Español“Considering the current level of economic activity, the public debt is not payable.” These were the words Puerto Rico Governor Alejandro García Padilla used to explain the fiscal crisis on the island on Monday, June 29.
However, just two days later, the Puerto Rican government managed to pay its creditors the US$1.9 billion due on Wednesday. Further, in declarations to a local radio station, Treasury Secretary Juan Zaragoza said the money to pay the “unpayable” debt existed, but that it should be used “for other things.”
During the governor’s Monday speech, he detailed the economic and fiscal crisis his administration was facing, and took the opportunity to ask his creditors to “share the sacrifices” imposed on the island’s residents. With the commonwealth’s debt reaching US$72 billion, he also asked President Barack Obama to declare Puerto Rico bankrupt, as the US government did with Detroit, Michigan, in 2013.
“It’s time for us to call on Washington, in one voice, for concerted action,” the governor said. “Action that ensures that the changes to Chapter 9 of the Bankruptcy Code are finally approved, and that Puerto Rico has the same protection as other jurisdictions.”
Padilla argued that the island’s debt was so large that it did not allow it to access financial markets, and that Puerto Rico’s economy did not generate enough revenue to repay its obligations.
The governor further claimed that if he were to pay the debt, the government would have to go without paying police, teachers, and nurses: “We are not going to allow the heavy burden of inherited debt to bring us to our knees.”
But the PanAm Post spoke with two experts regarding the governor’s statements, and they offered a very different account of why Puerto Rico’s creditors will be affected.
Carlos Colón de Armas, an economist and MBA finance professor at the University of Puerto Rico, explains that contrary to what Padilla has said, “the public debt is easily payable.”
The best evidence of this, the economist says, is the payment the Puerto Rico Electric Power Authority made on Wednesday to its creditors: “the government made the payment that was due without any problem.”
The professor argues that the government is tight on cash, and cannot meet its debt obligations while simultaneously keeping up with the rate of spending it has always enjoyed: “what is required is that the government reduce its spending.”
“The problem is that reducing spending generates political problems,” Colón de Armas explains, “which the government does not want to incur. So they are making the mistake of seeking financial relief for the debt, when they should be looking at their expenses.”
Puerto Rican officials have reported payment obligations with bondholders for the new fiscal year, which began on July 1, at $4.8 billion. Colón de Armas says the government’s budget today is $28.8 billion, so this level is within reach.
“That means that this year, in order to meet obligations with creditors, the payment required is equivalent to 17 percent of revenue. Clearly, there is money to pay them. What they need to have is the will to make the payment.”
The expert notes that the list of Puerto Rico’s creditors includes various investment funds, Puerto Rican credit unions and pension funds, and other local investors.
“There is a significant number of Puerto Rican institutions and Puerto Ricans who have money invested in these bonds. The credit unions — which are institutions in Puerto Rico that have always been considered very strong, and where the people involved are in the most humble classes of society — are very nervous right now, because they have invested heavily in government bonds.”
Colón de Armas considers Padilla’s message to Puerto Ricans on Monday “totally shameful,” adding that the same day that Greece failed to meet obligations with the International Monetary Fund, Puerto Rico made a payment to creditors.
Luis Dávila, a lawyer and political analyst, says that only 30 percent of the debt belongs to so-called vulture funds, while to rest corresponds to “regular investors.”
“Of those investors, nearly 45 percent are Puerto Rican … The debt belongs to Puerto Rican people, who have lent their money to the government of Puerto Rico to secure their pensions.”
The consequence of this fiscal crisis, according to Dávila, is the impoverishment of Puerto Rican citizens, increased bankruptcies, higher unemployment, and increased migration to the United States.
“Five million boricuas have already left us. In the last three years, 177,000 residents emigrated. Puerto Rico loses 60,000 residents per year. In other words, at least 164 people per day.”
Dávila says the governor’s claim that the debt is “not payable” is a “myth, because the money is there.”
The lawyer explains that Article VI (Section II) of Puerto Rico’s Constitution establishes a priority list of credits by law. So, prior to anything else, general obligations and government bond debts should be paid. In other words, the creditors have priority — before the teachers.