On November 6, the American Enterprise Institute held a seminar that took stock of Puerto Rico’s post-hurricane economic prospects and explored the appropriate policy response from Washington. The panel included Anne Krueger, Antonio Weiss, John Mosseau, Andrew Biggs, and Desmond Lachman.
The opening statement was made by Jose Carrion, chairman of the Financial Oversight and Management Board for Puerto Rico. Carrion began by noting that “Maria turned everything upside down.” After the hurricane, Carrion explained that the course of action that the Board was going to follow changed. Carrion emphasized the transparency clause on all and every contract that the Board deals with in an attempt to address the Whitefish situation. The course of action moving forward for the Board, Carrion stated, was to revise the fiscal plan and renew the work schedule post Hurricane Maria.
Anne Krueger, Paul H. Nitze School of Advanced International Studies, started her statement noting Puerto Rico’s potential to be the jewel of the western hemisphere, like Singapore. Krueger mentioned that there is no longer a recession in Puerto Rico, it is a stagnation. The factors driving the stagnation are: outmigration, deficit, no growth, and the loss of fiscal control. The labor force participation, she noted, was at 38%, and 25% of Puerto Ricans work for the government.
Krueger mentioned that the hurricane has made the fiscal situation much worse then the problematic situation that already preceded it. There is no way of knowing what the cost will be, she added. Certainly there will be a loss of tax, and expenditures will go up.
Antonio Weiss, Harvard Kennedy School Fellow, noted the unprecedented catastrophe of having a natural disaster in a bankrupt jurisdiction. “There is a total lack of an overwhelming coordinated federal response,” Weiss said. Weiss offered the following measures that can help Puerto Rico get back on track:
- The executive branch should coordinate the many agencies required to address the Puerto Rican crisis and unify them under the leadership of a single responsible person.
- Congress will have to appropriate several millions of dollars for disaster relief and recovery, and the quid pro quo of that must be transparency, accountability, and governance over the disbursement of these funds. This balance may be achieved in a number of ways: government responsibility over the disbursement, PROMESA board oversight of the disbursement, creation of a recovery and reconstruction board created for Puerto Rico drawing on those who have experience in Sandy and Katrina in the skill set involved in recovery and reconstruction. Longer term the needs are Medicaid parity, EITC opposed to minimum wage reduction.
- The board will have to take into account the impact of Hurricane Maria on Puerto Rico. There is a concern of forecasting 5 years; there is a tendency to create a back-ended debt service, which is in fact an overhang on the economy.
- Last, pensions must be paid, especially in a period where there will be little source of income on the island. Creditors need to face this new reality.
- “The relationship between board and governor has to be healed. Board has the right to impose the view in certain respect, but everyone is better served by a collaborative relationship. The board is not going away, nor is the law going away, and the Puerto Rican government is best served working with the board. There needs to be clear accountability on the contracts of reconstruction that the government enters into.”
John Mousseau, Cumberland Advisors, shed light on the cost of Maria: Insured losses of $40-$85 billion in economic losses, further $55 Billion in uninsured loss. Mousseau expressed that there needs to be a Marshall Plan for Puerto Rico.
Andrew Biggs, AEI Board Member, restated that Puerto Rico can be the Singapore of the Caribbean. The Economy shrunk continuously after 2006, he claimed, due to the phase-out of Section 936. Biggs added that the repeal of Section 936 devastated Puerto Rico because the island’s core economic structure was already so weak. He added that Puerto Rico lacks economic strength to recover by itself.
Desmond Lachman, AEI, focused on possible IMF help and posed possibility of a committee of wise economist to address the debt. Financial disbursements should be tied to performance. The 2 months after Maria, 100,000 Puerto Ricans left the island. “Time is not on Puerto Rico’s side,” he said.
Throughout the discussion, the panel emphasized a better relationship between the Financial Oversight board and the government of Puerto Rico. Also, they mentioned the need to address Puerto Rico’s issues with a long term view.
To watch a summary video, click here.
For more information on the views from Desmond Lachman, check out the following publications: “Puerto Rico needs a Marshall Plan” and “Maria must be wake-up call to Puerto Rico’s economic woe.”
