Op-Ed: The fighting Irish and the fighting Puerto Ricans
As we deal with our current crisis, we can easily forget that crises such as ours have happened before and will probably happen again in other societies. When looking for analogous situations to the credit crisis of Puerto Rico we only have to go back three short years to Ireland, a country similar to Puerto Rico in many ways.
Analyzing the debt ratings of Ireland compared to the prevailing ones for Puerto Rico, we can see that on July 11, 2011 Ireland’s debt was rated at BA3 (two notches above investment grade). On the next day, July 12, 2011, Moody’s downgraded the debt to BA1 (one notch below non-investment grade). On that day, and for some months after that, the yield on the bonds reached 14.07 percent.
After spending the next two and a half years sorting the fiscal mess they had on their hands, Ireland went back to the Bond Market on Jan. 7, 2014 to borrow $5 billion (3.75 Euro). The demand for the issue was incredible, receiving in bids $19 billion (14B euro); over four times the issue amount. The yield paid on this offering was only 3.54 percent (as of March 3, 2014 the yield had gone even lower to 3.33 percent). On Jan. 14, 2014 Moody’s upgraded the bonds to BAA3, bringing Ireland one notch over investment grade, less than three years from the bottom.
Ireland and Puerto Rico have much more in common that what can be suggested by common sense. Aside from a festive, boxing crazed population they have similar demographic, population numbers, topography and just like Puerto Rico, Ireland has suffered from mass migration and chronic unemployment throughout its history (unemployment in Ireland was 15.1 percent in 2011 and in 2014 it is 12.5 percent). As far as indebtedness, Ireland easily surpasses Puerto Rico, with debt of over 124 percent of GDP (Puerto Rico currently sits at about 104 percent).
So the question to ask ourselves is, what made possible the extraordinary transformation and fiscal recovery achieved by Ireland in such a short period of time?
The answer is unity of purpose from all fronts of Irish society: politicians, businessmen, trade and labor unions, economists, academics and citizens in unison with the government. It certainly wasn’t easy, as the Irish people endured a series of austere governmental budgets, but their emphasis on making business easy to do, low corporate taxes and a focus on exporting were crucial for their economic resurgence.
While the European Union/International Monetary Fund bailout didn’t hurt, Ireland has fully paid it back as of January 2014.
In summary, if the Irish people could do it the Puerto Rican people can also do it. Let’s do it together.
Author Antonio Sosa is managing director of REOF Capital LLC.