Debt: A bipartisan deal in Congress may help Puerto Rico out of its debt crisis, while not costing the taxpayers a penny. While that’s to be applauded, it does nothing to fix the rest of Puerto Rico’s moribund economy.
While no deal is ever perfect, this plan to restructure $72 billion in debt is probably the best that can be hoped for from a Congress hopelessly deadlocked in a presidential campaign year.
Carefully negotiated by House Speaker Paul Ryan, the U.S. Treasury, and members of both parties in Congress, it does not include either a bailout or Ch. 9 bankruptcy for Puerto Rico, as President Obama sought.
Instead, it makes investors in the U.S. Territory’s bonds take the hit, which is as it should be, and creates a seven-member board to oversee the island’s finances.
So, with a little spending discipline and some debt write-offs, Puerto Rico will gain some breathing room.
But debt is a transient problem. Of greater import is its economy -- which Congress has helped turn into a welfare-dependent, high-unemployment basket case.
As American Enterprise Institute economist Desmond Lachman notes, “a large part of its inability to service its $72 billion debt mountain is the fact that its economy is some 15% smaller than it was in 2005.”
Over the same time, Puerto Rico lost 10% of its population, as young people fled the economic disaster.
Even with a financial supervision board, nothing will be done about Puerto Rico’s economy. This bill, as good as it might be, just doesn’t do that.
Puerto Rico’s welfare-statist politicians, who’ve spent the territory into insolvency and raised taxes, deserve a big share of the blame. So do Puerto Rico’s voters.
But the U.S. has had a big hand in its tragedy, too.
In the 1970s, the U.S. mandated that Puerto Rico pay the same minimum wage as the U.S. Not surprisingly, that killed thousands and thousands of jobs on the island.
And for years, Puerto Rico had special manufacturing tax preferences. But those were phased out in 2005.
Then there’s the Jones Act, which requires Puerto Rico to buy goods shipped on American-made ships with union crews -- adding hugely to their cost of living.
Put it all together, and you have an economic disaster.
Congress could solve two of these problems in one swipe. Now that it’s addressed the debt, how about helping to fix Puerto Rico’s economy, too?
