Puerto Rico’s Government Development Bank (GDB) has said in a press release that they are not considering layoffs as part of their proposals to save Puerto Rico’s bonds from junk status. However, local newspaper El Vocero, quoting sources in the GDB, said last week that one of the proposals under consideration was the termination of some 17,000 public employees.
Governor Alejandro Garcia Padilla immediately rejected the report. The governor said layoffs were part of the previous administration but would not be part of his. The reference was to former Governor Luis Fortuño’s decision to cut the public workforce by over 10 percent, resulting in thousands of layoffs. That decision also contributed to Fortuño’s failure to achieve re-election last year.
The governor’s supporters argue that the administration’s economic plan will balance the budget by next year and that an increase in the interest charged on future bonds (just in excess of 10 percent) indicate confidence in the future solvency of the island.
Nothing could be further from the truth. The increase in interest charged on bonds indicates concern that the island will not be able to meet its financial obligations — that the investment is risky.
Prohibited from declaring bankruptcy by its constitution, Puerto Rico must pay its bonds first before making other appropriations from the general fund. However, the only way to fund those payments and the budget is by cutting the workforce, cutting costs in general, and or raising even more taxes on an island where the population (and the workforce) are in decline.
While there has been nominal improvement in the overall unemployment rate, workforce participation is down, as is the total workforce because of the decline in population. Total employment remains around one million, with a quarter to a third of those on the government payroll (depending on whose statistics you use).
The official figures, however, do not convey the reality that many Puerto Ricans live on a daily basis, and official government “solutions” seem as far-fetched as Alice in Wonderland. Puerto Rico needs a substantive change in the way it does business and the way it resolves its problems.