Faced with physical and economic devastation, Puerto Rico now has a once-in-a-generation chance to rebuild its infrastructure and economic foundation. To succeed, decisive leadership is required on the island and in the US Congress. A new, far-reaching plan must be set to restore economic growth.
This is the opening paragraph of a document titled A Fiscal Plan For Puerto Rico, signed by 27 noted economists, including Nobel Prize winners and policymakers.
The document reminds readers of the effects of Hurricane Maria, but also points out the problems in Puerto Rico’s economy before the 2017 hurricane season:
The Puerto Rican economy stopped growing in 2005 and entered a “lost decade” of negative GDP growth, which was exacerbated by fiscal austerity. The poverty rate was a staggering 46 percent, and 58 percent for children (nearly three times the rate for the overall US); 11.8 percent of the workforce was unemployed; and population fell by nearly 10 percent between 2007 and 2016.
The authors also describe Puerto Rico’s debt crisis and the PROMESA fiscal oversight board. They mention the March 2017 Fiscal Plan, which was approved by the oversight board, but say that it was overly optimistic and did not plan for economic growth.
Now, they say, Puerto Rico is working on a new fiscal plan. This one has to be different, though.
The authors list three essentials for a practical fiscal plan for Puerto Rico:
“First, the new plan must allow for a return to sustained economic growth, which the previous plan did not. That means a clear rejection of austerity,” the authors write. This requires that Congress provide significant funds for Puerto Rico. The authors suggest Governor Rossello’s proposal of $94 billion dollars, pointing out that Moody’s made a similar estimate of the Island’s financial needs.
“Second, the fiscal plan must deal realistically with the problem of Puerto Rico’s more than $70 billion unpayable debt, addressing both the $51.9 billion debt included in the fiscal plan and the more than $20 billion of public sector debt not included in the fiscal plan.” The authors point out that the fiscal oversight board has not yet come up with a restructuring plan for debt, and that creditors have already taken legal action against Puerto Rico. Noting that many creditors bought the debt at a significant discount with the intention of fighting for a full face value repayment, the authors insist that the debt must be largely eliminated if Puerto Rico is to be able to rebuild and recover. “Anything that diverts funds away from the people of Puerto Rico and subtracts from economic growth must be rejected.”
“Third, Congress must finally recognize that Puerto Ricans are U.S. citizens and entitled to the same federal aid as those who live in the fifty states and the District of Columbia. The island receives only a fraction of the Medicaid support from the U.S. government that the poorest U.S. states receive and also less from Medicare.” The authors state that the treatment of Puerto Rico by the federal government has contributed to Puerto Rico’s debt woes. “Puerto Rico needs the same level of support for Medicaid and Medicare as U.S. states. The case is also strong for a federal EITC and an expanded CTC, both of which have enjoyed bipartisan support historically.”
“The new Puerto Rico fiscal plan must result in a viable economy for Puerto Rico,” the document concludes. “The alternative—especially a return to austerity in any plan that fails to curtail the debt overhang—would provoke further out-migration and accelerated economic decline, and prolong the current humanitarian crisis.”
The individuals who signed the document:
Daron Acemoglu, Massachusetts Institute of Technology;
Alan A. Aja, Brooklyn College, City University of New York;
Robert Blecker, American University;
José Caraballo Cueto, University of Puerto Rico, Cayey;
Hector Cordero-Guzman, Baruch College-City University of New York;
William “Sandy” Darity, Jr., Duke University;
Alberto Dávila, The University of Texas Rio Grande Valley;
Zadia M. Feliciano, Queens College, City University of New York;
José M. Fernández, University of Louisville;
Richard Freeman, Harvard University;
Jason Furman, Harvard Kennedy School of Government;
Jamie Galbraith, University of Texas, Austin;
Martin Guzman, Columbia University;
Darrick Hamilton, The New School;
Simon Johnson, Massachusetts Institute of Technology;
Thea Lee, Economic Policy Institute;
José Alameda Lozado, University of Puerto Rico, Mayagüez;
Mario Marazzi Santiago, Puerto Rico Institute of Statistics;
Marie T. Mora, The University of Texas Rio Grande Valley;
Francisco L. Rivera-Batiz, Columbia University;
Dani Rodrik, Harvard Kennedy School of Government;
Jeffrey Sachs, Columbia University;
Gene Sperling, Former Director, National Economic Council;
Joseph Stiglitz, Nobel Prize Recipient, Columbia University;
Mark Weisbrot, Center for Economic and Policy Research;
Antonio Weiss, Senior Fellow, Harvard Kennedy School of Government.
Read the complete document: A Fiscal Plan For Puerto Rico.