Puerto Rico Economic Pulse ©

May 2015: Sharing the Pain with Debtors

Analysis of recommended PR fiscal budget in FY 2017

With total public debt of around 101% of GNP in FY2016, an extremely high figure for Puerto Rico, the question is not whether the government should cut its budget deficit but by how much and how to cut wisely. To bond markets’ consternation, Governor Alejandro García Padilla announced to the world last year the island could not pay its public debt and would likely default on its debt service payments. Fiscal policy must be driven by reason, responsible policymaking, and cost-benefit-based analysis of government’s spending priorities. After 10 years, PR’s economic growth is still negative; private and public investment is at its nadir; retired public workers expect full pensions and reliable health coverage; and US Congress threatens to impose a unilateral Fiscal Control Board to regain fiscal discipline and ensure public debt is paid. Will the recommended budget protect Puerto Ricans from various risks: unemployment, destitution, illness, and lack of education? What will it take to recover a growth path in the island?