A noted finance professor from the University of Puerto Rico spoke about some the causes and solutions of Puerto Rico’s fiscal crisis and noted the Virgin Islands, and the other territories as well, can expect to come under financial scrutiny by the U.S. government regarding its monetary practices in the next few years.
Carlos Colon de Armas, professor at UPR’s graduate business school, addressed audiences through videoconference at both campuses of the University of the Virgin Islands on Friday evening and tied Puerto Rico’s financial state of affairs and economy to the territory’s political status.
With graphs and statistics, Colon de Armas supported his contention that Puerto Rico is in a financial bind mainly due to government overspending not just debt, as many believe. He pointed out that for years, the island’s gross national product, gross domestic product and personal income figures kept up with the U.S. but as Puerto Rico’s income increased so did government spending.
Puerto Rico’s debt problems peaked in May when a $422 million debt payment was missed and a $2 billion payment loomed in July that the territory was not expected to pay and keep government services running.
That is when the Puerto Rico Oversight, Management and Economic Stability Act was passed and signed by President Barack Obama, in part because federal law prohibits the territory from filing bankruptcy.
“Puerto Rico didn’t want to do what was required to do to deal with the situation,” Colon de Armas said.
PROMESA established a powerful seven-member board that has control over Puerto Rico’s government, budget, laws and regulations. It was charged with restructuring the island’s debt and balancing the budget.
“They can do basically whatever they want,” Colon de Armas said.
Originally PROMESA included all of insular the territories permitting them to seek bankruptcy protection through a similar oversight board, but that measure was dropped.
However, according to the professor, the PROMESA board must produce a report on the financial condition of Puerto Rico and each of the territories by Dec. 31, 2017, and every two years after that. Included in the report to the U.S. comptroller general must be public debt, current and predicted revenue, and the ability of each territory to repay its public debt.
According to Puerto Rico’s Office of Management and Budget, the government’s consolidated budget for 2015-2020 debt service accounts for less than 16 percent of the $28.8 billion budget. Payroll is 25 percent, operational expenses will take almost 55 percent and payments to nongovernmental entities will account for .6 percent of the total.
Colon de Armas, also a financial, economics and management consultant, offered solutions to Puerto Rico’s fiscal predicament: reduce government expenses; decide on statehood or independence; and invest in and encourage local businesses to produce and export goods and services globally.
“In conclusion, Puerto Rico has three items on the agenda that we need to address very quickly: the fiscal crisis, political status and fixing the economy,” he said.
Colon de Armas supports statehood or independence for Puerto Rico. He said the current status – that of a territory – violates human rights in that Puerto Ricans have no say in their government. Island residents pay about $3 billion a year in taxes, about the same as Vermont, without being able to vote for president, he said.
He admitted that Puerto Rico, however, has voted at the polls for the status quo for a variety of reasons. In the end, he recognizes that it is up to the U.S. to decide status.
“Colonialism will end when the United States realizes its responsibility to end the political status,” Colon de Armas concluded.