Statehood or Not – Show Puerto Rico the Money
Puerto Rico can Have a Fresh Start with a Stroke of a Pen:
–By Scott Smith, inspirational speaker, writer and animal defender.
The U.S. can afford anything it desires. The only catch is that it has to be a priority. Whatever the U.S. wants, the U.S. gets. If the United States wanted to go to war with Iran, how fast would they find a few trillion dollars? If Greenland would be willing to sell itself, how fast would the U.S. find billions of dollars?
Let’s look at two actual examples:
1. When the U.S. wanted to invade Iraq in 2003, was money an issue? Nope. A blank check was thrown at the war. And Iraq had nothing to do with 9/11. According to Brown University’s highly respected Cost of War Project, post 9/11 wars have cost trillions of dollars, and worse, killed hundreds of thousands of people.
2. In 2008, during the banking crisis, Congress came together in a blink of an eye and authorized a $750 billion check for the Troubled Asset Relief Program, aka TARP. It was literally a bailout for the banks and the auto industry. Additionally, the Federal Reserve pumped more than $4 trillion of stimulus into the economy from 2010 through 2014.
Remember, the U.S. can print its own currency. They can create money faster than a magician can say “Shazam.” It’s time for the U.S. government to wave its magic wand at the 3 million plus American citizens residing in Puerto Rico. We have a humanitarian crisis for both people and animals over there.
This is not a U.S. bashing article. I’m presenting an opportunity to bring Puerto Rico back to financial life.
The people of Puerto Rico have suffered enough. “No Mas” they said taking to the streets in July of 2019 with the biggest protests in the Commonwealth’s history, forcing the resignation of Governor Ricardo Rosselló. The protests were a long time in the making. Puerto Rico has been plagued with corruption (from healthcare, to education, politicians themselves and recently, a FEMA arrest was made), reckless spending and policies set forth by the U.S., stifling their economy for decades.
It’s been over 2 years since Hurricane Maria pummeled Puerto Rico. Financial relief has been slim and slow. Over 250,000 people have left the island since the hurricane hit. A total of 600,000 people in the last 10 years. Maria’s damage is estimated at $100 billion. A staggering figure. Just to put that in perspective, the annual GDP for Puerto Rico is about $100 billion.
That’s on top of Puerto Rico being in the financial doldrums since 2006 thanks to Congress abolishing section 936 of Puerto Rico’s corporate tax code, a law that gave huge tax breaks to U.S. corporations in Puerto Rico. When it expired in 2006, manufacturing and big pharma started leaving. The island has been in a recession for 13 years now.
Puerto Rico is $75 billion in debt with another $50 billion in underfunded pensions. Bankruptcy negotiations are still pending. In July 2019, the oversight committee and bondholders apparently struck a $35 billion restructuring deal. The Fiscal Agency of Puerto Rico did not agree with one word of the deal. Additionally, some bondholders are calling the selection of the oversight committee unconstitutional. So, it’s anyone’s guess how this will play out.
It’s time for U.S. to step up for the people of Puerto Rico. No longer should the U.S. allow Puerto Ricans to die on the front lines of American wars, as they have for more than 100 years, and not be permitted to vote in the general election. Nor should they remain financially shackled by the Jones Act, established in 1920, costing Puerto Rico over $500 million a year. The cost of living in Puerto Rico is the same as the average state in the U.S. Yet, If Puerto Rico were a state, it would be twice as poor as the poorest state of all, Mississippi. How can any society have a balanced budget with that logic?
Pretense and Solution –
The U.S. should write a check to Puerto Rico in the amount of $125 billion. Wipe out the $75 billion in municipal bond debt and fully restore the $50 billion in underfunded pensions. The monies should be distributed directly to the bondholders and pension accounts bypassing all politicians and oversight committees. $125 billion is not a lot of money for a $22 trillion economy. To be precise, it’s 1/20th of 1%. Essentially nothing.
Let’s use the 2008 banking crisis as a precedent. The U.S. deployed almost $5 trillion to prevent the oncoming 2nd Great Depression, which was caused by Wall Street’s gambling addiction to derivatives and mortgage backed securities. That’s not even including the massive budge deficits they were running, which would take the figure well over $10 trillion. But, for the sake of argument, let’s use $5 trillion as the example. $125 billion is only 2.5% of $5 trillion. Aren’t the people of Puerto Rico worth that?
Dr. Daniel Nina, professor of Business Administration and Social Sciences at the University of Puerto Rico Humacao Campus explains that whether Puerto Rico becomes a state or not, or receives some sort of bailout, they have to become more self reliant. Puerto Rico imports 85 percent of consumable goods. At the turn of the 20th century Puerto Rico was only importing 15 percent. For the past 120 years they’ve been moving in the wrong direction, forcing them to become more and more dependent on the rest of the world. According to professor Daniel, Puerto Rico’s agricultural and household chemical sectors are fully self-reliant. Other important sectors of the economy are nearing self-reliance. Ultimately, Puerto Rico must become more self-sufficient in most sectors of its economy in order to prevent becoming a welfare state again.
In order for this to start to happen, the 100 year old Jones Act needs to lifted permanently. It’s blatant protectionism for American shipping companies at the expense of consumers. In this case specifically, the people of Puerto Rico. In addition, Section 936 of Puerto Rico’s tax code should be reinstated to incentivize manufacturers and pharma companies to come back to Puerto Rico. This would put them on equal footing with the rest of the United States. It would give the Puerto Rican people a fresh start to rebuild their economy.
So, the multibillion-dollar question is, when will Puerto Rico become a priority for the U.S.?
–The views expressed in the Opinion section are the writer’s own and not necessarily those of Caribbean Business.