in 2014. Since it typically takes an apprenticeship of three to five years to qualify as a journeyman in one of the construction crafts, the time available to train people from scratch is extremely limited. Keep in mind, however, that Guam’s economy will generate opportunities other than those for journeyman construction workers, and there should be plenty of opportunity left over after the people of Guam have been properly taken care of. And in any event, training for the citizens of the freely associated states will be beneficial to the freely associated states and to the U.S. regardless of whether that training is ultimately put to use in Guam, in Hawaii, on the U.S. mainland or back at home.
We’ve been contemplating these issues in Washington, in consultation with our colleagues from the islands. We’re looking at training programs that could be implemented in Guam, the Northern Mariana Islands, Hawaii and the freely associated states. We’re discussing eight-week boot camps that could provide some training for unskilled labor. We’re discussing apprenticeship programs. We’re looking at how the private sector can help. We’re discussing the existing capabilities of the community colleges in the region, and how we can help to expand those capabilities. We’re looking at possible Federal funding sources, although the Federal Government cannot do this alone. The U.S. Departments of Labor and Education are looking at their resources, and my office will almost certainly assist the training effort with technical assistance grants. We can also use funding provided under the Compacts of Free Association, provided that the governments of the Marshall Islands and the Federated States of Micronesia believe, as I hope they do believe, that this is a high enough priority.

We’re still in the process of figuring out who can bring what to the table, and it will take a great deal of communication between the Federal Government and the islands in order to get this right. The colleges are our natural partners in this endeavor, and we need your help to figure out how we can leverage our resources with your resources, expertise and commitment in order to get the most out of our efforts. Those of our partners who are willing to bring the most to the table are likely to get the most out of it, and the people of the islands will benefit.

In June, I had the pleasure of accompanying my boss, Secretary of the Interior Dirk Kempthorne, on a tour of the U.S.-affiliated Pacific islands. Assistant Secretary of the Navy B.J. Penn was with us as well. Our tour included stops in Kwajalein, Ebeye, and here in Majuro. Everywhere we went, people wanted to know about the Guam military buildup. And everywhere we went, Secretary Kempthorne stressed the need to ensure that Guam’s military buildup is “good for Guam and good for the neighborhood.” To remove any doubt, the “neighborhood”, as Secretary Kempthorne envisions it, includes the entire U.S.-affiliated Pacific, and certainly the Marshall Islands. If the project is planned and implemented properly, Secretary Kempthorne’s vision will indeed come to pass, and the military expansion on Guam will be good for this entire neighborhood.

In order for us to realize this positive scenario, we will have to do our homework. We will have to identify critical path items and potential bottlenecks, and find ways to ensure that we address our challenges in a timely fashion. We don’t have all of the answers yet, but we have begun in earnest the task of identifying issues and developing solutions. This effort will take a great deal of collaboration among the Federal Government, the Government of Guam, the people of Guam, the private sector and peoples of the islands, including the Marshall Islands and the other freely associated states. With its central role in providing support to the islands, the Department of the Interior is prepared to do its part to make sure that this massive endeavor is good for Guam, good for the neighborhood, and good for the United States of America.

Kommol tata.

Unlocking the Value of Real Estate in Micronesia

Keynote Speech of David B. Cohen, Deputy Assistant Secretary of the Interior for Insular Affairs, Fourth Micronesia Real Estate Investment Conference, Guam, September 28, 2007.

Hafa Adai, ladies and gentlemen. Thank you for inviting me to be here with you today. I believe that most of you are familiar with the U.S. Department of the Interior’s role in Micronesia and in other island communities. For those of you who don’t know, the Secretary of the Interior generally administers the U.S. Government’s relationship with its territories, specifically Guam, American Samoa, the U.S. Virgin Islands and the Commonwealth of the Northern Mariana Islands. He also administers the financial assistance we provide to the nations in free association with the U.S., namely the Marshall Islands, the Federated States of Micronesia and Palau, under the Compacts of Free Association. Those duties are delegated to me and my staff in the Office of Insular Affairs. OIA has an annual budget of $430 million, most of which is provided to the Pacific in the form of grants. Five of the seven jurisdictions that we are responsible for are in Micronesia.

Our top priority for the islands is private sector economic development, and the showcase event for our efforts in that regard this year will be our fourth Conference on Business Opportunities in the Islands, which will be held right here on Guam on October 8 and 9. I hope to see all of you at our Conference, which will be held at the Hyatt Regency. The Conference will offer an excellent opportunity to learn about business opportunities throughout the U.S. insular areas, including but not limited to those related to the Guam military buildup. It will also offer an excellent opportunity to meet the people you need to meet, in both government and the private sector, to pursue those opportunities.

