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12 23Wed09242014

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NKorea threat may increase military funding

THE estimated $85.4 billion in federal budget cuts this fiscal year translates to about an $85 million drop in cash flow for Guam, but the slash in civilian allocations is likely to be offset by a possible increase in military spending prompted by North Korea’s threats, Bank of Guam Chief Economist Joseph Bradley said yesterday.

Outside of the federal spending factor, Bradley said, Guam’s economy is generally looking upbeat.

“Although the defense budget will experience similar cuts nationally, what will happen here is indeterminate,” Bradley said during his economic update presentation at the Bank of Guam-sponsored forum at the Hilton Resort and Spa.

“Since the Department of Defense is planning to reallocate its expenditures in our favor anyway, it may offset civilian cuts,” he added.

Bradley said he initially predicted similar cuts in military spending for Guam, “but I suspect that [North Korean leader] Kim Jong Un has changed all of that.”

“I think an inflow of military construction, followed by personnel and activities, has a better chance [now] than just a few weeks ago,” he said.

THAAD

The Pentagon is deploying the Terminal High Altitude Area Defense missile system in response to North Korea’s threat to launch a ballistic missile attack against U.S. military targets in the region, including Guam.

KDBC 4, a TV station in El Paso, reported last week that 56 of the 100 Army soldiers attached to the THAAD system who are scheduled to be deployed to Guam have already landed on-island.

“The Terminal High Altitude Area Defense system will bring additional military spending along with it,” Bradley said.

Military construction

Last week, President Barack Obama sent Congress a $3.8 trillion budget proposal for fiscal year 2014, with Guam getting some $768 million worth of military construction and civilian infrastructure funding.

“Of particular importance to Guam are significant investments in funding to develop Guam as a strategic hub in the Asia-Pacific region with almost $500 million in military construction funding,” according to Guam Delegate Madeleine Z. Bordallo.

Despite North Korea’s threat that prompted the THAAD deployment, however, military officials gave no assurance that the Marines’ relocation from Okinawa to Guam will be accelerated anytime soon.

During the House Armed Services Committee hearing on the U.S. Navy and the U.S. Marine Corps’ 2014 budget earlier this week, Gen. James Amos, commandant of the U.S. Marine Corps, said the impact of sequestration that set in on March 1 “is going to slow down military construction money.”

At yesterday’s economic update forum, however, Bradley expressed confidence the Defense Department will make a push for a sustained budget for Guam. “I think that DOD will use the North Korean threats as justification for expanding military activities here sooner rather than later, and not just for the Marines,” he said.

Extremely well

Bradley said the $85 million cut in federal civilian spending on Guam accounts for about 2 percent of the island’s gross domestic product, or about 3 percent with the spending multiplier.

“Similar impacts of 2.5 percent and 3.75 percent can be expected in the following years, but it is likely that other changes in the economy will mask that,” he said.

Despite the reduced federal cash flow, Bradley said overall local activity indicates Guam’s economy is recovering with figures looking upbeat, specifically in tourism “which did extremely well last year, reaching the highest level since 1997.”

Guam’s 1.31 million visitors last year increased 12.8 percent from 2011. While it may not be a very good year, Bradley noted a 9.2 percent increase from 2010.

“We are still on a roll, with first quarter visitors this year 5.7 percent higher than in 2012, and 14.2 percent higher than 2011. We have seen our visitor numbers trend higher over the past couple of years,” he said.

Japan’s massive expansionary monetary policy that drives the value of the yen “to levels not seen in many years” will work in Guam’s favor. Despite the higher value of the dollar, Bradley said Japan’s economic stability will facilitate Japanese tourists’ comfortable spending when they travel to Guam.

Bradley also cited other indicators of Guam’s economic recovery, including an increase in bank deposits by 13.8 percent or $2.4 billion in two years, as well an increase in loans by 9.7 percent or $3 billion during the same period.

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