From Bad To Worse For Puerto Rico

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Above photo: Puerto Ricans march in protest with sign reading: “The people cry out for the rich to pay for this crisis.” CREDIT: AP

The plan by the oversight board for Puerto Rico will depress the economy further and fuel a debt spiral, in which Puerto Ricans, US taxpayers, and in the long run, even the creditors will lose.

SAN JUAN – Puerto Rico’s deep and prolonged recession has led to a severe debt crisis. And the combination of economic contraction and massive liabilities is having dire consequences for the island.

Everywhere in the United States commonwealth, private-sector jobs are being lost. Total employment in Puerto Rico has fallen from 1.25 million in the last quarter of the 2007 fiscal year workers to less than a million almost a decade later. Without employment, large numbers of Puerto Ricans (who are US citizens) have emigrated. But, despite this flight, the unemployment rate is now 12.4%. Without job prospects, the labor participation rate has plummeted to 40%, two-thirds of the level on the US mainland. About 60% of Puerto Rico’s children live in poverty.

The commonwealth’s debt position is clearly unsustainable, and its economy will be able to recover only if it gets a fresh start. But, unlike US municipalities, Puerto Rico is not protected by the US bankruptcy code. It is well known that decentralized bargaining processes for debt restructuring often lead to disastrous outcomes, with the relief obtained being insufficient to restore debt sustainability.

Aware of this reality, Puerto Rico enacted its own bankruptcy law, but the US Supreme Court struck it down, because the island is de facto an American colony, and the federal bankruptcy code permits only the US Congress to enact bankruptcy legislation over its territory. Eventually, Congress took action and enacted PROMESA, a law ostensibly designed to facilitate debt restructuring and economic recovery. Reflecting the standard colonialist view that a colony cannot be trusted to make independent decisions, a bipartisan Financial Oversight and Management Board was created to make fiscal decisions for Puerto Rico.

But PROMESA is bringing more problems than solutions. Recently, the Board—seemingly lacking both any understanding of basic economics and democratic accountability to provide checks against its incompetence – published its demands for the next fiscal year. The Board actually predicted that its proposals would turn Puerto Rico’s recession into a depression of a magnitude seldom seen anywhere: a 16.2% decline in GNP in the next fiscal year (and a further decline the year after), which is comparable to the experience of countries undergoing civil wars, or that of crisis-ridden Venezuela.

That is because the Board’s plan gives priority to the island’s creditors. It arbitrarily defines a minimum that must be paid to them in the short run, and forces the government to do whatever it takes to reach that goal, even if it means devastating the local economy. Indeed, the plan all but guarantees a social as well as an economic catastrophe, owing to substantial cuts in pensions, education, and health spending.

Remarkably, the Board’s plan is sketchy when it comes to its central obligation: crafting a plan for debt restructuring. This is shortsighted, because depressing the economy further will fuel a debt spiral. US taxpayers will lose, too: they will pay for the costs entailed by higher emigration. In the long run, even the creditors will lose. The proposed course is not only unfair, but also inefficient and ultimately self-defeating.

Those who advocate servicing part of the outstanding debt payments now claim that this would show that Puerto Rico is willing to pay, which in turn would inspire confidence on the part of creditors and investors. But Puerto Rico’s problem is a lack of capacity to pay, not a lack of willingness. The only way the commonwealth can stimulate confidence is by restoring economic growth.

The plan does include sensible calls for improving tax collection and the efficiency of government spending. But, though necessary, such measures will not resolve the crisis.

The Board is confusing efficiency with austerity. And while it would be nice if one could magically bring about productivity increases, the island’s real problems call not so much for supply-side reforms as for increased demand. Puerto Rico is in a demand-constrained regime, demonstrated by the significant subutilization of its factors of production. The Board’s plan markedly exacerbates this problem, without showing any awareness that it is doing so.

In a demand-constrained regime, recent measures to increase labor-market flexibility – and thus facilitate the lowering of wages by employers – will not result in faster growth. On the contrary, lower wages will lead to decreased spending, aggravating the depression, and further increase the likelihood of immigration to the US, where salaries are substantially higher.

A commitment to restoring economic growth should be the center of any restructuring proposal – or of any viable fiscal plan – for Puerto Rico. That commitment must begin with a substantial debt write-off, as well as a short-term moratorium on all debt payments. But this will not be enough: even if Puerto Rico makes no debt payments in the short term, its primary deficit implies that it will still need to take steps that would depress economic activity.

That is why the restructuring plan should include a third element: a clause providing for lending into arrears, which, by making new debt senior to old debt, would enable Puerto Rico to get fresh credit now, when it most needs it. This would create the space the authorities need to implement macroeconomic policies conducive to recovery.

The PROMESA Board was supposed to chart a path to recovery; its plan makes a recovery a virtual impossibility. If the Board’s plan is adopted, Puerto Rico’s people will experience untold suffering. And to what end? The crisis will not be resolved. On the contrary, the debt position will become even more unsustainable.

  • TecumsehUnfaced

    This is incredible. The U.S. bankster thugs have been busily raping Puerto Rico since 1898, and these inhuman things won’t stop.

    Remember, folks, we’re on the same menu as the people of Puerto Rico. We should start trying and shipping the bankster overlords to Guantanamo before they do the same to us.

  • Jon

    Amen, following the example of Iceland–jail the banksters. What if the people held a referendum to be annexed to Cuba! Then void the debt.

  • TecumsehUnfaced

    Funny, I was think too how much better off they would be under the much maligned Cubans.

