‘Esa Promesa Viene con Tostones’
You know the President of the United States has a vested interest in an issue—in this case Puerto Rico’s debt crisis—when he uses his weekly address to hammer home the need for orderly restructuring of Puerto Rico’s debt. It is off-putting, however, that President Obama resorted to the same inflammatory rhetoric being employed by Gov. Alejandro García Padilla administration’s restructuring advisers. In no uncertain terms, Obama told millions of people that “Puerto Rico continues to face a crippling economic crisis—“schools are closing; power is being cut off at homes and hospitals; teachers have to choose between turning on the lights or turning on the computers; doctors can’t get medicine to treat newborns unless they pay in cash and, right now, Puerto Rico is spending a third of its tax revenue on debt payment.”
The President’s address reads more like a page from the Walking Dead than a true representation of Puerto Rico’s crisis. The power is not being cut off in homes and the power that was cut off at a particular hospital was for lack of payments of its electricity bills. Most teachers do not have to choose between turning on the lights or turning on their computers. Most doctors who we know do not have to pay for their medicine in cash to treat newborns. And some analysts on Wall Street contend that Puerto Rico is spending closer to 12.5% of its tax revenue on debt service.
Yes, we are in a depression—Puerto Rico’s economy has been in a decade-long economic slide that traces back to the 10-year phaseout of Section 936 of the Internal Revenue Code. That tax break was targeted by a Republican majority for phaseout as part of then-House Speaker Newt Gingrich’s crusade against corporate welfare. Although some observers point to a lack of strong job creation with Section 936, no one can deny that the disappearance of the tax incentive cost Puerto Rico thousands of jobs and capital—more than 40% of the money in Puerto Rico’s banks was in Section 936 funds.
During Puerto Rico’s lost decade, which commenced in 2006, more than 12,000 businesses have shuttered and more than 300,000 jobs have been lost. All told, more than 250,000 professionals have left Puerto Rico seeking work. In 2015 alone, some 52,000 professionals outmigrated to the United States and employment on the island dipped to 989,000 people—a level of employment last seen in 1986. Yes, Puerto Rico is in bad shape but it helps no one to overblow the crisis with zombified rhetoric.
In pushing Promesa, Obama intends to grant Puerto Rico a path to orderly debt restructuring that will help the island muddle through this crisis. In the process, Puerto Rico will be forced to achieve structurally balanced budgets with the oversight of a board composed of seven members—not chosen democratically by the people. That is sad because we do have the wherewithal to balance budgets, but our own solons en el capitolio and our governors at La Fortaleza employed self-deception—for decades—leading us to this mess.
The Promesa board is not the only answer. If President Obama really wants to help Puerto Rico, he would push for mechanisms that are available to him right now. For instance, the U.S. Treasury could enter into a capital purchase agreement. That mechanism, which has been used in the past, essentially allows Treasury to purchase notes that have short-term maturities, which would provide Puerto Rico much-needed liquidity—there is no interest, no broker involved and Puerto Rico could pay the notes in 30 years if necessary. Then there are dispositions in a measure filed by Vermont Sen. Bernie Sanders that would earmark some $10.8 billion for infrastructure repair that could lead to the creation of some 140,000 jobs. This is exactly what Puerto Rico needs: huge job creation to make certain this crippled economy gets back on its feet again.