Tuesday, August 11, 2020

THINK STRATEGICALLY: Measure to Measure

By on July 9, 2020

(Screen capture of https://www.facebook.com/fortalezaproficial)

42 months in office: The current government

This issue of Think Strategically will focus on evaluating how Puerto Rico’s economy has performed after 42 months, with former Gov. Ricardo Rosselló and now Gov. Wanda Vázquez in office, using financial and economic metrics. It is important to note that measuring a successful governorship takes much more than these metrics. However, they do allow us to gauge the overall direction of our economic well-being.

(Screen capture of https://www.fortaleza.pr.gov/)

Gov. Vázquez’s Tenure

No one can dispute that both governors inherited a Puerto Rico that was declared bankrupt, with the Financial Oversight and Management Board (FOMB) to deal with, and an economy in retraction and without access to capital markets. Adding even more pressure, Puerto Rico suffered the impact of Hurricane Maria, which brought the island to its knees. In addition, the Telegram chat in July 2019 that forced the resignation of Rosselló and the destructive sequence of earthquakes that continue to impact southwest Puerto Rico. As if these events were not enough, we can now add that Vázquez was referred for investigation to the Special Independent Prosecutor’s Panel, under allegations that she used her position for political gain when distributing aid during the January earthquakes. 

Crisis Separates Pretenders from Players

Throughout history, we have seen that during any crisis, people will always look for a leader to guide them, the coronavirus pandemic and the recent political disaster has put the governor in a position that is challenging, uncomfortable and for many, navigating uncharted territory. The lack of adequate leadership has placed Puerto Rico on the verge of a healthcare, economic and political collapse. 

On every occasion in my life where I needed guidance, I have reached out to the wisdom of John C. Maxwell, the author and motivational speaker. This past week, during one of our weekly sessions, he said something that I want to share: “On the other side of a storm is the strength that comes from navigating through it; raise your sail and begin. Just because you are struggling, it does not mean you are failing; sometimes, people who are struggling think they are failing—not even close. If you are struggling, it tells me you are still in the game. We don’t see these incredible opportunities; first, because a problem always surrounds them—we always have to go through the door of the issues.

“So the next time you have adversity in your life, don’t allow the crisis to numb you. Be alive, feel, fail, learn. That is what it is all about. There is a hero within you; during this tough time, let the hero out, let people see the best in you, you be the hero they need.”

You see, “Crisis Separates Pretenders from Players.” As we have seen during this period, there is an incredible crisis of leadership in Puerto Rico.

We have developed this scorecard as an aid for achieving success and recognizing it. 

Severe deterioration seen:

• Erosion in the image, trust and credibility of the figure of the governor of Puerto Rico.

• Erosion in the image, confidence and credibility of many agency heads.

• Unemployment rose to 38.2% in June, an increase of 226.5% in the last 42 months.

• Unemployment claims rose to 330,353, a  246.75% increase.

• Labor-force participation rate dropped to 39% and continues to fall.

• Average household income was markedly eroded by the pandemic.

• Gross domestic product growth for 2020 is projected to contract 6%.

• The impact of the lockdown and curfew has destroyed thousands of companies, and 10,000 to 15,000 will go bankrupt, close or be dramatically shrunk, eliminating more than 100,000 jobs.

The job growth that had occurred by January has been erased. Our labor participation rate, which had increased by almost 0.01% during the same period, is now in free fall. The median household income, which had improved 6.65%, is now falling rapidly. The GNP growth rate of 1.7% that was reached last year has turned into a 6% contraction. 

Our tourism sector, which was significantly impacted in the aftermath of Maria, and then dealt earthquakes, is now having to cope with COVID-19.

Puerto Rico has what is needed to realize its potential, grow the economy and, at the same time, break with the fiscal imprudence that has hampered our economic evolution.

The disruption of electric power service, water supply and telecommunications, as roadways, bridges and 250,000 homes sustained considerable damage, paralyzing the island in certain areas for almost a month, has changed every priority for the government. This crisis has taken the fragility of most essential services to new levels. 

On Inauguration Day on Jan. 2, 2017, the government inherited the following Puerto Rico benchmarks, and after 42 months these are the results:

Some of the advances have to be reworked, as the pandemic derailed the initiatives incorporated in the Fiscal Plan.

The most essential advances: 

  • Placing Puerto Rico on Washington’s agenda after being absent for decades. Hurricane Maria changed this. 
  • Seeking Medicare and Medicaid parity. Puerto Ricans pay 100% of both insurance programs’ costs, yet we receive less than 40% of the benefits. That, in any book, is a discriminatory practice; the governor delivered that message to the point that parity may be on the horizon.
  • The inflow of reconstruction funds is significant: The Island has been assigned $83 billion for hurricane recovery, $600 million associated with earthquake aid, and $14 billion associated with Covid-19 for a total of $97.6 billion. This is enough to rebuild all the critical infrastructure in Puerto Rico.

On the negative side, most experts agree that most of the governors’ challenges have been after the Hurricane. Some observations follow:

  • Not working with the legislature and the Financial Oversight and Management Board as a team
    The best way to cure the financial crisis that has affected Puerto Rico is by reaching agreements with the FOMB, legislature, and the U.S. Congress. Doing so will allow Puerto Rico to accomplish the needed five years of balanced budgets and the eventual return to the capital markets. This will imply significant budget cuts and changes to the way Puerto Rico conducts its operations. 
  • Puerto Rico Debt Burden
    The still mostly unresolved issues related to the public debt will affect the government’s advances in other areas.
  • Puerto Rico Systemic Risk in Healthcare
    The challenges facing Puerto Rico hospitals and even those in the United States have to do with the fact that they are being forced to reduce costs at the expense of potentially devastating impacts on the communities served. This Hobson’s choice developed through public policy and market moves that transfer financial risk into local healthcare systems. With little or no financing available in Puerto Rico, we have considerable similarities to the systemic risk crisis of 2008. Hospitals have lost $288.9 million so far.
  • Demographic Changes and Population Loss.
    Although recent data suggest outmigration will be even more severe than projected, the consensus is that by 2025 Puerto Rico’s population will be near 2.8 million. This decline will place additional pressure on scarce government resources.

We provide a roadmap for regulating the government through the evaluation of significant economic benchmarks. We must find ways to strengthen the way the government is managed, and this is possible and done with the appropriate metrics.

Benchmarking is a necessary function of government. It can enhance oversight and accountability of programs, improve the effectiveness and efficiency of services, and the ability to assess what works and what doesn’t while providing critical information needed for making difficult policy decisions. 

More than at any time in recent history, Puerto Rico’s destiny is in the balance, and the direction we take is our choice. There are dangers related to our freedom, our democracy and our way of life. 

We chose for decades to ignore the signs of impending doom brought on by our wrongful ways, always hoping that a fix would somehow be found.  An accurate measure of the people’s strength is how they rise to accept their circumstances and change their ways. Puerto Rico has the option to evaluate its government and decide who are the best candidates for the job of governor out of the eight candidates seeking office. Only time and the voters will tell.

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