The theme of my talk is “Unlocking the Value of Real Estate in Micronesia”. We’re all aware of exciting developments here on Guam. I’ll touch on those, but I also want to talk about the rest of the region. In most parts of Micronesia, unlocking the value of real estate will require reform of policies relating to real property. As we will discuss, some of these policies are deeply rooted in culture, and we must all respect the fact that it will be for the indigenous people of Micronesia to decide how best to harmonize their economic aspirations with their respect and reverence for their own culture. We can point out the economic costs and benefits of those policy choices, but we must respect that those policy choices are for the people of the Micronesian region to make.
Let’s start our tour of Micronesia here in Guam. We all know about the planned relocation of 8,000 U.S. Marines and 9,000 of their dependents from Okinawa to Guam. The cost of the relocation will exceed $10 billion, and will include the construction of a new military base. The existing military facilities on Guam, including Naval Base Guam and Andersen Air Force Base, will require complementary upgrades that will cost in the billions of dollars. One of the upshots of all of this is that the total population of Guam is likely to increase by over 35,000, or more than 20 percent. Some will come because they were ordered to come, but many will come voluntarily because of the economic opportunities that will be generated by the buildup. Most of these new people will be civilians. These people will need places to live, places to shop, places to dine. They will need utility service, and places to dispose of all of the solid waste that they will generate. All of this will have important implications for the real estate market on Guam. Demand for real property will increase significantly, and the last time I checked, the supply of real property on Guam has not increased. We can therefore expect significant upward pressure on real property values, some of which is likely already reflected in the market in anticipation of events to come.The other major driver of Guam’s economy is tourism, and much of the recent real estate activity on Guam has been driven by tourism. Japan’s Ken Corp., in particular, has been very active, with its recent $73 million purchase of the Hilton Guam Resort and Spa adding to an impressive stable that now includes the Hyatt Regency Guam, the Pacific Islands Club, the Sheraton Laguna Resort, the Santa Fe and the Country Club of the Pacific. All of these acquisitions have occurred since May 2005. Ken Corp. and/or its affiliates reportedly now own over 40 percent of the major oceanfront hotel rooms in Guam. This is a clearly a vote of confidence in Guam’s future, a display of optimism that may becontagious. With so much of Guam’s tourism infrastructure under its control, Ken Corp. now has the ability to significantly redefine Guam’s image in the eyes of the international traveling public. It has the incentive, and has shown the inclination, to move Guam’s tourism industry up-market. It has the ability to market Guam’s new image in Asia, and this should benefit not only Ken Corp. but its competitors in Guam as well. The pressure on room rates in Guam is now upward, not downward. Ken Corp. has a network of well-heeled potential travelers from its properties in Japan, which are largely high-end residences for ex pats. If Ken Corp. has the ability to convince a significant number of these ex pats to vacation in Guam, it will be good for Ken Corp. and good for Guam.

The Northern Mariana Islands, as we all know, is currently suffering through difficult economic times. The tourism market is still recovering from the cessation of scheduled service from Japan Airlines in 2005. That decision was implemented just four months after the visit of the Emperor and Empress of Japan to Saipan brought the natural beauty of that island to millions of Japanese television sets, providing what would have been, under other circumstances, a tremendous marketing boost to Saipan in its efforts to attract Japanese tourists. Instead, the JAL pullout resulted in a sharp drop in tourism and left the Hotel Nikko, owned by a JAL affiliate, in a state of limbo. The hotel, which is in need of renovation, is reportedly offering deep discounts to Japanese tour operators. This in turn is putting downward pressure on room rates in Saipan.
We see, however, some parties making significant real estate bets on the CNMI’s future. At least one of these parties has the ability to influence whether its bet will pay off, and that’s good news for the CNMI. KUMHO Asiana is seeking a 40-year lease so that it can operate the Lao Lao Bay Golf Resort on Saipan, and reportedly plans to develop a resort next to the golf course. This investment cannot succeed without a steady flow of tourists to the CNMI. Fortunately for KUMHO Asiana, it owns an airline. Its airline, Asiana Airlines, has recently stepped up service between Korea and Saipan. The Saipan World Resort is also now in Korean hands, and recently underwent a major renovation that included the addition of a large water park. The Korean bet on Saipan, backed up with the ability to bring more tourists there, is an important source of hope for the CNMI’s future.

