Citing the collapse of the local garment industry, Moody’s Investors Service Monday downgraded Northern Mariana Islands general obligation bonds to B2 from Ba3.

The Pacific commonwealth is located about 100 miles north of Guam and a three-hour flight from Tokyo.

For many years, the commonwealth had a much lower minimum-wage rate than the United States, spurring development of the garment industry, which was allowed to label its products “Made in USA.”

In 2007, Moody’s said, the U.S. federalized its immigration and minimum wage policies for the Northern Marianas, requiring foreigners to comply with full U.S. visa regulations and raising the minimum wage to the federal level.

The result, according to Moody’s, has been the demise of the garment industry, with the last manufacturer closing in March.

In 2004, 57% of the commonwealth’s population of 70,500 was foreign contract workers, but by 2007 the population had declined 16% as contract workers departed, Moody’s said, resulting in related drops to sales and excise tax revenues.

The only other substantial private industry is tourism, a sector that is also showing weakness that is expected to persist as tougher visa regulations are expected to deter visitors.

The commonwealth also has a long history of deficit budgeting and a substantial unfunded pension liability, according to the rating agency.

The Northern Marianas has roughly $109 million of GOs outstanding, of which $2.6 million is rated by Moody’s.

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