Puerto Rico Crisis: Let's Stop Ignoring The Debt – And Deceit – Of Small Economies
Yes, yes, Cuba is big news. President Obama’s Wednesday announcement that the U.S. will open an embassy in Havana was historic stuff.
And yet – I can’t shake the feeling that the more important story out of the Caribbean this week is Puerto Rico’s financial collapse.
As the U.S. commonwealth’s own governor admitted, debt-crushed Puerto Rico’s economy is nearing “a death spiral.” And that could eventually force – despite the White House’s insistence to the contrary – a sizable U.S. taxpayer bailout.
Some are even calling Puerto Rico “America’s Greece.”
The comparison is overstated. The threat of Puerto Rico’s economic rot spreading into the U.S. is not as ominous as the chaos Europe faces from Greece’s implosion. Still, the Caribbean Crisis holds warnings for us here in the Americas that mirror the lessons the Mediterranean Mess is heaping on the European Union.
Namely: You’re asking for big trouble when you ignore the vulnerability of small economies in your neighborhood – and, in the cases of Puerto Rico and Greece, when you disregard their outright chicanery.
In both the Old and New Worlds, we’re too dismissive of the sea regions that were once the engines of our respective civilizations.
Europe’s powerhouse nations today regard the Mediterranean – what the ancient Romans called Mare Nostrum, or Our Sea – as an irrelevant outpost.
You're asking for big trouble when you ignore the vulnerability of small economies in your neighborhood – and, in the cases of Puerto Rico and Greece, when you disregard their outright chicanery.
One result: When they do bring an iffy Mediterranean economy like Greece’s into the eurozone fold, their due diligence isn’t all that duly diligent. They seem to have been utterly unaware, or blithely overlooked, that Greece was hiding a Trojan Horse of fiscal deficits. Banks showered the country with loans, and Greece is now on the brink of defaulting on an unsustainable debt of more than $350 billion.
Shift to the Caribbean – our Mare Nostrum, the once glorious Maya-Spanish crucible of the western hemisphere. Even though the basin is a critical crossroads – a focus for trade, drug interdiction and immigration – we condescendingly view the Caribbean today as little more than a sun-baked rest stop for reggae and rum.
And, oh yeah: red ink. The tourism-dependent Caribbean is home to seven of the world’s 10 most indebted nations as a share of GDP.
That doesn’t include the region’s real basket case: Puerto Rico, whose staggering $73 billion debt represents three-fourths of its entire economy, and whose actual debt may be more than twice that amount.
The island narrowly escaped debt default this week. But Puerto Rico Governor Alejandro García Padilla conceded its burden is “unpayable” and has called for major restructuring.
You’d assume that means Detroit-style bankruptcy protection, right? Wrong. Under U.S. law – a really dumb U.S. law in this age of globalization – territories like Puerto Rico cannot file for that help when they're unable to meet their obligations.
And that illustrates the kind of Washington negligence that helped lead Puerto Rico to this collapse in the first place.
For decades, the island of 3.5 million people has accumulated more and more debt – and indulged in more and more of the irresponsible public sector bloat that worsens that debt. It costs Puerto Rico’s electrical power company, PREPA, twice what it costs utilities in Florida to generate a kilowatt-hour.
The Beltway shares much of the blame, because it has rarely looked Puerto Rico’s way, let alone exercised real oversight.
When Barack Obama visited Puerto Rico in 2011, it was the first time in 50 years that a U.S. President had ever set foot there, even though it’s less than a three-hour flight from Miami.
Meanwhile, thanks to the economic disaster, Puerto Rico is hemorrhaging inhabitants, who are U.S. citizens. About 1 percent of the population is bolting each year, and most of those migrants are heading to Florida.
The short-term solution now is for Congress to wake up and pass legislation that affords Puerto Rico the bankruptcy option.
The long-term answers are harder but no less urgent.
One that Puerto Ricans increasingly seem to favor is statehood. A study last year by the U.S. Government Accountability Office (GAO) found that making the commonwealth the 51st state would pump more than $10 billion into its economy by giving it fairer access to federal programs and commerce with the U.S. mainland. That prosperity would, in turn, more directly benefit the U.S. economy.
But the larger challenge – as former Miami Mayor and Puerto Rico native Maurice Ferré told me recently – is to get the island “to understand that you can’t enjoy all the benefits of American citizenship without paying better attention to the rules of how the U.S. public process works.”
Which means we also need to pay much closer attention to Puerto Rico. And all the other small houses on our block.
Tim Padgett is WLRN's Americas editor. You can read more of his coverage here.