Puerto Rican political and business leaders gave their support to austerity measures proposed by the debt-ridden commonwealth’s governor in order to prevent default.
“There must be a better environment in Puerto Rico if we want to promote job creation and have more laborers and salaried employees,” said local Chamber of Commerce president José Izquierdo Encarnación following a meeting with Gov. Alejandro Garcia Padilla on Tuesday.
He and other business group representatives proposed creating a special fiscal control board and labor reforms as part of Garcia Padilla’s five-year plan to attempt to reign in Puerto Rico's $73 million debt. Izquierdo Encarnación and company gave their backing to the governor’s idea for reinvesting savings in bond payments into “strategic” projects for economic development.
“(Garcia Padilla) is seeking support from the private sector to those suggestions made in the report by (ex-World Bank Chief Economist) Anne Krueger that are vital such as economic growth,” he emphasized.
In a separate set of discussions, the heads of Puerto Rico’s main political parties gave their conditional support to Garcia Padilla yet with numerous conditions. Partido Nuevo Progresista head Pedro Pierluisi called for the participation of the opposition in the government’s decision-making process. Partido Independentista Puertorriqueño chief Rubén Berríos Martínez, meanwhile, blasted the “neoliberal package” outlined by Krueger.
In a televised speech Monday evening, Garcia Padilla warned that the island’s massive debt is unpayable and proposed seeking a multi-year moratorium on debt repayment while austerity measures can go into effect. He also urged Congress to change existing laws and allow Puerto Rico to declare Chapter 9 bankruptcy after the White House rejected a potential bailout.
The Puerto Rico Electric Power Authority, which over $9 billion in debt, is reportedly close to a deal preventing a July 1st deadline for default. That may not be enough to prevent Standard & Poor's to lower Puerto Rico’s dismal credit rating, while Moody's maintained its prediction that the commonwealth could soon fall into default.
Puerto Rico’s economic situation is similar to Greece in that both nations are mired in public debt and could represent a burden for the Eurozone and the U.S., respectively. Yet there are notable differences as NPR reporter Jim Zarroli mentioned:
Puerto Rico is a tiny part of the U.S. economy, even smaller than Greece is to the eurozone. And because the island a U.S. territory, its banks are already guaranteed by the Federal Deposit Insurance Corporation. That prevents the kind of bank runs now plaguing Greece. David Tawil says the mutual funds and banks that invested in Puerto Rican bonds have had ample warning about the island's troubles and many sold off their holdings at a loss long ago.
YouTube Source – Bloomberg Business
TAWIL: The fact that we - the market has had such a heads up for so long has allowed anyone who's wanted to bail on the sinking ship, so to say, to get out. And those folks that see opportunity, you know, went in with eyes wide open.
Online Sources (English) – Government Development Bank, NBC News, NPR, Reuters, MarketWatch, CNBC
Online Sources (Spanish) – Primera Hora, El Nuevo Dia