Puerto Rico’s Debt Crisis: Where’s Puerto Rico’s Syriza?
By Ricardo R Fuentes-Ramírez
Puerto Rico’s governor recently has said the island cannot pay its $72b debt and is close to defaulting, despite yesterday’s eleventh hour payment of $645.2m to pay its general obligation. The government has been lobbying US Congress to allow it to file for bankruptcy but it remains unclear if this will actually help. Because of its colonial status, Puerto Rico is operating under a legal, political, and economic straightjacket. Media outlets within and outside Puerto Rico have been covering the island’s recession since it began in 2006, and the current fiscal crisis since Puerto Rican bond ratings began spiraling down to junk status in 2014. However, most media coverage has discussed the Puerto Rican crisis as the result of a big government that spent too much money. Therefore, the conclusion is that Puerto Rico should follow austerity measures, laying-off public employees, and privatizing as much as possible of the island’s assets. The actual origins of the crisis suggest policy should be moving in the opposite direction.
Since the 1950s, the government of Puerto Rico has focused on a development strategy based on attracting foreign companies with tax exemptions. The historical problem was that the companies flowing inwards did not develop ties or linkages with Puerto Rican companies. Foreign companies do not buy inputs from local Puerto Rican companies, and similarly there has been little technology transfers from foreign businesses to local Puerto Rican businesses. Therefore, the wealth generated in Puerto Rico mostly leaks out of the island. Furthermore, the foreign capital that operated within Puerto Rico never led to the job creation the government hoped for. Policy makers remain convinced that the best strategy is to continue lowering taxes for big business. Therefore, the Puerto Rican government has historically had to resort to debt; or attacks against the working class, to survive.
In this context, Puerto Rico does not need austerity measures. On the contrary, the island needs:
- A democratic auditing and restructuring of public debt;
- A tax reform that increases taxes for big companies, both foreign and local, instead of relying on debt or squeezing the working class to increase revenues; and
- A state planning agency in charge of coordinating an effective Industrial Policy, where, for example, linkages between foreign and Puerto Rican companies are developed with clear strategic objectives such as increases in employment and/or productivity.
Alternatives to austerity abound. Puerto Rico’s short-run problem is more political than economical. The politicians who got the island in this mess (the right-wing New Progressive Party and the center-right Popular Democratic Party) are still the ones making the decisions. Unlike Greece, no alternative political party à la Syriza has been elected into office. New parties have been flourishing. Most notably, a new Working People’s Party (the PPT in Spanish) participated for the first time in the 2012 elections. A change in the island’s electoral landscape might be the crucial first step out of the crisis.
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