There is a great deal of hope in Palau. Tomorrow, I travel to Palau to dedicate the Compact Road, which was funded by my office for approximately $150 million. The road will open up Babeldaob, which is Palau’s largest island the second largest island in Micronesia after Guam, to significant economic development for the first time. Palau recently moved its capital to Babeldaob. The new capital complex in Melekeok sits high atop a hill overlooking the ocean. Even with the new Compact Road, it is a significant commute from the population center in Koror. It is clear that they are going to have to develop a new community near the new capital complex. Everything I just said about the expected new residents of Guam applies equally to the people who will need to live near the new capital of Palau. They’re going to need places to live. They’re going to need places to shop. They’re going to need places to dine. They’re going to need utilities. The Compact Road will also open up tourism development opportunities that never existed before.

In fact, the entire region has something to look forward to as Guam prepares to welcome tens of thousands of new residents. As beautiful as Guam is, these new residents are likely going to want to get off the island every now and then. As Guam becomes more fast-paced and urban, places like Yap, Chuuk, Pohnpei, Kosrae and the Marshall Islands could provide Guam’s new residents with an opportunity to relax in an environment of pristine natural beauty. Since Guam serves as the air transportation hub for the region, all of these places, in addition to Palau and the CNMI, are readily accessible from Guam. There is now a greater potential for resort development in these areas.

That’s pretty much the backdrop. But before you go rushing out to make real estate investments throughout Micronesia, you might want to listen to the rest of my speech. I don’t intend to discourage anyone from investing in Micronesia; quite the contrary. But it is important for investors to have a strong idea of the issues that must be addressed in order to invest successfully in the region.

The first thing you need to know about investing in land in Micronesia is that there isn’t much of it. The name “Micronesia”, as many of you know, is derived from the Greek words for “small islands”. If you add up all of the land area of Guam, the CNMI, Palau, the Marshall Islands and all four states of the Federated States of Micronesia, you end up with a grand total of 910 square miles. That’s significantly smaller than Rhode Island, the smallest State in the Union, which weighs in at a relatively hefty 1214 square miles. We’re standing on the largest piece of real estate in all of Micronesia, the island of Guam.

The second thing you need to know about investing in real estate in Micronesia is that there is a strong cultural underpinning to all matters affecting land. Land is sacred throughout Micronesia, as it is throughout the Pacific islands. In Micronesia, one’s identity is deeply tied to one’s land. With its ability to produce food and medicine, land is seen as a source of life. This is why the idea of losing one’s land carries a deep sense of emotional loss that is akin to the loss of life. Micronesian culture, like other island cultures, emphasizes sharing. Land is therefore generally held communally, passed down from generation to generation by blood ties and administered by traditional leaders in accordance with the culture.

Generally, in Micronesian cultures, the concept of alienating one’s land to aliens is, well, alien. In most places outside of Guam, it is not possible for non-indigenous people to own real property. In the Northern Mariana Islands, for example, Article 12 of the CNMI Constitution restricts the acquisition of permanent and long-term interests in real property in the Commonwealth to persons of Northern Marianas descent. In 2011, persons of Northern Marianas descent—that is, the indigenous Chamorros and Carolinians of the CNMI—will have the opportunity to vote on whether this policy should be retained, abolished or perhaps modified. In the meantime, non-locals can acquire leasehold interests in real property for terms of up to 55 years.

Throughout Micronesia, with the exception of Guam, real estate investment by off-islanders is generally done through long-term leasehold arrangements. The basic limit on lease terms varies from jurisdiction to jurisdiction. In general, however, to state the obvious, restrictions on alienation affect the risk profiles and economics of real estate transactions throughout Micronesia. Restrictions on alienation tend to discourage investment by limiting the time horizon in which the investor can get a proper return on an investment, by limiting options for financing and by limiting exit strategy options. Restrictions on alienation also reduce the ability of indigenous landowners to realize the full economic value of their real property, by limiting the market in which a landowner can sell real property interests and reducing demand of outsiders for real estate investment. This is not to say that alienation restrictions are bad policy, particularly in light of the cultural reasons for having them. This is merely to point out that alienation restrictions have an economic cost and tend to dampen—not eliminate, but dampen—real estate investment activity. Real estate investors understand that no environment is perfect, and are adept at figuring out how to make an investment worthwhile notwithstanding particular challenges that may exist in any particular jurisdiction.

