Tuesday, January 16, 2018

How to Stop Puerto Rico’s Death Spiral

Long before Hurricanes Irma and Maria delivered their knockout blow to Puerto Ricoand many islands in the Caribbean, the U.S. territory was suffering a long-standing economic malaise. The human and economic costs of restoring Puerto Rico’s luster are proving far too great for the scarce resources on the island and far too complex and long-term for an increasingly myopic U.S. Both on and off the island, the lack of political will and leadership has left millions of American citizens of Puerto Rico to fend for themselves. Those who can have left the island in an accelerating mass exodus exceeding 300,000 people since Hurricane Maria struck in September of 2017 – adding to the 600,000 or more who have abandoned paradise in the last decade. How can we stop this senseless death spiral and gain much needed political action from Washington?
Calls to build back better will continue to ring hollow unless and until serious long-term financial commitments are made to Puerto Rico and its people. Puerto Rico’s Governor, Ricardo Roselló, has requested $94 billion in reconstruction money to help put the island back on its feet. This astonishing sum, demonstrates that in the face of climate change, we are in an invest now or pay later world. The premium on building a resilient economy in the first place is paid back during these complex times by comparatively higher resilience. Puerto Rico’s “ask” comes at a time when the White House, increasingly distracted by the Russia probe and one scandal after another, has requested $33 billion for border security and to build a wall (or at least part of it). The equivalency between security and reconstruction when so many vulnerable communities, from Puerto Rico to Flint Michigan, have fallen through the cracks, speaks to the deleterious effects of fear-based domestic policies.
Puerto Rico has the dubious distinction of playing host to the longest running blackout in U.S. history, with many residents not seeing the light since Hurricane Irma skirted the island more than 5 months ago. Today, 63% of the island has electricity, largely in the San Juan metropolitan area. Small towns and villages and, the impoverished, which make up the majority of the island’s inhabitants, continue to face a long struggle. The human toll of an island-wide disaster of this kind creates a national war trauma, as people, schools, businesses and the government struggle to regain normalcy. The next big challenge facing Puerto Rico, is the impending wave of financial defaults, as banking moratoria delaying mortgage and other loan payments run out. This when combined with slow insurance recoveries, destroyed or abandoned property, will add insult to injury to the island’s economy.
Puerto Rico’s already enfeebled economy and banking sector will surely see a wave of property devaluations and defaults, culminating with a wide number of failed banks requiring Federal intervention. Banks, like Puerto Rico’s economy writ large, are facing a perfect storm of a shrinking client base, accelerated by the outmigration of the middle class, shrinking asset values and impaired home and commercial loans, all while coping with a shrinking tax base. These forces conspiring with the weight of the Federally-imposed fiscal control board (whose oversight of Puerto Rico’s budget supersedes the democratically-elected governor’s), along with unsustainable public debt, demonstrates how the Federal government is the only entity that can change Puerto Rico’s tide – lest the entire population uproot itself and move to the U.S. mainland.
While the U.S. is losing the reconstruction battle (or opportunity) in Puerto Rico (with the next hurricane season 5 months away) we need not lose the cultural war of seeing millions of Puerto Ricans displaced from their island, much as we saw in the Gulf states following Hurricane Katrina. In order to regain our footing as a nation, we must demonstrate to the people of Puerto Rico that the country’s motto, E pluribus unum, out of many, one, means something. Puerto Rico’s death spiral can not only be stopped, it can be turned into a virtuous cycle of economic recovery, regional competitiveness and cultural and entrepreneurial vibrancy provided Washington acts.
The first order of business is to comprehensively address Puerto Rico’s debt burden, which when adding $73 billion in public debt to $94 billion in reconstruction costs, exceeds the island’s GDP by more than 150%. Haircuts for bondholders and vulture capitalists who have been preying on Puerto Rico’s economy are insufficient. The debt must be entirely forgiven or transferred to a Federally-backed vehicle for restructuring. If the $700 billion Troubled Asset Relief Program (TARP) that bailed out Wall Street was a positive investment netting $15 billion for the government, investing in Puerto Rico can also have a positive return. Thereafter, incentives for rebuilding resilient infrastructure, a diversified and privatized energy matrix, as well as shoring up the island’s industrial base, which promotes economic mobility, can be taken seriously. On the backs of this debt restructuring, the $33 billion being called for to build walls can build bridges, schools, a modern healthcare system, a resilient energy grid and, critically, hope for the future, which is the true source of America’s competitiveness and national security. All Americans should be weary of Puerto Rico’s plight. As goes the fate of our brothers and sisters in Puerto Rico, so goes the country.
Dante Disparte
How to Stop Puerto Rico’s Death Spiral

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