Rep. Nydia Velazquez (D-NY) asked why Puerto Rico and other U.S. territories were not included in the Federal Reserve’s emergency lending program at a House Financial Services virtual round table discussion.
Federal Reserve Vice Chair of Supervision Randal Quarles said that Puerto Rico was not eligible for the loans, and that additional debt would not be in the territory’s best interest. “The territories, their problems are really not a Covid-induced cash flow issue,” Quarles said. “If the territories were to take on a substantial amount of additional debt, that’s not going to improve their situation.”
Rep. Velazquez did not argue with the answer, but she does not agree. “This provision may provide a valuable option for some municipalities in Puerto Rico that are struggling with additional costs associated with their local response to the pandemic.” Velázquez told El Nuevo Día, a major news outlet in Puerto Rico.
Quarles believes that Puerto Rico needs to focus on forgivable loans and grants, rather than adding more debt. The PROMESA Financial Oversight and Management Board has expressed a hope that Puerto Rico businesses will benefit from loan programs, but has also said that they are worried that businesses will go under even if they receive loans. If this happens, the business owners could be worse off than before they acquired the funds.
Effects of coronavirus in Puerto Rico
Puerto Rico has had more than 2,500 confirmed cases of coronavirus and over 120 deaths. These numbers are lower than some States with similar populations, such as New Mexico. This has allowed Puerto Rico to handle the virus in spite of its fragile healthcare system.
Puerto Rico’s economy has also been affected, with unemployment reaching 37% and many small businesses unable to sustain themselves through the shutdown. Businesses are beginning to reopen, but continued restrictions will affect the profitability of the reopening. Estimates suggest that Puerto Rico may see a 10% dip in the territory economy as a whole.
However, Puerto Rico’s economy was contracting even before the devastation of Hurricane Maria, the earthquakes, and COVID-19.