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Monday, February 10, 2014

Puerto Ricans Leave Island Amid Economic Woes

Antonia Arroyo sits on a bench in November, 2013 in San Juan, Puerto Rico. After working for the Municipality of San Juan for 35 years she lives off her 500 dollar a month government pension. The government remains the largest employer in Puerto Rico and can only service about 11 percent of the pension costs out of it's budget. (Christopher Gregory/Getty Images)

Antonia Arroyo sits on a bench in November, 2013 in San Juan, Puerto Rico. After working for the Municipality of San Juan for 35 years she lives off her 500 dollar a month government pension. The government remains the largest employer in Puerto Rico and can only service about 11 percent of the pension costs out of it’s budget. (Christopher Gregory/Getty Images)

Puerto Rico just had its bond rating downgraded to “junk status” by two of the three main rating agencies, Standard & Poor’s and Moody’s. The government is now starting a round of budget cuts and austerity measures to try to turn the economy around.

The economic problems in Puerto Rico have the potential to ripple through the U.S. bond market, since 70 percent of U.S. municipal funds hold some Puerto Rican debt.

Here & Now’s Jeremy Hobson speaks with Carlos Rivas, director of the Office of Management and Budget for Puerto Rico, and to Javier Maymí of the Spanish-language newspaper Centro Tampa.

Interview Highlights

Carlos Rivas on the possibility of a U.S. bailout for Puerto Rico

“There’s excellent communication at a very high level both with the White House and the Treasury Department. And they’re very up to date and very up to speed on what’s happening here and what our plans are. But we don’t, right now — we’re not looking for a bailout, per say, or a loan or that kind of structure. The have been clear on that, they have to be consistent in their approach to different jurisdictions.”

Rivas on why Puerto Rico has so much debt

“I think there are two reasons. Number one, our economy has been shrinking consistency since 2006. So the economy has shrunk about 15 percent, and that obviously makes it very hard to swim against the current fiscally, so to speak. And secondly, there have been some decisions made in the past that have not been the most fiscally responsible decisions, particularly the financing of the operating deficits over the past few years. So we are at the point where the debt burden is significant. And we got ourselves into this situation. We’ve been working hard since January of last year in the change of administration to get out of this situation and we will continue the plan to do so.

Rivas on the exodus of people from Puerto Rico

“We have had some migration and it is up to Florida in particular, also to the Northeast, people seeking better employment opportunities. And that is precisely why we need to restart economic growth, and why the governor is working so hard to do so, to get those people to stay in Puerto Rico. People love being here, they love living here, they’re very committed to Puerto Rico, and we as a government have to make sure that all the opportunities are there for people to have their livelihood and their employment.”

Javier Maymí on why people – including himself – have left Puerto Rico

“For middle class Puerto Ricans, it becomes extremely difficult to — it’s not a question of living in Puerto Rico, it’s more like surviving in Puerto Rico. And as economic opportunities shrink, obviously in search of better opportunities, better pay, better future, we look towards the U.S. because we have that ability to do that… You know it basically begins with quality of life. Because of the economic situation and quite frankly, this is not new, this has been going on for over a decade now. The recession started in 2006, but as early as the year 2000 you could see the downturn coming as different companies started closing and closing and closing and crime began rising and rising. In my case in particular, it became a question of a personal decision and I saw a better future in the United States.”

Guests

  • Carlos Rivas, director of the Office of Management and Budget for Puerto Rico
  • Javier Maymí, reporter for the Spanish language newspaper Centro Tampa.

Transcript

JEREMY HOBSON, HOST:

This is HERE AND NOW.

And the news just keeps getting worse for Puerto Rico. The U.S. territory just had its bond rating downgraded to junk status by two of the three big rating agencies, Standard & Poor's and Moody's, which means the government in Puerto Rico is going to have to cut spending even further to avoid default. The problems there have the potential to ripple through the U.S. bond market, with 70 percent of U.S. municipal funds holding some Puerto Rican debt.

Carlos Rivas is director of the Office of Management and Budget for Puerto Rico. He's with us on the line from San Juan. And, Carlos, how big of a problem is a downgrade?

CARLOS RIVAS: Well, we have been preparing this downgrade for a while, and we have been executing our plan in terms of balancing the budget, reforming public corporations and resolving the pension system deficits. And so we were prepared for the downgrade and we are continuing forward with financing alternatives.

HOBSON: But when you get downgraded, of course, as you know, sometimes things happen that you weren't preparing for, and that includes mutual funds who can't invest in junk-rated bonds having to drop you from their portfolios.

RIVAS: Yes. Well, there are two points. Number one, the market we were already trading at are not investing in great levels, and so that was actually already priced into our bonds. As I understand, our bonds actually traded a little bit better the day after the downgrade than the day before the downgrade. That's one point. And secondly, while it's true that some mutual funds, or many mutual funds, can (unintelligible) invest in great securities, it is also true that some of them are - or many of them are allowed to hold them and do not necessarily have to sell them on a downgrade. And there's a significant investment community, alternative investment, hedge funds, banking community that has shown interest in proving financing alternative for Puerto Rico as well. So we do have financing options that we are considering right now as we move forward.

