Puerto Rico is stunningly beautiful.
It’s a virtual paradise…Caribbean white sand beaches, a close proximity to the U.S., they speak both English and Spanish, if you’re an American citizen you don’t need for a passport as Puerto Rico is a US Commonwealth. They’ve got snorkeling, great food, a rainforest, and a stunning historical fort from the imperial days sitting atop a bluff overlooking the sea. With all that natural attraction you’d think Puerto Rico would be knocking it out of the park economically. Tourism alone should be the driving force to keep the economy rocking. Every American should want to go Puerto Rico. Then why do most Americans not even know where it is, our about any of these inviting factors? Several reasons. The island is poorly run, poorly marketed, and generationally corrupt, like many Caribbean islands.
Remember that part where I said you don’t need a passport because Puerto Rico is an American territory. That means that along with all those beaches comes the economic failure. Every American should listen up because, it’s no small thing we’re all on the hook for Puerto Rico’s woes. Puerto Rico is looking for a bailout. They want to declare bankruptcy on about $73 billion. Federal law prohibits them from accessing the Chapter 9 bankruptcy protection, but that may not stop lawmakers in Washington from making an exception.
Politicians in D.C. are feeling the pressure to intervene. The “something must be done” cry is getting louder and louder. Much of the debt is municipal bonds thanks to some favorable lending practices extended to Puerto Rico. This pulls in Wall Street and Congress. A Puerto Rico default could rock the $3.7 Trillion bond market.
Remember Detroit? This is more than three times the size of Detroit’s bailout/bankruptcy and theirs didn’t rewrite Federal law.
Remember car companies that were too big to fail? Bailout.
Remember Wall Street bailouts?
Have we learned nothing from those failures? Apparently not.
We’ve gone from car companies, to an industry, to a major city, and now a commonwealth wants theirs. The slope here is definitely greased.
So what’s the deal with Puerto Rico? Basically, here it is in a nutshell. It’s sick beautiful, but from there it goes all downhill. Puerto Rico has a 12% unemployment rate, and a less than 40% workforce participation rate. Combine that with a more than 5% loss in population over the last five years and you’ve got a recipe for disaster. The 5% who bailed on the Puerto Rican paradise mostly went to Florida and by and large are the successful people. The doctors, lawyers, engineers, etc. all said “Bye”. They were smart enough to see a sinking ship for what it is. All the white sand in the world can’t fix fuzzy accounting procedures to hide corruption, over-regulation that crushes big businesses, and a super high minimum wage that stymies small business. The government itself is massively bloated and is the largest employer on the island. No surprise there.
Sounds bad. Maybe we should just give them the bailout and a margarita. NO! That won’t fix anything. It will make things worse, much worse in the long run. First, the leaders of Puerto Rico must be told no. No, they will not get an exception to bankruptcy law and be allowed to file Chapter 9. Then when it all hits the fan, which it is, they will call up their creditors and start working out a payment plan. Start to dig their way out of it. Basically, Puerto Rico is our Greece. It’s time to make the hard choices. Rip the band aid off fast sort of thing. Slash and burn government on all levels. Implement massive structural reforms that will allow them to meet their financial commitments now and in the future.
If they did that they would see a boom like no other. New hotels would spring up. Run some ads during the Super Bowl and invite America down to the Puerto Rican party. What’s the good of having a Caribbean island if Americans aren’t flooding it with tourism? Forget Acapulco…Mexico is too dangerous. Puerto Rico could turn itself around in five years with skyrocketing growth if they would face the music right now. Politicians in D.C. need to stand firm and help our partner out of this, not bail them out. A bailout and/or a bankruptcy will only send a signal and set a precedence for every other state in the union with a bloated government and overwhelming debt (Illinois, California, New Jersey, Connecticut) that it’s okay to keep heading the wrong way.
Now is the time to do something. Show Puerto Rico the way, don’t lead them down the path to destruction. No bailout. No bankruptcy protection. Make the hard choices. Revamp the entire system leaving nothing sacred. Then Puerto Rico would see investment capital flood their island with a horde of American’s looking for a safe, English-speaking, white sand beach experience following right behind.
The big question remains. Will anyone in D.C. be the grown up in the room? Someone has to cut up the credit card or the party’s over and it won’t be coming back any time soon.