Opinion: Will anyone save Puerto Rico?
Puerto Rico is a ticking time bomb. With two debt defaults already in the can (its first in history), the semi-autonomous territory’s administrators have guaranteed there will be more. However, with a lame duck governor unable to bring consensus to his government, lenders reluctant to accept cuts in their investments, and a U.S. Congress disinclined, or unable, to throw the island the bailout it wants, will anyone be able to save Puerto Rico from the inevitable?
The current governor’s departure may prove to be beneficial in the end, especially given the existing pool of candidates who seem more willing to take a chance at this leap of faith.
Having served only one of the two terms he is eligible for as governor of Puerto Rico, Alejandro García Padilla recently decided it wasn’t worth his time to try to convince voters that he deserves a round two. Given approval ratings less than half of those of the least liked governor in the rest of the country, the real reason is that he didn’t really have a chance. Lame duck status, combined with strong disapprovals, often create an atmosphere for elected leaders to shift policies, which may be especially true in Puerto Rico since one of the biggest complaints from legislators has been that voters won’t re-elect representatives who make the more difficult, necessary decisions today.
García Padilla seemed to understand this dilemma, even offering the idea of an independent fiscal control board – theoretically free from the pressures of politics – as a potential solution. But knowing what needs to be done and doing it are two different things. The Governor may have instead taken a more ideological turn, promising not to put fiscal austerity measures into place that creditors, independent economists, ratings agencies, and stateside legislators have been asking for. According to one report, for example, government expenditures on education have increased by 39 percent over the last decade, while the number of students has fallen by 20 percent.
Obstinately maintaining an ideology can be problematic, even for a lame duck, when simultaneously begging for assistance from federal legislators and administrators who want Puerto Rico to show some sign that it is willing to change. Raúl Labrador, one of a very few U.S. congressmen born on the island and the only Puerto Rican from the party that currently controls Congress, summed his colleagues’ concerns in this week’s House Committee on Natural Resources hearing when he asked to see some initiative from the island. He suggested that approving a restructuring deal for its debt-laden and publicly-owned energy utility (known as PREPA) would be a step in the right direction that Congress would like to see before members will consider an offer of financial assistance.
Even if the PREPA restructuring deal passes, it will be but a Band-Aid for a bullet wound. The existing deal would only apply to approximately 10 percent of total government debt, while also enabling the utility to raise energy rates as well as an opportunity to seek financing from the credit markets again (yes, a debt deal that allows more debt).
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Congress sincerely wants to help, as they should. Republicans and Democrats around the country are beginning to understand that Puerto Rico’s fiscal problems don’t stay on the island. We are either going to help them now (federal transfers already equate to more than one third of the island’s economy), or once they come to mainland states as its economy continues to worsen.
But U.S. legislators have constituents to report to in an important election year and few are willing to give away the country’s resources, or do anything that might be described as a “bailout,” without something in return. To that end, Congress is going to demand a thorough and independently audited financial review of the island’s accounts. Because the current Governor hasn’t produced a Comprehensive Annual Financial Report (CAFR) – what every other municipality in the country produces yearly – since he took office in 2013, no one really knows how much money Puerto Rico has, where it is, how it’s being used, and where revenues are coming from that are paying the bills it does find a way to pay.
As there are few points of transparency more vigorously defended that the lack of independently audited financials, it is unlikely that García Padilla will produce one, or get anything he wants from Congress. Congress will provide only menial financial patchwork until an even more severe crisis impels action, or a new, more amenable administration takes office in Puerto Rico in early 2017. The two-sided standoff will also ensure that the highly coveted Chapter 9 bankruptcy solution that many are advocating for is unlikely to gain approval by Congress anytime soon.
A recalcitrant attitude toward the will of Congress, combined with the decision to not run for reelection has ensured that García Padilla will be ineffectual for the remainder of his term, which leaves all of us but to dream of what the next leader will bring. What the island desperately needs is a strong reform candidate, who understands the politics of D.C. and the feasibility of his promises, with a madman’s willingness to sacrifice his own political career in order to provide a long-term economic solution. The irony is that Puerto Ricans are desperate enough for something different that it might reward the policies that have been staunchly rejected in the past.
The current governor’s departure may prove to be beneficial in the end, especially given the existing pool of candidates who seem more willing to take a chance at this leap of faith. Then again, I can’t think of a recent gubernatorial candidate who wasn’t thought of this way.