PUERTO RICO. THE FINANCIAL BASKET CASE…JUST OFF OUR SHORES.

The debt crisis in Puerto Rico has been overshadowed by Greece’s on-going negotiations with its European creditors.  When Governor Alejandro García Padilla announced yesterday that Puerto Rico could not repay its $72 billion in debt and $50 billion in pensions, however, the Commonwealth’s problems moved to front and center.

Yes, there are similarities, as in any potential bankruptcy situation; however, the two situations are also quite different.  But, in this post, I will focus primarily on what is going on in Puerto Rico, and why I think that it might have happened.  Let me also point-out that the legal status of the Commonwealth places it in a limbo situation–somewhat like a U.S. state, but yet it also lacks some of the financial options that states have.

Only 37.6% of the commonwealth’s 3.62 million population are in the labor force, while even 12.4% of those are unemployed. It is important to remember that Puerto Ricans are U.S. Citizens and, as such, they are entitled to migrate to, and work on, the Mainland, where unemployment is roughly half as high.  Most of the other residents of Puerto Rico, that are not included in the labor force, are either retirees or children.  And, the percentage of seniors in the population is growing fast.

With a debt-to-GDP (Commonwealth Debt divided by Economic Activity) ratio of 69.9%, Puerto Rico appears to be in much better shape than the U.S., which has a ratio of 109%. Unfortunately, the Puerto Rican economy does not produce much except for what is manufactured by U.S. corporations on the island.  The financial problems, on the other hand, continue to abound.

Besides the high unemployment rate, a third of the private sector jobs are at the minimum-wage level, and a significant proportion of the population is employed by various government bodies.  Thus, there is little attraction for creativity and entrepreneurship skills in the local workforce.  Additionally, with a brain drain of younger and more-educated people migrating to the Mainland, there is little reason to expect a resurgence of younger workers in the Island’s labor force.

And, that brings us to the Puerto Rican economic woes.  Similar to Greece and other weak economies in the Eurozone, its economy exists within a much stronger, more vibrant economic system, that of the U.S.  Under more normal circumstance, an independent Puerto Rico could devalue its own currency–thus discouraging imports, while making its exports more attractive in foreign markets.  Also, unlike Greece and even Detroit, Michigan, the Commonwealth cannot declare bankruptcy.

Over the recent decades, Puerto Rico has not opted for Statehood, which would have provided potential solutions for it.  And, for some reason, Washington has not been forceful in encouraging such necessary support that would potentially breathe new financial life into the Island’s economy.  I believe that it is time for the residents of the Commonwealth to finally vote “Si” for Statehood, instead of just “Mañana”.

NOTE:  On a political note, there might not be much interest in Washington to grant Statehood for Puerto Rico since the residents tend to vote overwhelmingly for the Democratic candidates; but, we still have a majority Republican Congress.

 

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  1. #1 by cheekos on August 3, 2015 - 11:07 AM

    Puerto Rico is bracing for the coming Health Care Crisis, which is sure to follow the Debt Crisis. As more and more young and capable Puerto Ricans flee their Island Homeland, for the better-paying, more abundant jobs on the Mainland, many of those who are left behind are either Young or Old. Over the past fiver years, that exodus has included some 3,000 physicians. Also, sixty percent of those who still live in Puerto Rico are on either Medicare or Medicaid–and the Commonwealth’s ability to pay for its share of the programs is running out, along with the Island’s other financial resources.

    This article, from the NY Times, provides a more-detailed explanation: http://www.nytimes.com/2015/08/03/us/health-providers-brace-for-more-cuts-to-medicare-in-puerto-rico.html?emc=edit_th_20150803&nl=todaysheadlines&nlid=64667462&_r=0

  2. #2 by cheekos on September 29, 2017 - 3:03 PM

    What was included in my prior post still applies; however, in times of grave distress, and the misery and potential for disease contagion, I did not get into the economc side of the equation. Death and disaster have no financial status. It is up to America to help all of our people–or any people we can–rather than play politics, ask for their credentials, or what language they speak! Aren’t we all on this planet together?

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