Wednesday, February 5, 2014

Bad Party, Terrible Hangover

The good news?

I did not wake up this morning with a hangover.

The bad news?

The island did.

Whatever you think of the current governor, nobody can dispute that, on at least one point in the news conference yesterday, he was right: both the major parties that rule Puerto Rico got us into this mess. And that is? Yesterday, after years of waving red flags, Standard & Poor’s degraded our credit rating to junk status.

Terrible golpe al país shouts the The New Day’s headline in a special 15-page extra to today’s regular printed edition. Conscientious blogger that I am, I read all 15 pages, which told me basically what I knew, as well as some things I didn’t.

The gist of it is that for forty years, the public has allowed our political leaders to engage in politicking, instead of providing services, making fiscally responsible decisions, and running efficient governments. And how did they do that? By doing on a collective basis what many of us do on a personal level: living on credit.

There’s nothing too sexy about economics—nothing as sexy as building a great whacking (thanks, Franny!) stadium or investing a billion dollars in “special communities,” which today remain just as special as they were when the program began. (The program identified poor communities and tried to invest funds for improvements to infrastructure and social services…)

OK—so how bad is it? Some facts lifted from the special edition of today, as well as a New York Times article on the topic:

  •       Our debt is almost 70 billion dollars
  •       Each person—man woman and child—would have to pay $10, 635 dollars up front to clear this debt. That’s ten times the average per state
  •       As a result of this decision, we’re going to have to pay about 940 million bucks, since we promised we would if our rating was sunk to junk status
  •       We had been planning to go ask the market to buy bonds that would give us an additional 1 to 2 billion next month
  •       Puerto Rico is the third largest issuer of municipal bonds, after California and New York
  •       Many of these bonds are collected in mutual funds, which are attractive: you don’t have to pay taxes on the interest you collect on them. Therefore, a lot of mutual funds in the US hold Puerto Rico bonds. However, a lot of the bonds are held by the Puerto Rican middle and upper classes, especially retirees; some 1.5 billion dollars of Puerto Rico debt is held on the island


Now, how’s the economy doing?
  •        In December of 2013, the rate of unemployment was (officially) 15.4%
  •       Largest employer in Puerto Rico is…the government of Puerto Rico: 27.8% of the work force works for the government. Estimates for the average state public sector range from 10% to 15%
  •       Manufacturing accounts for only 9% of the non-farming Gross National Product
  •       25% of the commonwealth budget comes in federal funds
  •       The population of Puerto Rico is 3.67 million: in 2013, the government estimated that 1.3 million people were working. That means that one in three Puerto Ricans is working


OK—so what was the response on the island? Well, the editorial in The New Day called for…unity. Now is not the time, it said, for finger pointing. The governor, as well, said that now is the time for all Puerto Ricans to come together and figure out what to do with this mess.

Though there were some who couldn’t resist, of course. The governor himself couldn’t resist suggesting that his government, though young, had acted like adults, but that it was time for the local Supreme Court to “put on the toga of adulthood.” Why the jab? Because the Supreme Court had put the reform of the teacher retirement system on hold until the lawsuit brought by the unions had been resolved.

And the President of the Senate came out and said that the current government had been firm and financially responsible; nowhere else in the states had a government acted as Puerto Rico had to correct their problems. Puerto Rico didn’t deserve this betrayal.

The teachers, too, pointed out that since we got degraded to junk status, it was clearly proof that a reform of the retirement system wasn’t needed in the first place.

Yes, you say, but beyond calls for unity—however successfully heeded—what does the government propose to do?

It would be premature, said the governor—donning the mantle of a serious and wise leader—to discuss any specific measure until they had been carefully and thoroughly scrutinized and examined in order to assure that the measures taken will have the maximal impact on the economy while minimizing any adverse effects on the private lives of the people of Puerto Rico, who working together, hand in hand, making ties that extend beyond petty politicking, can go forward confidently towards a better future.

All right—I made that up. That’s what I would have said. The governor doesn’t know what he’s gonna do—so he fell back on rhetoric.

Nor does the average person know what this means: according to The New Day, even business people didn’t really understand what all this meant. The reality is that almost 90% of the students I have taught over the last 20 years have tuned out politics. And now that the crisis is here? Many people are confused.

And the worst of it? However bad the hangover, it was never a very good party anyway….   

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