(Note: The writer is answering the question: “Did the U.S. shortchange Puerto Rico on disaster aid?”)
WASHINGTON — The recent restructuring of part of Puerto Rico’s debt — bonds backed by sales tax revenue — will not leave the island’s economy with a sustainable debt, unless its other creditors give up vastly more.
They will fight this outcome, and also fight to get as much of the hurricane relief money as possible in their pockets.
Here is a scandal: Puerto Rico has a Federal Oversight and Management Board (FOMB) created by the U.S. Congress and appointed by the president of the United States, which is in charge of its finances.
Its budget, financed by Puerto Rico’s taxpayers, is $1.5 billion over five years, or $300 million a year.
How much money is that relative to Puerto Rico’s economy? Well, if it was the U.S. economy, it would be more than $85 billion dollars a year.
To be clear: Its management board is not a government, but just a board that examines and projects the government’s finances.
Imagine the U.S. Congressional Budget Office with its own budget of $85 billion a year. Its actual annual budget is $50.7 million.
The vast majority of the FOMB’s budget, some $1.1 billion, goes to advisers and consultants. And there are serious potential conflicts of interest among the board itself.
How can this scale of corruption, overseen by the U.S. Congress, even happen?
It’s because Puerto Rico is a colony of the United States. Puerto Ricans are U.S. citizens but they have no voting representatives in Congress. Yet they are bound by its decisions, and those of the executive branch.
For the same reasons, Puerto Rico was vastly unprepared when Hurricane Maria hit the island on Sept. 20, 2017.
And the U.S. government’s response to residents’ emergency needs was painfully slow and negligent.
A video of President Donald Trump tossing rolls of paper towels as if they were puffy basketballs at a press conference in a church in San Juan, on Oct. 3, 2017, was hideously symbolic.
An estimated 3,000 people died from the storm, many of them from lack of access to medical care that could have been provided with a proper response to the disaster. Electricity was only fully restored almost a year later.
And for the same reasons, Puerto Rico still faces an unsustainable debt burden. Nobel Laureate economist Joseph Stiglitz succinctly stated the crux of the problem last month:
“The U.S. government explicitly said because Puerto Rico was our colony, we will not allow you to … adopt your own bankruptcy law … but as a colony we have decided that our bankruptcy law won’t cover you either… And it’s a moral outrage.”
The board seems willing to help Puerto Rico’s creditors with cuts in public spending and needed services, while making over-optimistic assumptions about future economic growth, thus allowing more money to go to debt service.
Puerto Rico was already stuck in an unusually long economic decline — also resulting in large part from its colonial status — before the devastation of Hurricane Maria. I
In August of 2017 it had already suffered a lost decade, going without economic growth since 2005. Its poverty rate was 58 percent, about three times that of the 50 states.
And the FOMB approved an austerity program that forecast a second lost decade — no economic growth through 2024. An economic decline of this duration is extremely rare.
The board has a new plan that is more optimistic, but even less realistic than the old one. There is a serious risk that Puerto Rico will again get caught in a downward spiral of austerity to pay for unsustainable debt service, more emigration and continued economic decline.
As what amounts to a colony of the United States, this is way too high a price for Puerto Rico to pay.
Mark Weisbrot is co-director of the Center for Economic and Policy Research a progressive think-tank in Washington, D.C. He received a Ph.D. in economics from the University of Michigan. Readers may write him at CEPR, 1611 Connecticut Ave., NW, Suite 400, Washington, DC 20009.