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S&P500
2397.57
+33.93
+1.44%
NASDAQ
5902.31
+76.87
+1.32%
NYSE
11651.978
+139.588
+1.2125%
GOOG
834.66
+11.45
+1.39%
YHOO
46.24
+0.58
+1.27%
AAPL
139.965
+2.975
+2.172%
AMZN
852.81
+7.77
+0.92%
FB
136.94
+1.4
+1.03%
BPOP
44.915
+0.855
+1.941%
EVTC
17.45
+0.6
+3.56%
OFG
13.35
+0.45
+3.49%
FBP
6.525
+0.145
+2.273%
GTS
19.02
+0.35
+1.87%

Puerto Rico: Brewing the Best Recipe for Disaster Since 1898

By on August 11, 2016

BY ALEXANDRA LÚGARO

For 118 years, the best recipe for disaster has been brewed in Puerto Rico. Over the course of time, chefs from multiple backgrounds and sectors have all contributed greatly to enhance the already internationally renowned concoction. Even though the exact origin of the recipe remains a mystery, many point to the colonial status of the unincorporated territory of the United States as its sole creator. However, history has proven that highly inefficient local governments, incompetent agency secretaries, intransigent labor unions, self-centered associations, greedy hedge-fund owners, non-innovative entrepreneurs and millions of uninformed voters have all contributed to the formula.

Image for CB 1st columnFor nearly a century, the United States government has been a key player in the development of the mix, supplying one of its main ingredients, the Jones Act. This law, which forces all shipping to and from U.S. ports to be conducted with U.S. vessels and crews, has diminished Puerto Rico’s ability to compete in global markets by raising its import costs disproportionately, making them at least twice as high as in neighboring islands. Since 1920, this outdated additive has cost Puerto Rico nearly $78.5 billion, an amount that exceeds its public debt.

Federal intervention, however, has not been limited to adding elements to the blend. Over the years, Congress has made the disaster more bitter by extracting major seasonings like Section 936 of the U.S. Tax Code, which granted generous tax incentives to U.S. corporations operating in Puerto Rico, marking the beginning of a deep recession, which has lasted until today.

More recently, they established statutory funding caps and limits on maximum spending for health and human services on the island, even though Puerto Rican residents pay the same Social Security and Medicare rates as U.S. mainland residents and its government must comply with all federal healthcare regulations. This has led Puerto Rico’s Medicaid program to receive a reimbursement rate that is 70% lower than that of any state, and its Medicare Advantage program to be paid 60% of the average rate. Due to this ruinous underfunding, the Puerto Rican government ended up having to foot the bill, which accounts for $25 billion of the island’s debt total. On top of that, the massive disparities in Medicare and Medicaid reimbursement rates have triggered the exodus of over 3,000 doctors and thousands of other healthcare professionals during the past five years, placing Puerto Rico’s healthcare system on the verge of collapse.

There is no doubt, however, that Puerto Rico’s 64-year-old bipartisan political administrations are the ones who have mainly enriched the disaster with budget deficits, systemic corruption, public policy improvisation, a patronage system and private political-campaign financing that is later paid with unnecessary contracts to unqualified people.

Today, the most expensive brew for disaster is comprised of $70 billion of public debt, piling defaults, decades of recession, a debt-to-GDP ratio of 70%, vastly underfunded pension plans, 11.4% unemployment rate, 45% poverty rate, a failing public education system, dependence on oil for electricity generation, a counterproductive welfare system that has led to a 40.5% labor-force participation rate, the highest sales tax of any U.S. state or territory at 11.5%, concentrated production in industries of declining demand, poor export market positioning, a deteriorated healthcare system, low investment in research and development, an aging population, a zika virus outbreak and massive emigration.

Grown tired of having this distasteful brew as its three daily meals, Puerto Ricans have been trying for decades to switch the recipe to one of success. However, they have been trying to do so by adding new ingredients to the existing disaster or by taking out some of its most insipid elements, completely ignoring that the mixture is already toxic.

In less than a month, the president of the United States will be sending seven new cooks to the island in virtue of the Puerto Rico Oversight, Management & Economic Stability Act (Promesa). Having them come to stir the same old brew will be putting them to waste. Puerto Rico must use this as an opportunity for a fresh start by getting an innovative and capable local Executive Chef into that kitchen that does not come from the same schools the previous ones did. One that brings a whole array of new spices like: medium to long-term strategic economic development planning, a merit system, technological tools to achieve governmental efficiency, campaign finance reforms and evolutionary thinking.

Puerto Rico’s new recipe must certainly include attracting foreign direct investment for activities near the technological frontier; the internationalization of small and midsize local businesses; diversification and modernization of manufacturing, export development and growth through improved productivity and the creation of new goods and services; an innovation policy that defines the national development strategy; the creation of public-private alliances; a universal healthcare system; the effective application of laws and incentives for a coordinated systemic effect; and the reinvention of a truly powerful educational system.

It is time for Puerto Ricans to realize they will never make the disaster better if they keep using the same ingredients. The time has come to change the recipe, but to brew success, the first thing Puerto Rico needs is someone to spill the cauldron.

Alexandra Lúgaro is an independent candidate for governor of Puerto Rico. A lawyer by profession, she holds degrees from the University of Puerto Rico and Universidad Complutense de Madrid. Her professional background includes serving as the executive director of the Metropolitan New School of America and America Aponte & Associates Corp. She also headed her own law firm, Lúgaro Law.

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