Fernós: Promesa is Not a Tool for Economic Development
SAN JUAN – Noting Puerto Rico’s economy is not at its best moment and facing numerous challenges—where everything is solved through the cracks, there’s an excessive dependence on debt issuances, a very inefficient government bureaucracy that expects you to work for them, and where corruption and lack of ethics is a business model for some—local economist Antonio Fernós said the island needs endogenous growth that is sustainable and responsible in order to get out of the 10-year-long economic stagnation.
“What will trigger economic growth is revamping the real economy, not private consumption,” Fernós told attendees Wednesday during the first Promesa Conference by the Puerto Rico Chamber of Commerce, held at a hotel in San Juan’s Condado tourist sector.
Fernós was part of a panel that discussed economic development proposals, which also included local economists José Villamil and Carlos Colón de Armas, which were not able to attend due to a protest outside the hotel.
Fernós highlighted the threats Puerto Rico is facing, including what he deemed “secular stagnation,” where there’s minimum capital accumulation and an aging population. Even if Puerto Rico achieves growth, it will remain slow, he said, adding inflation remains weak and thousands of middle-aged people are no longer working.
“The message to the political class is, you failed,” Fernós said. “There are better ways of jump-starting slow economic growth. Please stop. You’re making things worse.”
With respect to Promesa, Fernós was adamant in that in itself, it cannot be considered a real tool for economic development.
“As long as the political class thinks it has no responsibility in this problem, nothing is going to get done,” the economist added.
Nevertheless, Fernós noted there are opportunities that could arise from Promesa and its fiscal management board—the untangling of the government’s bureaucracy and permits process through across the board consolidation of the three government branches.
“Puerto Rico is too small to be so complicated,” Fernós commented.
There is also a need for debt restructuring and credit channeling for capital expenditures and not consumption in order to achieve desired innovation in high-value-added sectors such as information technologies, renewable energy, agriculture and export of financial services.
Key drivers for the island’s economic growth should be strong statistical gathering capabilities to enhance economic intelligence and feed policymakers, he said.
“The economy will not grow just because…the monetary part is important, but what is key is the real productive economy. We need to fix the structural/restrictive labor regulations appropriately,” Fernós indicated.
In Fernós’ view, the monetary policy is exhausted and what is needed is a tax reform. “We must say no to ‘trickle down’ fiscal and economic incentives. They’ve been proven not to work,” Fernós said, adding we have relied on low interest rates to encourage increased spending by businesses and consumers, even as government spending has remained relatively austere.
“This experiment has reached its limits. The economy is not run like a casino,” he pointed out.
Among the island’s weaknesses, Fernós said Puerto Rico is not bankrupt, but the government is. There is a lack of fiduciary duties compliance, and “perverse” fiscal incentives geared toward consumption and almost none to investment.
“Political investing is nearly equal to total individual retirement account contributions at $72.6 million, with average returns of zero percent interest,” he commented. “Promesa will not straighten out the political class or build a foundation for future growth. Whoever said this must have failed Economics 101. Promesa will not audit the debt or terminate public welfare or file criminal charges against those who failed their fiduciary duties or prevarication either.”
Another challenge the island is facing is its aging demographics. “If the current trend continues, by 2050 Puerto Rico will be the largest elderly home in Latin America,” he warned.