Puerto Rico’s financial situation is tragic. The island is addicted to debt and, like with every addict on the road to recovery, their first step needs to be admitting it.
However, it doesn’t seem like they have hit bottom yet, because their tragic story continues to develop. Before this turns into a real-life VH1 “Behind the Music”-type story, Puerto Rico’s leaders need to turn things around.
For decades, and governor after governor, Puerto Rico has failed to govern and deliver an economy that actually allows people outside of the governing elite to become wealthier. Instead, Puerto Rico’s leaders have been more interested in short-run gimmicks and crony giveaways, like the Whitefish debacle and other sketchy contracts, than the long-run fiscal health of their own economy.
In 2016, Congress was trolled into thinking the Puerto Rico Oversight, Management, and Economic Stability Act — the bill that established the Financial Oversight and Management Board for Puerto Rico – was going to fix all that. Rather, what we got was more of the same bad governance and it appears that there is still no adult in the room, even with Washington looking over its shoulder. I mean, at a recent hearing they couldn’t even hire a competent sign language interpreter.
However, the real issue is that Puerto Rico has failed to produce audited financial records for decades. Sen. Orrin Hatch, R-Utah, tried to address these concerns back in 2016, requesting “updated, verifiable information” on the finances of Puerto Rico, to no avail. And, 18 months into their tenure, the oversight board tasked with remedying this has failed to bring any clarity to the island’s financials.
Worse, in December, Puerto Rico “found” more than $6 billion. This isn’t a simple oversight. And, given the state of Puerto Rico’s finances over the last few years, this is very tragic. And, at a federal court hearing that was only in November, the oversight board asked for a moratorium on debt-service payment for five years, to be included in the plan to reduce what it owes through bankruptcy.
If there’s no money for debt-service, they must have no money, right? We now know this is wrong given the December revelation of more than $6 billion. Yet, the funding was never mentioned when the governor and members of the fiscal oversight board testified before Congress and the court that Puerto Rico’s liquidity was in a dire state.
Was this a cover-up? We don’t know, but one thing is for sure — the Commonwealth of Puerto Rico hasn’t changed its ways. And, now they’re asking President Trump to loan them billions despite their unscrupulous ways. In fact, Washington is poised to give the electrical utility another $2 billion as a result of the budget deal.
At the same time, Gov. Ricardo Rossello and the oversight board are pushing for the privatization of the Puerto Rico Electric Power Authority, which is actually a great idea. There have also been reports that PREPA has the opportunity to secure private financing for that privatization, but that the oversight board and the commonwealth have thwarted these offers. If the free market is going to provide a legitimate and sustainable option for financing, far be it for the commonwealth and the oversight board to shun it, and for the federal government to step in and intervene. Private financing, not loans from the federal government, will protect the U.S. taxpayer, and getting Puerto Rico access to financial markets will prevent them from becoming a ward of the federal government.
It also means that the Puerto Rican government is asking for the federal government to prop up and fund a utility that it wants to turn around, sell and profit from in the next 18 months. I guess sometimes you have to take the good with the bad, but I would prefer that it didn’t involve my taxpayer money.
Addiction is serious, and I don’t want to lessen the struggle that individuals go through to get back on track to the pettiness of a political fight. But, the decisions that the leaders in Puerto Rico continue to make have increasingly put the others in Puerto Rico at risk. They continue to show no remorse. They continue to deny they have a problem.
Someone needs to intervene in their self-destructive actions — because the people that they are hurting don’t deserve this treatment. Privatization and the free market are the best options to restore fiscal restraint.
Charles Sauer (@CharlesSauer) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is president of the Market Institute and previously worked on Capitol Hill, for a governor, and for an academic think tank. He is also author of the forthcoming book “Profit Motive: What Drives the Things We Do.”
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