Monday, October 16, 2017

[Column] Just how bad is it?

By on July 19, 2017

Isn’t it an exaggeration to say Puerto Rico is in the worst crisis of its history?

How about San Ciriaco? The August 8, 1899, hurricane that killed 3,000 Puerto Ricans, killed the economy, wiping out the coffee farms.

Or San Felipe on September 28, 1928, half a million Puerto Ricans left destitute, in danger of starvation?

Or 1942, when Nazi submarines in the Caribbean virtually cut off shipping to and from Puerto Rico, Gov. Rexford Tugwell warning President Roosevelt that the island was running out of food?

Or 1973, when a war in the far-off Middle East collapsed the island’s multibillion-dollar petrochemical industry and nearly collapsed government finances.

Okay, in our 524-year history, there have been many crises.

But let’s take a close look at this one.

First, in each one of these crises, there was the expectation of recovery. When the economy was agricultural, the land recovers. World War II had to end some day. And in the 1973 crisis Puerto Rico was confident that it was a temporary interruption in two decades of economic growth.

Gov. Alejandro García Padilla and Resident Commissioner Pedro Pierluisi (File)

When Gov. Alejandro García Padilla and Resident Commissioner Pedro Pierluisi, from opposing political parties, went to Congress in 2016 to create PROMESA, which established the Financial Oversight and Management Board for Puerto Rico, it was an urgent, if not panicky, confession that Puerto Rico has reached a dead end.

It had to stop the bleeding.

That is what the Board and the administration of Gov. Ricardo Rosselló are doing: cutting costs and raising revenue to balance the budget in two years.

Of course, you can’t recover unless you stop the bleeding. But stopping the bleeding will not itself recover the economy.

So the fundamental question is: How will Puerto Rico recover?

And a chilling reality, I think, is that no one knows.

Let’s look carefully at the projections being made by the island government and the Board.

Puerto Rico’s economy has been declining for 10 years. For fiscal year 2017, it is estimated that it declined by about 2 percent. The government and the Board are projecting it will get worse, a lot worse: a decline of 4 percent in 2018 and of  3.4 percent in 2019.

In other words, the economy will decline in these three years, 2017-19, twice as much as it did in the past six recession years.

But even worse, the government and the Board are projecting that the decline will not end until fiscal 2024. Six more years of recession.

And then it is projecting an increase in 2024 of 0.1 percent. That’s right, 0.1 percent. Then 0.5 percent in 2025: 1.0 percent in 2026.

This is worth repeating. The government and Board are saying that in their projection up to 2026, there will be virtually no economic growth.

Veteran economist and University of Puerto Rico Prof. Elías Gutiérrez wrote in a recent column that it all boils down to “an insufficiency of capital…to sustain the standard of living and the levels of consumption” Puerto Ricans are accustomed to and expect.

Puerto Rico needs an enormous amount of capital to revive economic growth.

But where will it come from? Obviously it’s no longer possible to bleed the bankrupt island government. A massive increase in U.S. federal funds, that is, a federal “bailout,” is a pipedream. In any case, we know that federal funds, about $7 billion a year, as vital as they are, do not themselves produce growth but more dependence.

And the government will regain its credit and be able to borrow again only when economic growth is revived.

So where will this enormous capital come from?

To underline the word “enormous” let’s look at one more statistic.

When the crisis began in 2007, there were 1,232,000 jobs. In fiscal 2016, there were 895,200.

Recovery means at the very least recovering the 336,800 jobs lost. But it really means much more. How many more jobs will be lost before the projected end of the recession? In fact, how many jobs were not created in the 17 years of economic decline?

So, how bad is it?

There are two fundamental differences between this and past crises.

In the past, when the island was devastated by hurricanes, the vast majority of Puerto Ricans knew nothing but extreme poverty. Today, as Gutiérrez points out, Puerto Ricans are used to, expect, its high standard of living and level of consumption.

Losing it will be painful, traumatic, in a way never before experienced in Puerto Rico.

The other difference is that our crisis is not the result of the destructive violence of Nature, or of the violence of war.

Puerto Rico knows, and if it doesn’t, it should, that this is indeed the worse crisis because, one, we did it to ourselves.

As Gutiérrez points out: “We are determined to play the role of victims. We seek culprits even under the stones. We do not face the consequences of our irresponsibility.”

And two, because having ruined the economy through bad policies, bad decisions, bad government, no one knows how Puerto Rico will recover.

No one knows how we will revive economic growth.

No, it is not an exaggeration.

– A.W. Maldonado is a former reporter and columnist for the San Juan Star, executive editor of El Mundo, and editor and publisher of El Reportero.

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