Above Photo: Hector Retamal / AFP / Getty Images
Once the island has recovered from the hurricane, it needs to wipe away its debt and end its broken political status within the US.
More than 40 percent of Puerto Rico is without clean water, and the vast majority has no electricity. Many hospitals and operating rooms are not functioning, and the threat of a public health crisis looms. On Wednesday, 145 members of Congress took the unusual step of writing to President Trump and asking for more Department of Defense resources to be immediately deployed.
Puerto Ricans are US citizens, and Puerto Rico is legally entitled to the same federal relief and reconstruction aid as Texas or Florida. But Puerto Rico is also an “unincorporated territory” of the United States ― or, as many would say, a colony. Although Puerto Ricans can be drafted to serve in the US military, and are subject to other obligations of US citizenship, they do not have voting representation in the US Congress.
Therein lies the problem: Puerto Rico’s political status not only prevents these US citizens from securing their legal rights, but even worse, it allows them to be treated very badly, over and over again, and not have the sovereignty to chart a different course.
That different course is desperately needed, because if Puerto Rico is to have a future, it will need a whole new economic plan that allows it to recover. This would include, at a minimum, the cancellation of most of its debt, which is not going to be paid in any case. The austerity that has been imposed as a response to this debt burden needs to be replaced by a fiscal stimulus program, much of which could go toward reconstruction.
That reconstruction could be aided by the permanent repeal of the Jones Act, a shipping law that raises the price of food and other necessities. And Puerto Rico should get the same federal Medicaid and Medicare funding as the states, which would save the island hundreds of millions of dollars annually.
In the longer run, the question of Puerto Rico’s political status will need to be resolved. As a US state, it would at least have two senators and five voting representatives in the House — and perhaps our political class would pay more attention to the island’s problems. If it were independent, it could potentially pursue a different economic strategy, with its own currency and control over fiscal and monetary policy — and presumably, it could default on its debt. But its current status leaves it at the mercy of Washington, and Washington – lobbied by vulture funds and other creditors ― hasn’t shown much mercy lately.
The hurricanes have hit at a time when Puerto Rico is facing an unprecedented economic crisis, having already suffered a lost decade without economic growth. Unemployment is at 11.7 percent, more than two-and-a-half times the level of the United States. The poverty rate is at 46 percent, and 58 percent for children — nearly three times the US rate. In the past decade, about 10 percent of the population has left the island, and the pace of outmigration has doubled in recent years.
Unfortunately, over the last year or so, the US federal government has made this economic crisis much worse. The Obama administration — with input from Republican congressional leaders — appointed a fiscal oversight board that imposed a draconian austerity plan on Puerto Rico in response to the island’s default on its $74 billion dollar debt. The plan proposed by this board was rejected by creditors who — amazingly — wanted to squeeze even more out of Puerto Rico. But regardless, the austerity condemns the island to a second lost decade and more.
The coming decade will be shaped by cuts to health care and pensions, as well as the kind of deficient infrastructure spending that left Puerto Rico extraordinarily vulnerable to this hurricane. And all of this punishment — even if it “worked” as planned — would only win creditors about $7.9 billion of the $74 billion they are owed. Hence the island’s government is now in court with the creditors.
In other words, even before the hurricanes hit, the Puerto Rican economy was already facing a quarter century or more without economic growth, and with increasing unemployment and emigration. Now revenues will decline even faster, thanks to falling sales tax receipts, fewer tourists, and even more out-migration, thus worsening the fiscal crisis.
Puerto Rico’s long-term economic disaster has its roots in changes to the rules of the global economy — the same changes that have harmed many countries and regions. It has always had a much larger manufacturing sector — including of pharmaceuticals — relative to its economy, than most of the hemisphere. This was hit hard by the World Trade Organization (WTO), which removed Puerto Rico’s privileged access for pharmaceuticals to US markets, then by China’s accession to the WTO in 2000, and the repeal of certain US tax breaks for corporations investing in the island.
Investment peaked at 20.7 percent of GDP in 1999, and had fallen to to less than 7.9 percent in 2016. Manufacturing employment has fallen by more than half since 1995. While the Puerto Rican economy, according to IMF numbers, grew by an annual average rate of 3.2 percent in the 1980s, and 3.8 percent in the 1990s, growth collapsed in the 2000s and has been negative since 2005.
It was these economic shocks, and Puerto Rico’s limited ability to respond to them ― due partly to its dysfunctional political status ― that led to the debt crisis. The government ended up borrowing more to keep the economy and public services from further decline.
But it is the federal government’s current mandate of perpetual austerity and economic shrinkage that is really preventing any economic recovery for the island in the foreseeable future.
Of course, the most urgent need is the immediate deployment of full federal resources for disaster relief. But the island was on a downward spiral of increasing poverty, unemployment, and deteriorating public health and education long before the hurricanes hit, and we cannot solve one crisis without addressing the other.