Crush­ing debt im­per­ils Puerto Rico

The gover­nor asks Washington for help to avert a ‘ death spi­ral.’ Res­i­dents and in­vestors could suf­fer.

Los Angeles Times - - THE NATION - By Tracy Wilkin­son wilkin­son@ latimes. com

MEXICO CITY — Stag­ger­ing un­der a $ 72- bil­lion debt, Puerto Rico, a U. S. com­mon­wealth in the Caribbean, says it may not be able to make its pay­ments, a step that would rat­tle the f inan­cial un­der­pin­nings of the United States.

“We must all share the pay­ment of this debt,” Puerto Rico Gov. Ale­jan­dro Gar­cia Padilla said in a tele­vised ad­dress Mon­day, in which he called for help. “This isn’t the mo­ment of re­crim­i­na­tion.... It is the mo­ment of unity.... It is the mo­ment to act.”

He called on Washington to help save Puerto Rico from an eco­nomic down­turn that would im­pov­er­ish its peo­ple and pos­si­bly spur many to leave the is­land.

The U. S. gov­ern­ment, how­ever, is not plan­ning to res­cue Puerto Rico.

“There’s no one in the ad­min­is­tra­tion or in D. C. that’s con­tem­plat­ing a fed­eral bailout of Puerto Rico,” White House Press Sec­re­tary Josh Earnest said at his daily news con­fer­ence.

As a com­mon­wealth, Puerto Rico tech­ni­cally can­not de­fault. But it can throw its in­vestors, in­clud­ing many in the U. S. at­tracted by what seemed to be safe, high- per­form­ing mu­nic­i­pal bonds, into a f inan­cial tail­spin.

On Mon­day, an in­de­pen­dent team of in­ves­ti­ga­tors re­leased a re­port, com­mis­sioned by Puerto Rico, that put the is­land’s sit­u­a­tion in stark re­lief.

The “cur­rent sit­u­a­tion is un­sus­tain­able,” says the re­port, whose chief au­thor was Anne Krueger, a for­mer World Bank chief economist. “The sit­u­a­tion is dire.”

High debt, low growth, out­mi­gra­tion and f inan­cial bur­dens as part of the United States ( such as U. S.-man­dated wel­fare and So­cial Se­cu­rity costs) com­bine to doom the is­land to pos­si­ble ruin, the re­port says. Puerto Rico is tied to the U. S. dol­lar, which means de­val­u­a­tion is not a po­ten­tial tool.

Gar­cia Padilla said be­fore his ad­dress that the re- port was not sur­pris­ing but “for the f irst time ac­knowl­edges the true ex­tent of the prob­lem.”

“We must make dif­fi­cult de­ci­sion to meet the chal­lenges we now know are ahead and I in­tend to do ev­ery­thing in my power to lead us through this time,” he said in a state­ment.

Ear­lier, he told the New York Times that pro­mot­ing growth was key to the is­land’s f inan­cial sur­vival but that the debt was “un­payable.”

“My ad­min­is­tra­tion is do­ing ev­ery­thing not to de­fault,” Gar­cia Padilla told the news­pa­per. “But we have to make the econ­omy grow. If not, we will be in a death spi­ral.”

Puerto Rico has suf­fered from eco­nomic mis­man­age- ment for decades, an­a­lysts say, stuck in deep re­ces­sion and hav­ing an un­em­ploy­ment rate that un­of­fi­cially may ap­proach 20%. U. S. man­u­fac­tur­ing dis­ap­peared in the 1990s, along with mil­i­tary bases and other sources of in­come.

In Puerto Rico “you have not much econ­omy, not much growth and no dis­cernible way to pay” the debt, said Corey Boles, a se­nior an­a­lyst for the Eura­sia Group who spe­cial­izes in Puerto Rico. “It’s been a clas­sic case of fi­nan­cial mis­man­age­ment … of spend­ing more than they had.”

Those who would be most hurt by Puerto Rico’s in­abil­ity to make its pay­ments, Boles said, would be U. S. hedge funds and pen­sion com­pa­nies that are heav­ily in­vested in the Puerto Rico mar­ket.

Another con­se­quence, he warned, is that if Puerto Ri­can ser­vices no longer func­tion — the garbage isn’t col­lected and the hos­pi­tals shut down — there could be an ex­o­dus of Puerto Ri­cans to the U. S. main­land. Puerto Ri­cans are U. S. cit­i­zens at birth.

Those watch­ing Puerto Rico said the com­mon­wealth can­not ben­e­fit from the kinds of bailouts that res­cued Detroit and other parts of the U. S. In­stead, a ma­jor restruc­tur­ing is the only so­lu­tion, these an­a­lysts said.

“We need more work ... more eco­nomic ac­tiv­ity ... to pay the debt … for the coun­try to move for­ward,” Gar­cia Padilla said. “We have to change the fun­da­men­tal work­ing of the gov­ern­ment.”

Joe Raedle Getty I mages

I N SAN JUAN, Puerto Rico, Rosa Arias watches Gov. Ale­jan­dro Gar­cia Padilla’s ad­dress to the com­mon­wealth. “We must all share the pay­ment of this debt,” he said. “This isn’t the mo­ment of re­crim­i­na­tion.”

Ri­cardo Arduengo As­so­ci­ated Press

A SHUT­TERED BANK in San Juan. White House Press Sec­re­tary Josh Earnest said Washington wasn’t con­sid­er­ing a bailout of Puerto Rico.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.