The Orlando region is home to hundreds of thousands of my fellow Puerto Ricans. Many left the island not only in search of a new beginning but also to escape the damaging consequences of a dysfunctional government that has robbed its citizens of economic opportunity.
Now, in a cruel twist for many of these Puerto Ricans, the island’s financial troubles have followed them to the mainland.
The government of Governor Alejandro Garcia Padilla is defaulting on its debt to thousands of investors who bought Puerto Rico bonds believing the government would honor its commitments.
So who are these investors? The governor would like people to believe that they are just banks and other faceless institutions that he can conveniently cast as bogeymen to justify not paying the island’s debts. But the reality is that thousands of investors are average Puerto Ricans living on the island and on the mainland in places like Orlando. They are retirees, sanitation workers, police officers, firefighters, teachers and others who invested their life savings.
And the signs are becoming increasingly dire for us. In August, the government defaulted on a bond payment for the first time in over a century, causing panic amongst small bondholders, no matter if they lived on the Island or here in Orlando, where Puerto Rican leaders from across the country will gather this week to consider solutions to the island’s crisis, among other matters.
For Puerto Ricans, the path the government has chosen is a brazen act of betrayal. My own story is typical of the experience of many Puerto Rican bondholders. Over the years, I invested a good portion of my savings in Puerto Rico. As an economist at the University of Puerto Rico, and in light of the island’s history of paying its debts, I concluded that this was a relatively secure investment, particularly since some bonds were backed by the full faith and credit of Puerto Rico, others were backed by tax revenues and still others were backed by budget authorizations. Moreover, the moral imperative was stronger as a guarantee than any collateral.
More than that, though, I was moved by patriotic duty. I invested in the strong belief that the government would put my family’s money to good use and make Puerto Rico a better place.
I could not imagine that the government would recklessly squander our savings – and then turn around and disregard the constitutional rights of bondholders and its own moral obligations. But looking back on it, I must confess that there were troubling signs along the way.
Over the years, Puerto Rico’s government has amassed debt to the tune of $72 billion. That’s on top of approximately $30 billion of unfunded pension liabilities. This debt – caused largely by runaway deficit spending driven by weak oversight, waste and politics – has driven Puerto Rico into its current economic crisis..
And how has the government responded? Rather than implementing the reforms to place the island on a sound footing, Governor Garcia Padilla is seeking an easy-fix that compounds the crisis further. He has proposed a five-year plan that rests on a violation of the Constitution. The plan calls for defaulting on Constitutionally-protected debt.
In other words, the government is planning on stiffing those who invested in the island in good faith.
This strategy is a mistake. It not only violates the confidence that individuals placed in the government. It also undermines Puerto Rico’s credibility before the investment community, whose support is critical to the island’s future success. In fact, credibility is our most valuable asset.
The plan is so indefensible, in fact, that Governor Garcia Padilla recently suggested that he would not go to Washington to face questions from skeptical members of Congress later this month.
I cannot help but wonder what historians will write about Puerto Rico years from now. Will the chapter on the debt crisis describe a time when Puerto Rico’s leaders irreparably shattered the island’s credibility? Will textbooks use Puerto Rico to illustrate the effects of government incompetence? Will the books say the government, driven by short-term politics, took the easy route and abandoned its own people? Will future generations suffer the consequences of all this?
I hope not.
I hope, instead, that we will be remembered as a people whose leaders were courageous enough to make tough but sound decisions in the face of crisis and political pressure. I hope our government will be remembered for decisions that put Puerto Rico back on the path to economic prosperity — and preserved our credibility before the world.
If, however, our government does not confront this crisis with the integrity and moral strength befitting our people, I fear that will not be the case.