In the course of a period when much of the world has been fascinated by the encounter between Greece and the European Union over that member state’s serious debt problems, a not dissimilar situation has arisen nearer home, with the Governor of Puerto Rico, Alejandro Garcia Padilla announcing that his government was unable to meet a debt commitment of up to US$70billion, and was therefore facing a tremendous fiscal crisis.
With creditors apparently now unwilling to continue to tolerate the government’s apparent inability to meet its commitments, the Governor has indicated to creditors that he would now have to seek ways “to restructure its liabilities, including debt payment deferrals and extended repayment schedules.”
It has been revealed that this was a problem gradually attaining overwhelming proportions over a long period, in a situation in which Puerto Rico, is in effect a colony of the United States, though its status falls under the constitutional rubric of “a freely associated state”.
This distinction between a state of the United States and a freely associated state, voted for by the population in a referendum, means, in effect, that the island’s government has put Puerto Rico in a kind of no-man’s land. For on the one hand, it cannot use the normal recourse of American states or cities of filing for what is referred to as Chapter 9 bankruptcy protection; while on the other hand, not being a sovereign state, it has no recourse to the International Monetary Fund as countries in our region have been able to do.
To many in our area, not recipients of day-to-day news about Puerto Rico as would be the case of a member country of Caricom, this information must come as something of a surprise, given its formal colonial status. For there is a history of Caribbean governments, having attained substantial self-government and then independence in the 1960s and ʼ70s, being often advised that what was called the Puerto Rican model was one which they could beneficially follow.
On the other hand, some critics, largely from the University of the West Indies in those early days, were at that time critical of the model of industrialization of the island, said to have been recommended for themselves by W Arthur Lewis, then a periodic adviser to Caribbean governments, in his booklet ‘The Industrialisation of the British West Indies.’ The critics, led by the Trinidadian economist Lloyd Best, founder of the academic forum the New World Group, were particularly stringent in their criticism that the so-called Puerto Rican model was not acceptable to our Caribbean Community region.
Nonetheless it is probably fair to say that the then leaders of Jamaica (Norman Manley), Trinidad & Tobago (Eric Williams) and Barbados (Errol Barrow), looked favourably on the Puerto Rican economy’s early period of development, under its system of partial self-government not then unlike theirs. But with the attainment of independence, the governments of all these states, including Guyana, have felt constrained to have recourse to the International Monetary Fund, and to negotiate popularly unpalatable terms for economic recuperation.
The fact of the matter is that Puerto Rico, with what is referred to as its self-governing status, does not have the access to federal government support that states of the United States have had. This is one of the limitations of that status that have become apparent, because as stated above, the government is not able, like those states, to seek assistance through a declaration of a status referred to as Chapter 9 bankruptcy protection, which triggers federal action.
It has been demonstrated that the difficulties faced by the current Puerto Rican economy have, on investigation, been growing for some time. They have more recently come to light not only through Governor Padilla’s declaration of inability to meet repayment of its debts, but through a report by a team led by a distinguished academic economist, and former senior officer of the IMF, Professor Anne Krueger, who led a team of investigators into the state of the island’s economy, at the invitation of the government.
Their report indicated that “between 2004 and 2014 revenues undershot initial projections by an average of $1.5 billion per year” or 15% of the country’s budget. And it has emphasized the need for detailed budgetary reforms satisfactory to the markets, apparently not unlike those being imposed on Greece by the European Union and the IMF. But unlike Greece, with its population of approximately eleven million, Puerto Rico has a population of three and a half million, as it seeks to find a sufficiently broad base to extract the revenues needed for recuperation.
The island’s current predicament is summed up in the a recent statement that its “economy as measured by gross national product, has declined in tandem with the population. It (the economy) shrank in seven of the past eight years, and is now 13% smaller that it was in 2006.”
In a sense Puerto Rico is on its own, unlike Greece, however unpalatable the EU-IMF remedies may seem to that government’s leaders. In that context, the Governor of the island is trying to insist that in the process of restructuring, the country can only rely on its own resources, but that its “creditors must share the sacrifices” – always a difficult bill to fill.
It would appear that the situation of Puerto Rico, even when within the United States economic framework, essentially faces the same issues, though on a magnified scale, of the remaining British colonies in this Region, not to speak of our independent states.
Self-support, in the context of what is available on the market seems to be the order of the day. For Puerto Rico, in spite of its constitutional status, and the protection that this might be assumed to afford it, finds itself facing the markets like any independent state.