HOBSON: Now, the White House has indicated that it's not really considering a bailout at this point. Do you think that that might change? Are you still trying to convince Washington that it makes sense to give Puerto Rico a lifeline here?

RIVAS: Well, there' excellent communication at a very high level, both with the White House and the Treasury Department. And they're very up to date and up to speed on what's happening here and what our plans are. But we don't - right now, we're not looking at a bailout, per se, or a loan or any kind - that kind of structure. And they have been clear on that, that they have to be consistent in their approach to different jurisdictions.

HOBSON: But some people here on the mainland may be surprised that Puerto Rico is in such trouble when the economy here has been rebounding from the crash for many years. Why is Puerto Rico in such debt right now?

RIVAS: Well, I think that there are two reasons. Number one, our economy has been shrinking consistency since 2006. And so we have - the economy has shrunk around 15 percent, and that obviously makes it very hard to swim against the current fiscally, so to speak. And secondly, there have been decisions made in the past that have not been the most fiscally responsible decisions, particularly the financing of the operating deficits over the past few years. So we are at the point where the debt burden is significant, and we got ourselves into this situation. We've been working hard since January of last year in the change of administration to get out of this situation, and we will continue on the plan to do so.

HOBSON: There's also - and it's been reported about widely - this mass exodus of people from Puerto Rico. Why are so many people fleeing?

RIVAS: Well, we have had some migration, and it is up to Florida in particular, also to the northeast, people seeking better employment opportunities. And that is precisely why we need to restart economic growth, and why the governor is working so hard to do so, to get those people to stay in Puerto Rico. People love being here. They love living here. They're very committed to Puerto Rico. And we as a government have to make sure that all the opportunities are there for people to have their livelihood and their employment.

HOBSON: Carlos Rivas, director of the Office of Management and Budget for Puerto Rico. Thanks so much for joining us.

RIVAS: Thank you for having me.

HOBSON: So that's the government's take. Let's get a journalist's take now with Javier Maymi of the Spanish language newspaper, Centro Tampa in Tampa, Florida. Javier, let's start with what Mr. Rivas just said about people fleeing the island, because you left Puerto Rico yourself for economic reasons.

JAVIER MAYMI: Oh, yes. That's definitely true. First of all, good afternoon. Yeah. That's - for middle-class Puerto Ricans, it becomes extremely difficult. It's not a question of living in Puerto Rico. It's more like surviving in Puerto Rico. And as economic opportunities shrink, obviously in search of better opportunities, better pay, better future, we look towards the U.S., 'cause we have that ability to do that.

HOBSON: Well, could the government in Puerto Rico do anything to get people to stop fleeing, though, because obviously it's causing a big problem for the economic future of Puerto Rico?

MAYMI: Well, the thing is this is like a four-pronged problem in Puerto Rico that, you know, it basically begins with quality of life because of the economic situation. And quite frankly, it's not new. This has been going on for over a decade. How, you know, the recession started 2006 but as early as the year 2000, we - you could see the downturn coming as different companies started closing and closing and closing and crime began rising and rising.

So, you it just became - in my case in particular, it became a question of, you know, a personal decision, and I saw a better future in the United States than I did being staying in Puerto Rico.

HOBSON: Now Puerto Rico, as you know, is a territory of the U.S. There's been a long debate going on about whether it should stay a territory or become a state or gain independence. Back in August of 2012, there was a vote there, a non-binding referendum for statehood. Then Congress would have to do something about it. They haven't. Would statehood help Puerto Rico in this case?

MAYMI: Well, I don't know if either statehood or independence would help. It would put Puerto Rico in a better legal leverage position. I heard you just asked Mr. Rivas about a Washington bailout. Washington is not in a position to do that because they can't legally do it.

HOBSON: What do you mean they can't legally do it?

MAYMI: Because Puerto Rico as a territory cannot be bailed out. It's not like a state. It's not like sovereign nation. So in this particular situation, Puerto Rico cannot get a bailout from Washington because there is no legal - it's - it wouldn't be within the Constitution because Puerto Rico is a non-incorporated territory.

HOBSON: So do you think Puerto Rico will become a state?

MAYMI: Do I think Puerto Rico, you know, it's always been my belief that we'll be better off as a state. I know if that's going to be eventually what's going to be the final resolution to this, I don't know. You know, Congress has been sitting back on this for decades now, and it hasn't acted. So, you know, I really don't know what the end is going to be. I surely would hope that Puerto Rico becomes a state. But a lot of stars need to get aligned in that direction.

HOBSON: Javier Maymi of the Spanish-language newspaper Centro Tampa. Thanks so much for joining us, Javier.

MAYMI: Thank you, Jeremy.

HOBSON: This is HERE AND NOW. Transcript provided by NPR, Copyright NPR.


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