At AEI panel, economists debate PR’s post-María future

Written by  //  November 8, 2017  //  Hurricane María  //  4 Comments

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José B. Carrión, chairman of Puerto Rico’s Financial Oversight and Management Board.

Seven weeks after Hurricane María devastated Puerto Rico, most of its 3.4 million inhabitants still don’t have electricity. And the island’s deeply indebted economy — already in crisis before the storm — is in worse shape than ever, warned a panel of economists meeting Tuesday afternoon in Washington.

“María turned everything upside down,” said José B. Carrión, chairman of Puerto Rico’s Financial Oversight and Management Board. “I will spare you the description, but its aftermath is forcing everyone in Puerto Rico to rethink everything, and the oversight board is no exception. The minute María was done, we knew we’d have to work toward a new reality.”

Carrión was one of half a dozen speakers at the American Enterprise Institute, the conservative think tank that sponsored the two-hour panel discussion, “Puerto Rico After Hurricane María.”

Also on the panel was Alex J. Pollock of R Street Institute; economist Anne Krueger of the Paul H. Nitze School of Advanced International Studies; John Mosseau of Cumberland Advisors; Antonio Weiss of Harvard Business School, and AEI resident scholars Andrew Biggs and Desmond Lachman.

Carrión, quickly summarizing what his board has done to lead post-hurricane recovery efforts, said his main priority has been to restore power as soon as possible while reforming Puerto Rico’s electricity sector.

“Hurricanes Irma and María have not altered the core purpose of [the Puerto Rico Oversight, Management and Economic Stability Act] PROMESA. In fact they have underscored the importance of returning the island to fiscal responsibility,” he said.

“Recovery-related expenses are substantial, and not all will be reimbursed by federal aid. Many of the cost-saving measures built into the budget must be looked at with a fresh perspective, given the demands of the recovery process,” he added.

Krueger argued “Puerto Rico ought to be the jewel of the Western Hemisphere, in much the same way Singapore is the jewel of Asia.”

But that, she said, cannot happen unless the island’s leaders change the way they do business — especially given that Puerto Rico’s economy was already in deep trouble.

“In a dollar-based economy, once you can’t borrow, there’s nothing you can do except cut back spending,” she said. “In Greece, there was never any question that police and fire services would continue. In Puerto Rico, there is. If the government doesn’t have the money, they can’t pay. And outmigration, deficits and no growth or negative growth had been going on for quite awhile.”

Since 1970, the number of schoolchildren in Puerto Rico has shrunk by 40 percent while the number of teachers has risen by 30 percent. The island has no more hotel rooms on the island today than it did 47 years ago. And only 38 percent of Puerto Rico’s inhabitants are in the labor force, compared to 63 percent on the U.S. mainland.

The island’s tax exemptions — aimed at spurring manufacturing investment — are “erratic” and “have not helped” at all, said Krueger.

“The control board was just getting off to a good start when the hurricane hit,” she said. “Reconstruction efforts depend in part on what insurance will cover, and what Congress will do. There will certainly be a loss of revenue, with fewer workers left to pay taxes. Short-term expenditures will go up, but taxes won’t go down. Where will the money come from when you can’t print it and you can’t borrow it?”

Making PR more ‘business-friendly’
Krueger said the long-term focus must remain how to restore economic growth to Puerto Rico by making it more business-friendly.

“Today it is not,” she complained. “The government needs to move away from restrictive measures that do nothing to benefit anybody on the island — for example, a law that says no employee may be asked to work no more than eight hours in a 24-hour period. Think what that does to the tourist industry. There are lots of things like that in Puerto Rican law.”

Antonio Weiss of Harvard Kennedy School warned that a failure to help Puerto Rico now “could become one of the most tragic cases of neglect of fellow American citizens in U.S. history.”

Noting that the Federal Emergency Management Agency has never disbursed funds to a bankrupt entity, he said “there is simply no playbook for how to address Puerto Rico today” and decried what he called “an overwhelming lack of coordinated response” to the devastation wrought by María.

“Congress will have to appropriate tens of billions of dollars in funds for disaster relief and recovery,” he said. “This will be across all federal agencies, not just FEMA. And the quid pro quo of that must be transparency, accountability and governance over the disbursement of those funds.”

