As Debt Talks Hit An Impasse, What's Next For Puerto Rico?
On Friday, Puerto Rico suffered the latest setback in the island's ongoing debt crisis. Talks on restructuring the nearly $9 billion debt of its power company, a government-owned utility, reached an impasse. While the utility, PREPA, said Sunday that it had reached a forbearance agreement with lenders, negotiations on its debt restructuring still have not reached a resolution since the last deal expired Friday night.
Power company officials have warned that failure to make payments on that debt could lead to delays in fuel shipments and blackouts across the island, which is home to more than 3 million people.
It's just one financial problem of many for the U.S. territory, where government agencies have amassed a debt of $72 billion.
"This financial crisis is just an expression of a deeper crisis, which is the collapse of the economic structure," says Rosario Rivera, an economist and professor at the University of Puerto Rico at Cayey. Rivera tells NPR's Michel Martin that the island has been in a recession since 2006.
Puerto Rico's constitution requires the government present a balanced budget at the end of every fiscal year. But reports indicate that the island has masked the problem in the past by using loans to balance the budget.
Rivera says deficits could be covered by raising taxes, cutting spending or issuing debt.
"What has been happening for the past maybe 20 years is that we have been covering those deficits strictly with debt," she says. "And it just hits us in the face that all the debt we have accumulated is bigger than our capacity to raise taxes."
In December, the government made headlines by spending $120 million to pay Christmas bonuses to public employees. "We can no longer do those things because those are politically-motivated decisions," Rivera says. "It's those kinds of decisions that have brought us here."
Puerto Rico's fate is controlled by Congress, and Republicans and Democrats there have offered competing ideas on how to solve the debt crisis. Republicans generally favor having the federal government take over Puerto Rico's finances, while Democrats want to allow the island to restructure and shed some of its debt through bankruptcy, which federal law currently prohibits.
"The scenario of bankruptcy is considered more appealing to us, because it might make us able to pay attention to the economy," Rivera says. The other option "would mean that we are basically not able to dictate public policy anymore."
In the meantime, the crisis has weighed heavily on Puerto Rico's residents, Rivera says.
"It's very difficult because the weight of the tax system is only on the shoulders of the working class. And that is a shrinking class. So it's very hard on us."
Click the audio link above to hear the full interview.
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Transcript
MICHEL MARTIN, HOST:
With a recent storm making life difficult, people on the East Coast might be dreaming of a sunnier place, like Puerto Rico. But the island commonwealth is facing a storm of a different sort, a financial one, some $72 billion in debt. Today, there was a little good news for Puerto Rico. Its largest power utility reached a deal with lenders to keep it from defaulting on some debt, at least through February 12. Some had warned a default for the utility could have led to electricity blackouts for the island where 3.5 million people live. Despite the deal, the agency's future remains uncertain. Because Puerto Rico is a commonwealth, the U.S. Congress plays a major role in the island's affairs, and lawmakers are divided about what to do. We wanted to know more, so we've called Rosario Rivera. She is an economist, a professor at the University of Puerto Rico at Cayey. And she joins us by phone from Caguas, Puerto Rico. Professor Rivera, thank you so much for speaking with us.
ROSARIO RIVERA: Thanks to you for the invitation.
MARTIN: So how did it get to this point? Can you explain that in a way that we can understand if we haven't been following this closely?
RIVERA: Wow. Well, you started saying that this was a storm of financial proportions. Well, it all started with a storm of economic proportions. And this financial crisis is just an expression of a deeper crisis, which is the collapse of the economic structure since 2006 that we hit a recession.
MARTIN: Let me ask you this, though. It's been reported that Puerto Rico has been using the debt that it owes on bonds to make it look as if it had a balanced budget for some time now. Why is that?
RIVERA: Well, because there is a part in our constitution that requires that we must present a balanced budget every end of fiscal year. So if there is a deficit, you should cover it with either more taxes or cutting spending or issuing debt. So what have been happening in the past, maybe, 20 years is that we have been covering those deficits strictly with debt - strictly with debt. And it just hits us in the face that all the debt that we have accumulated is bigger than our capacity to raise taxes.
MARTIN: How has this been playing out there? I know that we are seeing, you know, a lot of out-migration. I know that people from island who can have been leaving and trying to get jobs in other places. But how else are you seeing it play out for people who are living there who are staying?
RIVERA: It's very difficult because the weight of the tax system is only on the shoulders of the working class, and that is a shrinking class. So it's very hard on us.
MARTIN: The creditors point out that the government issued $120 million in Christmas bonuses in December to government employees while the island is missing other debt payments. Can you talk a little bit about that?
RIVERA: We can no longer do those things because those are politically motivated decisions. OK? I have mixed feelings on that issue because $120 million on Christmas bonuses in a time where the economy is not moving - it might be of a little help. But still, $120 million that don't go into the economy - well, we don't have them either in the treasury department. So it's those kind of decisions that have brought us here.
MARTIN: Here on the mainland, the Republicans in Congress seems to be inclined to ask the federal government to take over Puerto Rico's finances. The Democrats in Congress seem to be inclined to allow the commonwealth to restructure and shed some of the debt through bankruptcy, which the federal law currently prohibits. What would be the reaction to those various scenarios there in Puerto Rico? Do people - is either of those scenarios considered more appealing than the other?
RIVERA: Well, the scenario of bankruptcy is considered more appealing to us because it might make us able to pay attention to the economy. The other scenario, it means the return to the relationship previously of the conception of the commonwealth and the new relationship between Puerto Rico and the United States. It would mean that we are not, basically, to be able to dictate public policy anymore. But right now, the situation is so, so stressed up that what we haven't had is either we restructure or either we default or either we just close government or just cut so drastically the public services that we are going to have a social crisis in Puerto Rico as we have never seen before.
MARTIN: That's economist Rosario Rivera. She is a professor at the University of Puerto Rico at Cayey, and she was kind enough to join us from Caguas, Puerto Rico. Professor Rivera, thank you so much for speaking with us once again.
RIVERA: Thanks to you. Have a good afternoon. Transcript provided by NPR, Copyright NPR.
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