  • Jon

    Of course the media would blame Putin, as usual! But just as Crimeans themselves took the initiative to hold their referendum, not the Russian government, imagine the indignation in DC if the Puerto Ricans actually did such a referendum! What if the UN General Assembly recognized it as legitimate!
    Then of course there is the illegitimate claim of the US government to Hawai’i, a subject I know well (see Liberate Hawai’i!) based on the occupation from 1898 onward, and the bogus “annexation” claim.

  • TecumsehUnfaced

    Then the Puerto Ricans could sue for reparations

  • Jon

    Best plan would be to demand just to be left alone to run their own affairs, with no entanglement with US, except for mutually beneficial trade. As one of my favorite bumper stickers says “eschew obfuscation!”

  • TecumsehUnfaced

    Ha! For that to happen we would have to overthrow those vampires first. They never pull the fangs out voluntarily.

  • Jon

    Time to euthanize the empire anyway. All in favor say “aye!”

  • TecumsehUnfaced

    Be careful! They’re listening and storing everything.

  • Jon

    Been at this since 1966. Just little o me, not much of a threat.

  • TecumsehUnfaced

    That’s what I’m counting on for myself too. They did terrible things to people they consider dangerous. Look at what they did to Michael Hastings.

  • Jon

    And Seth Rich, and dozens around the JFK murder that was the Deep State coup against Constitutional government. And Oswald who was actually a JFK supporter trying to warn him of the danger. But he knew too much. By July he thought he was being set up for the patsy, as he was. (See book: Me and Lee) And so many more.

  • TecumsehUnfaced

    You might want to check out the research on Kennedy by Robert Riversong.

    ->https://riversong.wordpress.COM/

  • Jon

    I glanced through them and noticed:

    JFK Assassination Plan A – The Chicago Plot

    so I clicked on that and sure enough he had gotten the info from the great Douglass book, “JFK and the Unspeakable” with which I am very familiar, having read it twice. Jim Douglass was a friend and colleague of mine in Hawai’i in the late sixties in opposition to the War Against Vietnam and the odious Draft..

  • TecumsehUnfaced

    ==

  • TecumsehUnfaced

    I guess you’re familiar with David Talbot’s book, The Devil’s Chessboard.

    ->http://whowhatwhy.ORG/2015/10/12/new-book-on-cia-master-plotter-dulles-sneak-peek-part-1/
    ->http://whowhatwhy.ORG/2015/10/13/new-book-on-cia-master-plotter-dulles-sneak-peek-part-2/
    ->http://whowhatwhy.ORG/2015/10/14/new-book-on-cia-master-plotter-dulles-sneak-peek-part-3/

    These sneak peeks are great, but I still need to get the book.

    Also the Douglass book.

    Is there any particular reason(s) to consider Judyth Vary Baker credible?

  • Jon

    Absolutely! I have her book too! She too has Jim’s book that he sent her. Brilliant and the most intimate witness, in all senses. I also have, but have barely begun Talbot’s book. Two more that are good about that era and provide additional deep info are “Dr. Mary’s Monkey” and “Mary’s Mosaic” (different Marys) VERY well worth reading them all!

  • TecumsehUnfaced

    Thanks! I’ve added those also to the pile of reading I plan to do.

  • stephenverchinski

    Bankster thug? How about all the President Obama no outrage who signed this bill into law and all of the Congress and Senate who voted for it who were Democratic Party members. They did this even after the Democratic primary there with one of the worst reported voter suppression there including few polling places, shortened hours falling within most folks work hours and two places to have to go and complete your voting. Just keep it up folks, this party is not your friend. Wait till your state is on the similar chopping block.

  • TecumsehUnfaced

    Thanks for the good steering. Did you catch this yet? It has a certain relevancy to what we were talking about.

    The “Deep State” and the Unspoken Crimes of the U.S. Empire, Operation Gladio
    By Gary Weglarz – Global Research, March 14, 2017

    Operating under the aegis of NATO with CIA input/supervision, Operation Gladio utilized false flag terrorism, mainly bombings but also shootings, in service to what it defined as the “strategy of tension.” This “strategy” was seen as a way to manipulate European public perception, thought, opinion and voting behavior away from progressive political parties and leadership, and toward the conservative pole of the political spectrum. Some Gladio operatives have testified that the intent was to force the public to seek a stronger more authoritarian police and State presence in order to protect citizens from political violence.

    Critically important is the fact that the violence carried out by Operation Gladio operatives was routinely blamed on the left, on communist or socialist political parties, and/or on groups advocating progressive or revolutionary change. However, the many decades of violence were in actuality carried out by right wing cells within NATO’s Gladio stay-behind army units. Thus Operation Gladio was by definition orchestrated false flag terrorism carried out not by “leftists,” but rather by a multiplicity of Western institutional structures in Europe in coordination with the CIA.

    ->http://www.globalresearch.CA/legitimacy-the-west-and-operation-gladio/5579437

  • Jon

    I am aware of Operation Gladio, principally from the amazing truth teller.Sibel Edmonds, who was an FBI translator of mid east languages and in her work learned of high level corruption. As a result, she was gagged, the most gagged person in US history,and she wrote a book, “Classified Woman,” that I have not yet read. She had a program called Boiling Frogs but is now involved, with James Corbett in a subsequent project. She is an authority of Gladio! The Deep State has done LOTS of false flag operations, the last big one was 9/11.

  • TecumsehUnfaced

    ==

  • TecumsehUnfaced

    Good! Then it will be an easy read for you. Here’s another alternative I’ve been browsing today.

    ->http://spitfirelist.COM/books/martin-bormann-nazi-in-exile/