Puerto Rico’s New Fiscal Plan Will Cause Another ‘Lost Decade’
Six months after Hurricane Maria, Puerto Rico’s new fiscal plan – which supposedly takes the hurricane’s devastation into account – will demand citizens pay off debts they cannot possibly repay, leading to deeper economic decline, says CEPR co-director Mark Weisbrot
GREG WILPERT: It’s the Real News Network. I’m Greg Wilpert coming to you from Quito, Ecuador.
It’s been almost six months since Hurricane Maria hit Puerto Rico. While power has been restored to most of the island, rural areas are still without electricity. The government estimates that all power will be restored by May of this year, just in time for the start of the next hurricane season. Hurricane Maria caused an estimated 100 billion dollars in damage, destroying nearly 400000 homes with over 135000 people fleeing to the U.S. mainland. Adding insult to injury, of the 23 billion dollars pledged in disaster aid so far only 1.3 billion have made it to the island, according to The Associated Press. Puerto Rico’s governor recently presented a new fiscal plan that is supposed to bring about an economic recovery. The congressional hearing was held about this earlier this week, in which the codirector of the Center for Economic and Policy Research Mark Weisbrot testified. Let’s take a look at the short clip and a short clip of what he had to say.
MARK WEISBROT: This is an austerity plan. They use words like new government model and right sizing and efficiency, but they’re really talking about cuts in health care, in education, in appropriations to the municipalities, who have to repair a lot of damage, as well. So this really can’t work. This isn’t the only place where this has been tried. You can look at Greece. You can look at the other countries in the eurozone. You can look at Jamaica, not far away, which has been under IMF agreements for decades and has had hardly any growth in [per capita]. So that’s the outcome you’re going to get from trying to shrink the economy, basically taking measures that will shrink the economy, in order to squeeze out debt service. That’s really what’s going on.
GREG WILPERT: Joining me to now talk about Puerto Rico’s new fiscal plan is Mark Weisbrot. Thanks for being here today, Mark.
MARK WEISBROT: Thanks, Gregory.
GREG WILPERT: So before we get into your analysis of the post-hurricane fiscal plan, give us a brief summary of what the plan actually proposes to do and what it projects for the island’s economic future.
MARK WEISBROT: Well, they’re projecting a big drop in growth for this year. And then five years of recovery, although the net growth for the six years will actually be negative in real terms. But ironically that’s better than the last plan that they had in 2017. So somehow they’re projecting that they’re going to do better after the hurricane than they did before when, you know, they were already, you know, before the hurricane hit Puerto Rico was already, already had a decade of, a lost decade, really, of no growth in income or GDP. GNP is what they usually measure there for various reasons. And so then the plan that they had, the last, last year before the hurricane, guaranteed them another 10 years, and most likely more, without economic growth. And then of course you had 10 percent of the population left the island before the hurricane. And this plan is projecting another 19 percent population loss over the next six years.
So there’s still no light at the end of the tunnel. And that’s what I was saying in that clip there, that this is a classic kind of austerity in the midst of recession, with the added problem that the the island has been enormously damaged by the hurricane, they haven’t got anywhere near the aid that they need to rebuild. And the population loss is a huge drag on demand that will also push the economy downward.
GREG WILPERT: So are you saying basically that the plan is, despite its relatively dire predictions, is not just not realistic because the economic impact will be even greater than what they estimate.
MARK WEISBROT: That’s right. Just like the last plan, it’s really underestimating the length and depth of the recession that is likely to, or the fall in economic output that’s likely to happen.
GREG WILPERT: Just give us some of the details as to why that is. I mean, what kinds of austerity are they proposing and why is this going to have such a major impact?
MARK WEISBROT: Well, they have, over the next six years they have about 13 billion dollars in cuts in health care, in education, in what I mentioned. The allocations to the municipality. So this is what’s really going to, this is really going to hurt the economy.
But I think the population loss is even worse. If you’re not creating any jobs for people there people are going to leave, especially given the conditions. And so that’s what’s really doing it.
GREG WILPERT: And so what do you think needs to happen for Puerto Rico to truly recover?
MARK WEISBROT: I think they have to have an immediate stimulus. They have to focus on economic recovery first, and then talk about whatever kinds of structural reforms they say are needed, and a lot of them are dubious. I think that’s what has to happen. They have to rebuild, and they have an opportunity to rebuild. They should be doing that. They can provide jobs in construction, for example. And they’re, you know, rebuilding all of the lost infrastructure that was already in bad shape even before the hurricane.
So that’s what has to be done first and then they can talk, and they’re not going to be able to pay the debt. That’s the other big thing. Because they’re trying to run, and they are projecting, which will never appear, but they’re projecting a budget surplus of about 3.4 billion over the next six years, and that go would go to debt service. So they’re basically squeezing the economy and trying to impose austerity in order to pay off debt which is just completely unpayable. They have to recognize that and they have to have debt cancellation.
GREG WILPERT: So what do you make of the other ideas in this plan, such as the privatization schemes? One involves the privatization of the island’s power company, and another also of the school system, basically introducing almost all charter schools for Puerto Rico. What do you think of that?
MARK WEISBROT: Yeah, well, this is another example of taking advantage of this situation to get things for, you know, private corporations, and of course the owners of the debt. I think that the privatization they have some experience with, they privatized the water and sewer utility before and it was a terrible disaster. They lost money on it, it didn’t work. And I think the privatization of electricity is another huge mistake.
GREG WILPERT: So just one more point. You make the comparison in your testimony to Greece, for example which also was forced to cut back in the midst of a recession. I’m just wondering, what is it about the economics of the people who are proposing these things to believe that you can continue to cut from, in other words, to impose austerity and still have economic growth when they experience, at least from Greece, just shows the opposite? How do you explain that, that they keep providing the same kind of recipes and expecting a different result?
Well, that’s a good question. I mean, Greece, in a sense this is much worse than Greece. I mean, Greece, the private bondholders had to take a haircut of 50 percent. And in Greece, well, they were doing other things. It wasn’t really to try and squeeze debt service out of Greece so much as it was to force them to make these so-called reforms that hurt people there that people would never vote for, cuts in pensions and reduction in minimum wage and so on, which you know. Here they’re really trying to squeeze debt out of them in addition to making these really unpopular reforms.
I think this can only happen because Puerto Rico is a colony. I mean, they don’t have, if they were an independent country they could default on their debt like Argentina did at the end of 2001, and they could recover. And they, you know, and they would have their own currency and their own central bank. If they were even a state they would have voting representation in Congress. They’d have, like, four representatives and two senators. So they could get, you know, be treated like other U.S. citizens.
You know, they’ve got four years here where they’re not even going to get the normal Medicaid payment from the federal government that the states get. That’s billions of dollars there. Billions of dollars of their debt are a result of not getting the Medicaid that that states get. And again, there’s no reason for that. They’re U.S. citizens, why shouldn’t they get that?
You know, this is the kind of thing. They’re really treated completely differently because they’re a colony, and disenfranchised, and run by people who, they have no accountability in the U.S. Congress. There’s no accountability whatsoever to Puerto Rico.
GREG WILPERT: OK. We’re going to have to leave it there for now. I’m sure we’re going to come back to the issue a couple of months from now, probably. I was speaking to Mark Weisbrotm codirector of the Center for Economic and Policy Research. Thanks for doing this today, Mark.
MARK WEISBROT: Thank you.
GREG WILPERT: And I’m Greg Wilpert for the Real News Network.