The government’s proposed budget for Fiscal 2015 is an “emergency budget” that should not be confused with the fiscal framework Puerto Rico should have to ensure the economy works the way it wants it to in the future.
So said Juan Lara, chief economist of Advantage Business Consulting and economics professor at the University of Puerto Rico, before members of the Puerto Rico Chamber of Commerce Thursday.
“Right now, we’re managing a fiscal and economic emergency and the budget we’re considering is an emergency budget,” he said. “The most important thing about this budget is that it will be balanced. That’s essential, considering what has happened with our credit.”
The government, he said, has spent more than eight years trying unsuccessfully to balance the budget.
“It’s important that we do it now,” he said.
Balancing a budget, he said, is the first step toward long-term economic recovery. However, the government needs to guarantee that it will be able to maintain that balance moving forward until the island regains access to the market with a better credit rating and favorable emissions.
“We could even contemplate borrowing in the future not to cover ongoing expenses, but to make capital investments that promote economic growth,” he said.
Gov. Alejandro García-Padilla’s administration is proposing a $9.6 billion budget, which includes $500 million in debt that the government will not refinance to pay off, as has been the norm. To achieve a balance, the government is proposing “containing debt and reducing expenses,” which will eliminate automatic increases in assignments to the University of Puerto Rico, the Judiciary branch, as well as expenses associated with collective bargaining agreements, and other recurring costs.
Budget ‘for a new economy’
If the government sticks to the proposed budget in 2015, then it will need to begin a two-year transition into a “sustainable balanced budget,” Lara said.
However, achieving that will necessitate reforms.
“To make that transition, Puerto Rico needs to design a tax reform that guarantees that the government will have a stable revenue structure,” he said. “We also have to reform the government apparatus to change the composition of its expenses and how agencies operate.”
Furthermore, he said the island needs a budget in the next three to four years that becomes an “instrument of economic development,” which will require adjusting the tax and expenses policies to a new economic development strategy that “we have yet to define clearly.”
“That is the most important project we have ahead of us regarding everything that has to do with the economy,” Lara said. “We have to redefine the economic development strategy and all future government expenses must fit into that redefinition. We need a budget for a new economy.”