A bad deal for Puerto Rico
THE IMPOSITION of a fiscal control board on Puerto Rico last year raised hopes that the island’s tattered economy might be headed for a turnaround. The Commonwealth carried an unfathomable $70 billion debt load, sparking a recession that had sent residents fleeing to the mainland and pushing the island into the beginning of an economic death spiral. Puerto Rico needed — and still needs — a strategy to bounce back.
So far, though, the board has essentially said to Puerto Ricans: Winter is coming, brace yourselves. The board recently put forward its fiscal plan with severe austerity measures that “would turn the island’s recession into a depression, of a magnitude seldom seen around the world,” according to Joseph Stiglitz, a Nobel economics laureate. The board wants the Puerto Rican government to cut about $7.6 billion in government spending over the next two fiscal years, including $1 billion in health care services, $300 million from the public university budget, and $350 million in municipal aid. These cuts would mean that the island’s gross national product will plunge about 16 percent in the next fiscal year.
The Puerto Rican government clearly needs streamlining. But what is so perplexing about the board’s plan is that the members paid little attention to measures that might eventually lead to sustainable economic growth.
“The board is saying, ‘you’ll cut your way out,’ but that’s not economically feasible. They’re not putting on the table any sort of credible proposals for significant economic development for the island,” said Deepak Lamba-Nieves, research director at the Center for a New Economy in San Juan. “You can’t borrow your way out of a crisis, either. But austerity is not the key to growth. With a huge debt burden, we need an injection of capital akin to a Marshall Plan for Puerto Rico. Without capital, it’s going to be very hard to grow.”
He is right. Puerto Rico has lost more than 9 percent of its population in the last decade. Nearly 100,000 boricuas left for the mainland in 2015 alone. About 60 percent of children there live in poverty. The island’s unemployment rate, at 12.4 percent, is more than twice as high as the US average. All of these indicators will undoubtedly worsen if the board doesn’t make growth a priority. “We got into this mess primarily because our economy doesn’t grow,” added Lamba-Nieves. “We’re putting out a big fire right now. [The federal intervention program] was designed to tend to the fiscal fire. But the basic foundation of the building is still compromised.”
If it were a state, Puerto Rico’s hands wouldn’t be tied. For years, its economy — bound by different rules and laws — was left to stagnate. But what happens in Puerto Rico doesn’t stay in Puerto Rico. American taxpayers are at risk as well. An economic depression on the island and an even higher unemployment rate will only trigger more migration to the mainland. Austerity for the sake of austerity is a misguided economic policy. The board should put forward a more comprehensive plan that includes ways to activate Puerto Rico’s economy, not just ways to pay its bondholders.