Puerto Rico’s Gov. Alejandro Garcia Padilla will not want to relive this past month. After credit-rating companies Standard & Poor and Moody’s both downgraded Puerto Rico’s debt to junk level, murmurs of economic collapse quickly followed. A federal bailout, which has not been properly considered by the White House, must now be deemed a viable option. It is in the interest of the United States to ensure that this once prosperous island returns to previous levels of growth.
The economic tailspin of Puerto Rico is easy to catalogue. It is a potent blend of a prolonged recession, a massive accumulation of debt and an extended period of high unemployment. As Deepak Lamba-Nieves, a research director at the San Juan think tank Center for a New Economy, stated forcefully to The Guardian, “You cannot pay daily expenses with your credit card, and that’s what Puerto Rico has been doing for years.”
In Puerto Rico, 15 percent of the budget goes toward paying down its colossal debt, three times the amount spent on infrastructure development. To add to the crisis, long-term issues pervade the economy — the population has decreased considerably since the recession began in 2006 and the birth rate has fallen, which has created an old-age population without the capacity for economic development. Last year, there was a 1 percent drop in the population — seven times higher than the fall in West Virginia, the state with the sharpest population reduction. For many years, Puerto Rico had benefited from an incentive within the U.S. tax code for corporations to do business in the region. In 2006, however, these tax breaks expired. Coupled with the global economic crisis of 2008, businesses have all but stopped turning to Puerto Rico as a financial haven. There has been an exodus of the few remaining businesses and middle-class Puerto Ricans to the streets of Miami, which claim to hold the promise of economic success.
Currently, a bailout is not on the table for discussion. But it should be. It is in America’s interest to ensure that Puerto Rico does not default on its debt obligations. The White House has sent an economic advisory team to monitor the current situation and see whether the latest series of reforms for the bloated budget will have any positive effect. A further exodus of Puerto Ricans to the United States may have negative domestic repercussions. The comparisons between Detroit’s economic collapse and Puerto Rico are not unfounded. Both were once-prosperous hubs for corporations and now both have followed a similar path to economic collapse. But, unlike the Motor City, Puerto Rico is too big to fail.
A version of this article appeared in the Monday, Feb. 24 print edition. Harry Brown is a staff columnist. Harry’s Take is published every Monday. Email him at [email protected]