Weiss suggested that the current oversight board’s powers could be expanded to deal with disbursement of emergency funds, or that a new recovery and reconstruction board could be created for Puerto Rico, drawing on those who have relevant experience with previous hurricanes such as Sandy and Katrina.

“Longer term, there needs to be Medicaid parity as opposed to a minimum wage reduction. In the here and now, I would emphasize the congressional appropriations.”

Yet with the focus on affordable healthcare, immigration, tax reform and the ongoing investigation into Russia’s meddling in the 2016 elections, very little legislative attention has been paid to Puerto Rico, which Weiss called a “clear and present danger” to all Americans.

“Either this will be the occasion that actually spurs Puerto Rico back to growth as recovery and reconstruction create a better energy system, or it will go down in history as an example of neglect that risks leaving behind an aging population,” he said. “I find it hard to think anybody would be in favor of that.”

4 Comments on "At AEI panel, economists debate PR’s post-María future"

  1. Patricia November 8, 2017 at 6:19 AM · Reply

    and yet they find $625,000 to pay the chair of the financial control board and another $325,000 to pay for the “transformation officer” appointed by the board to oversee electricity restoration, $15,000 a month for an office in NY to be near the Wall street bond holders, several salaries in the six figures for deputies, more money to pay for drivers and bodyguards (who knows what the hell for), I could go on…

  2. José J. Villamil November 8, 2017 at 8:36 AM · Reply

    Ms. Krueger doesn’t get it, her comments are superficial, to say the least, and some of her numbers are wrong. Since she continues to exert influence I hope she was misquoted by Larry Luxner. JJV

  3. Richard R. Tryon November 8, 2017 at 10:26 AM · Reply

    To José Carión, I offer as a fellow economist and political scientist some observations:

    1. As a historian, as well, of PR since 1942 when German subs sank two ships otherwise able to take my father to PR with his family, I have been a student of PR history. Kenyon College re-enforced it and now I tend to see that the conclusions here are unavoidable. No law needs to be passed! Citizens in PR are flocking to the mainland to live near the new capital of Orlando, FL. Nobody needs to avoid it for its the easiest temporary solution. Regional electric power was common in PR history and it is already coming back into place.

    2. Its time for a friendly divorce of the U.S. from its conquered possession. One that has been benignly neglected ever since! Many industries, tried back when FOMENTO funded building and tax incentives until the third world elsewhere caught up and beat PR in almost all cases with notable exception being the Rx industry. It works well in PR and will not leave unless something makes the huge cost of doing so go away! Not likely. But, with alimony for a few decades, the rest of PR can come together instead of fighting over status! Let them all agree to be an Associated Free State- the exact meaning of its present claim to being in Spanish. Un Estado Libre y Asociado. Let it be free of its past need to conform to all Federal mandates, restrictions, rules and bureaucratic-constipation. Let the private schools teach the few children remaining after all others relocated with their teachers to Orlando. Let Municipalities provide help to local private schools by supporting buildings, police and fire protection; sell the power, water/sewer company assets and leave the shells holding the debt no longer a part of the new Estado! Gain freedom to import/export and become a big grower of foods to eat- even vertically in the mountains and cities.

    Watch PR grow a new industry- one able to attract retirees, because the U.S. dollar will buy as much in PR as in Costa Rica! PR has excellent island expressways as toll roads. Get new technology into power generation and include d.c. mini-GRIDS for minimal survival with air-conditioned beds instead of whole houses. PR people do not freeze or cook in the shade outside. Fruiting trees and chickens do grow as well as fish and veggies in water.

    In time, many PR citizens will return to the homeland. Can anyone tell me a better way to see PR make its own future?

  4. Zoraida Centeno November 10, 2017 at 3:28 AM · Reply

    With all respect, I doubt any of these economists have done 12 hours shifts on their feet on the hotel industry, these said, since labour is cheaper in PR, than on US mainland and hotel rooms are as expensive if not more expensive than in the US maybe taking a look at the European model, where employee get a life sustainable salary that does not depend on tips for survival would be a better incentive for working longer hours? The comment regards this quote; Krueger said the long-term focus must remain how to restore economic growth to Puerto Rico by making it more business-friendly.

    “Today it is not,” she complained. “The government needs to move away from restrictive measures that do nothing to benefit anybody on the island — for example, a law that says no employee may be asked to work no more than eight hours in a 24-hour period. Think what that does to the tourist industry. There are lots of things like that in Puerto Rican law.”

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