Sunday, December 25, 2016

Guam's debt risk may guide the island's destiny

The Fitch Rating bond downgrade is getting dismissed by Guam officials as inconsequential. But its warning, detailed in the Pacific Daily News report, ought to give pause.

Fitch is saying that Guam has a "sizable outstanding debt obligations" primarily for one of its pension plans. The problem, says Fitch, is the island has "limited gap closing capacity and would likely experience fiscal distress in a moderate downturn," the PDN reported.

This means a recession may bring serious financial problems to Guam.

Guam's tourism economy is very susceptible to regional economies. The island saw nearly 1.4 million visitors through November, an increase of 9.1%, according to the Guam Visitors Bureau data. But any slowdown in the economies of Korea, which accounts for 39 percent of visitors, or Japan at 48 percent, is going to hurt.

Then there is President-elect Donald Trump's administration, a wild card if there ever was one. The implications of the Trump administration on geopolitical stability, the economy and military are all unknowns.

Guam sees China as a big tourism hope. There were only 1,377 visitors from China who arrived in November out of 126,000 overall visitors to the island that month. But expectations are that China may one day become as important as South Korea, which was responsible for nearly 49,000 visitors last month.

The larger risk for Guam, however, is increasing dependency on the U.S.

Worries about debt may help drive support for expanded military presence on the island. Buildup opponents oppose may find themselves fighting those with concerns about Gov Guam's pension funds and budget.

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