In addition to the maximum term of the lease, there are a number of other things that an outside investor would want to know before making a real estate investment in most parts of Micronesia: What happens to the improvements after the lease expires? Are there reliable ways of ensuring that the lessor has clear title to the property? Are there strong regulatory and judicial institutions that can be relied upon enforce rights to the property, if necessary? Can financing be obtained on the security of a leasehold interest in real property? Are there procedures in place that would give lenders the comfort they need to provide financing, including the ability to foreclose upon and alienate real property interests in an event of default? Are there reliable institutions to enforce the rights of lenders? Are there foreign investment laws or other laws that impact what types of investment that outsiders can make, and how they should to structure those investments? Can outsiders do business directly, or do they need local partners? How do real estate restrictions affect the range of exit strategies?

The answers to these important questions vary from jurisdiction to jurisdiction. Indeed, in addition to differences among the CNMI, Palau, the Marshall Islands and FSM on matters of real property law, each of the four states of the FSM—Pohnpei, Chuuk, Yap and Kosrae—establishes its own real property laws and there is significant variance from state to state. I won’t attempt to answer all of these questions for each jurisdiction now, but you can obtain helpful information from our website (www.doi.gov/oia), from the Asian Development Bank and from the jurisdictions themselves. The most important form of due diligence, however, is to consult with banks, attorneys and other professionals who are actually operating in these jurisdictions. They are the ones that can give you the best idea of how the legal and institutional framework really works in practice, and whether there are tried and tested workarounds that can be used to address particular challenges.

Throughout Micronesia, policymakers are taking a fresh look at real property laws. A parade of consultants, including some funded by my office, has advised them on the economic costs of their current policies, and suggested ways in which Micronesian societies might better unlock the economic value of their precious land in ways that are consistent with their culture. Thus, throughout Micronesia, legislators have recently considered and in many cases adopted proposals to increase maximum lease terms, to establish or strengthen land registration systems, to expand the ability of outsiders to invest in land and to strengthen the institutional framework in ways that would encourage financing and investment. For many of these policymakers, land issues trigger deep-seated concerns that are difficult for outsiders to fully understand.

One of the concerns that we hear expressed over and over again is that “We don’t want to become another Waikiki.” The first reaction of some outsiders might be to laugh and respond that “There’s no danger that you will ever become another Waikiki.” But if one takes the time to understand what a Pacific Islander means when he says this, one can appreciate and respect the concern. When people throughout the Pacific say that they don’t want their island to become another Waikiki, they’re not necessarily suggesting that their island is about to be overrun by several million tourists from around the world each year. Pacific Islanders look at the Waikiki experience through the perspective of the Native Hawaiians, and see it as a symbol—rightly or wrongly—of the loss of one’s land, the loss of one’s culture, the loss of one’s language, the loss of one’s identity; of making outsiders rich at the expense of the indigenous people. Reasonable people can debate whether this is best way to interpret the history of Waikiki’s development, but it is certainly an impression that is widely held and deeply felt throughout the Pacific. Outside investors should be respectful of these concerns and the culture that underlies them, and should be prepared to address these concerns.

Policies affecting real estate investment in Micronesia are in a period of flux. Some places in Micronesia have policies and environments that are less than ideal for real estate investors, but that would not necessarily preclude a successful venture if one goes in with a full knowledge of the circumstances and a clear sense of how to work around imperfections in the system. Could policy reform relating to land issues bring more prosperity to Micronesia, and more opportunity for outside investors? Undoubtedly, but it is up to each society and each culture to strike the balance that it chooses to strike between culture and prosperity, or to find the best way to harmonize the two.

Micronesians understand that change is necessary. No culture is cast in stone. Christianity, for example, was alien to the Pacific until the 19th Century; today, it is a fundamental part of most Pacific cultures. We should always remember, however, that a culture exists to serve the needs of the people, not the other way around. A culture that does not adapt to the changing needs of the people becomes irrelevant over time, leaving the people with the choice of abandoning their culture or following it into irrelevance. People therefore do tend to adapt and evolve their cultures over time, but at a pace and in a manner of their own choosing. How much of the value of real estate in Micronesia will be unlocked in the foreseeable future will be determined by Micronesians themselves, and that is as it should be. Even today, there are plenty of excellent real estate opportunities in Micronesia beyond Guam. Even though the value of real estate in Micronesia is not, to again follow the theme of my remarks, completely unlocked, astute investors can still find ways to open the door in ways that will benefit themselves and benefit Micronesia.

Si Yu’us Ma’ase.