U.S. Rep. Nydia M. Velázquez (D-NY) hosted Tuesday a panel of experts and other members of Congress for a roundtable discussion on unlocking the keys to stimulating economic growth in Puerto Rico.
One year after passage of the Puerto Rico Oversight Management and Economic Stability Act (PROMESA), Puerto Rico is actively working to restructure its debt.
However, with much more to be done, many experts say fueling growth is crucial to promoting sustainable economic recovery on the island, she said.
“When it comes to creating economic growth in Puerto Rico, we should leave no stone unturned,” said Velázquez, on the wide-ranging discussion of diverse proposals to help overcome challenges Puerto Rico faces on the road back to prosperity.
The roundtable featured a number of local and stateside economists and scholars who presented their views on the island’s current situation and fielded questions from Congressional lawmakers.
Sergio Marxuach, director of Public Policy for the Center for a New Economy, said Puerto Rico has been under severe economic, fiscal, and financial stress during the past decade.
“During that period, the Commonwealth has enacted a series of austerity and fiscal consolidation measures. Yet, in contrast with other jurisdictions that could complement those policies with either (1) a currency devaluation to boost exports or (2) loans from emergency liquidity facilities negotiated with international multilateral institutions, Puerto Rico, due to its institutional constraints, cannot devalue its currency nor does it have access to such emergency liquidity facilities,” he said.
He said the appointment of the Financial Oversight and Management Board for Puerto Rico created under the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) has “seriously undermined the island’s political institutions, already extremely compromised by clientelism, partisan politics and corruption.”
Meanwhile, he said the benefits of PROMESA’s complicated territorial debt restructuring process, which combines principles drawn from both the U.S. Bankruptcy Code and from the realm of sovereign debt restructuring, remain fairly uncertain and contingent on the successful implementation of a completely new and untested legal framework for territorial bankruptcy.
“The risk that such an experimental framework fails to adequately address Puerto Rico’s debt restructuring needs are magnified by the fragile state of the Puerto Rican economy, which has undergone a protracted decade-long contraction,” he said during the roundtable held at the Rayburn House Office Building in Washington DC.
Marxuach noted that the fiscal plan and the budget for fiscal year 2018 t impose significant austerity measures in the short-term, which will likely result in a further contraction of the Puerto Rican economy; increased unemployment, poverty and inequality; thus generating further migration to the mainland and lower tax revenues in the island as the tax base shrinks; which will lead to calls for more cuts in government services; less government services, in turn, will lead to a general decrease in quality of life and living standards, which will result in yet more “push” migration to the mainland.
CNE suggests 2-prong strategy
“Given the extreme weakness of the Puerto Rican economy it should be obvious that economic growth opportunities will not materialize spontaneously, even after significant debt restructuring,” Marxuach said.
“In our view, Puerto Rico needs to devise and execute a complex, two-prong strategy to restore growth. First, there is a need to jumpstart economic growth in the short-term. Second, the island needs to formulate an economic development plan to sustain that growth over the long-term, something it has failed to do for quite some time,” he said.
On the short-term, Marxuach said “Congress has a moral obligation to ensure [the Oversight Board] works in the best interests of the people of Puerto Rico and not for the benefit of other extraneous and opportunistic stakeholders.”
In addition to initiatives at the federal level, Puerto Rico needs to craft a local long-term economic development strategy and strengthen its execution capabilities, he said.
To contribute to the island’s recovery, the think-tank has created the CNE Growth Commission for Puerto Rico, to “identify opportunities and innovative strategies that can disrupt the pernicious pattern of economic decline, weak governance, deficient policymaking and flawed assessments of results, and embark on a new path to foster long-term growth.”
The group will identify and produce analyses, policy designs and projects to improve economic and social policy decision-making in Puerto Rico, Marxuach said.Puerto Rico Institute of Statistics Executive Director Mario Marazzi (Credit: © Mauricio Pascual)
P.R. gov’t needs to achieve technical objectives
During his turn to speak, Puerto Rico Institute of Statistics Executive Director Mario Marazzi said the government needs to achieve several milestones in collecting economic data so that it can reestablish its credibility in financial markets and so they can be used for economic policymaking.
“As long as the Puerto Rico Institute of Statistics is allowed to function without being beholden to political or economic interests, we stand ready to assist the government of Puerto Rico in achieving successful implementation of these objectives or to implement these objectives on our own,” he said.
“While the current state of affairs allows us to continue this important work, the truth is that Institute continues to receive appropriations that are far less than needed to complete its mission in a timely fashion, and it continues to face challenges to its operation as a public entity that is independent from other political and economic interests,” Marazzi said.
“At the same time, the federal government has to do its part, and Congress must lead the way. In fact, under the current arrangement, Congress has an essential role to play in determining the future of the economy of Puerto Rico,” he said.
“It would be a mistake to shirk this responsibility. We have mentioned several ways that the federal government can make a significant difference in the quality of the data and the statistics available for investing and for policymaking in Puerto Rico,” he said.
In his testimony, Marazzi said Puerto Rico could have been included in the Census of Governments 2017, had it had sufficient funding. The program headed by the U.S. Census Bureau gathers data on the structure, employees, and finances at all levels of government every five years, and is an essential source on comparable benchmark statistics for credit markets.
“Puerto Rico last participated in the Census of Governments in 1982, which means Puerto Rico’s creditors and related stakeholders lack key data that would allow them to compare the financial challenges faced by the government of Puerto Rico vis-à-vis state and local governments across the United States,” Marazzi said.
Citing the report by the Congressional Task Force on the Economic Growth in Puerto Rico, the island should also be included in numerous other surveys, such as the American Housing Survey, the Construction Progress Reporting Survey, the Housing Vacancy Survey, the Manufactured Housing Survey, and the Value of Construction Put in Place Survey, among others.
“Unfortunately, without action from the federal government, Puerto Rico’s crisis of confidence will continue to generate a vicious cycle in which low-quality data and statistics lead local policymakers to invest even less resources in improving the data, which in and of itself also reduces the quality of the data,” Marazzi said during the roundtable.