The Economist - UK (2022-03-19)

38 United States TheEconomistMarch19th 2022

PuertoRico

You lovely island

I

t looked like Independence Day in

America:  dozens  of  flags  with  stars  and

stripes,  carried  by  people  marching  past

banks  and  fast­food  restaurants.  But  on

closer inspection, those flags had an extra

star. On March 2nd, celebrating the day 105

years ago when Puerto Ricans were granted

American  citizenship,  Víctor  Parés  hoped

to  rally  support  for  statehood.  “It’s  up  to

our generation to finish what started with

the  Jones[­Shafroth]  Act  in  1917,”  said  Mr

Parés,  a  politician  leading  the  procession

in San Juan, the capital. Only a few passers­

by  seemed  interested.  The  dark  traffic

lights  dangling  above  them,  a  casualty  of

the  island’s  recurrent  power  cuts,  were  a

reminder of more humdrum concerns.

Yet  change  is  coming,  even  if  it  falls

short of Mr Parés’s dreams. On March 15th a

bankruptcy  deal  came  into  effect  that  re­

duced  Puerto  Rico’s  debt  by  almost  80%.

The resulting new fiscal plan, coupled with

an  influx  of  federal  dollars,  marks  the  ef­

fective end of the island’s debt crisis. Now

Puerto  Rico  has  a  chance  to  fix  its  econ­

omy, after years of recession.

The debt crisis that engulfed Puerto Ri­

co in 2014 owes much to its peculiar legal

status as an American commonwealth. Not

bound by the strictures of a state, lawmak­

ers in San Juan borrowed freely and disas­

trously. In 2016 Congress passed the Puerto

Rico Oversight, Management and Econom­

ic  Stability  Act  (promesa),  giving  the  is­

land a process to restructure its debt. In ex­

change,  it  saddled  the  place  with  a  fiscal­

oversight  board.  Derisively  called  la junta

by  locals,  the  board  managed  the  island’s

financesandleddebtnegotiations.

Thebankruptcyagreementreachedin

JanuarywillrelievePuertoRicoofcrush­

inginterestpayments,whichwillnowtake

up7%ofthebudgetinsteadofover25%,

witha plantobalancelong­termfinances.

“Itisa soundbasisforfiscalplanninggo­

ingforward,”saysAntonioWeiss,wholed

theTreasuryDepartment’snegotiationof

promesaunderBarackObama.

The$67bninfederalfundsallocatedto

help the island rebuild after Hurricane

Maria in 2017 continues to arrive—blue

tarpsonroofsinpoorerpartsofSanJuan

area testamenttoa shamefullyslowrecov­

ery.ButitisPresidentJoeBiden’slegisla­

tiveactivityin 2021 thatpromisesa torrent

ofspending.TheAmericanRescuePlanis

expectedtodeliveratleast$23.5bntoPuer­

toRico.TheInfrastructureInvestmentand

JobsActwillbringyetmore.

The oversightboardprojects thatthe

economywillgrowby0.5%a yearonaver­

agethrough2030.Thefactthatitwilltake

sucha surgeofspendingjustforPuertoRi­

cotobarelyescaperecessionunderscores

thetaskahead.Since 2004 itseconomyhas

shrunkby20%(seechart).Thoughliving

standardsarestillamongthehighestin

LatinAmerica,neighbourssuchastheDo­

minicanRepublichavesteadilyclosedthe

gap.Theisland’spovertyrateof44%re­

mainsmorethantwicethatofMississippi,

thepoorestAmericanstate.

The causesarenomystery.American

firmsflockedtoPuertoRicobecausepro­

fitsearned there were exemptedat one

timefromfederaltaxes.Lossofthisperkin

2006 drovemanytoleaveorcuttheirwork­

forces.Infrastructureispatchy—blackouts

and potholes are common. Even where

thereisgrowth,jobsarescarce.Manufac­

turingoutputhasrisenby35%since2006,

butemploymenthasfallenby32%.

Fixingtheisland’seconomywillhinge

onreversingitspopulationdecline.Higher

wagesonthemainlandhavedrawnpeople

awayfordecades,butmanywouldreturn,

explainsJorgeDuanyofFloridaInterna­

tionalUniversity.“PuertoRicanscomeand

go freely,vaivén.”The moneysent back

boostedtheeconomy,andemigrationwas

neverenoughtodenttheisland’spopula­

tion growth.Nolonger. Fromapeak of

3.8min2004,thepopulationhasdeclined

by16.5%;themedianagehasrisenfrom 33

to 45 since 2005 asyoungerpeoplehave

left.That shrinksthetaxbase andsaps

PuertoRicoofitsmostdynamictalent.

OKbymeinAmerica

Policymakersstillstrugglewithfullytrans­

parentbudget­makingandreforms.Voters

havenoticed.The twomain parties,the

PopularDemocraticParty,whichfavours

thestatusquo,andtheNewProgressive

Party,whichbacksstatehood,haveseen

theirshareofthevotewane.Protestsin

frontofLaFortaleza, thegovernor’s16th­

centuryresidenceinSanJuan,arecom­

mon.MrWeissarguesthattheoversight

boardshouldnowbe retired, andfiscal

controlreturnedtolocalelectedrepresen­

tatives.Votersseemtocravebothsound

managementandaccountability.

Thefederalgovernmentcoulddomore

forPuertoRico,forexampleby funding

Medicaidasmuchasitdoesforstates.But

nopolicywouldhaveasdramaticaneffect

aschanging theisland’s status,through

statehoodorindependence.Noneofthe

threereferendumsoverthepastdecade(all

yielding amajority for statehood) came

witha commitmentfromCongresstore­

specttheoutcome.MrParéshopestheend

ofbankruptcy canprompt change.“The

JonesActwasa lawoftransition,a transi­

tionthatmustultimatelyend.” n

S AN JUAN, PUERTO RICO

With the end of bankruptcy in sight, PuertoRicohasa chancetofixitseconomy

Falling star

GDP, $bn, 2015 prices

Source:WorldBank

120

90

60

30

0

201510052000951990

Puerto Rico

Cuba

Dominican Republic