By Veronique de Rugy and Tad DeHaven
There’s an old saying about raising children that “healthy birds fly away from the nest.” Applying this concept to territories of the United States, it may be time to consider setting a timetable for Puerto Rican independence as part of any effort by federal policymakers to help the beleaguered island regain its financial health.
Puerto Rico is the largest of the United States’ territories in terms of size and population. It’s also one of the largest headaches currently facing policymakers. That’s because the Caribbean island located 1,000 miles southeast of Miami is mired in a debt crisis thanks to a long-slumping economy — an economy hindered by counterproductive federal policies and its own fiscal incompetence.
Puerto Rico’s debt obligations have reached $72 billion (roughly equal to the size of its entire economy), and thanks to lavish benefits given to government employees over the decades, it faces more than $40 billion in unfunded liabilities. The island defaulted on $400 million in debt service payments at the beginning of May, and the prospects of it making good on another $1.9 billion in early July look bleak unless it works out agreements with creditors or the federal government gets directly involved.
At this point, there’s little doubt that the latter will happen. The big question is how that involvement should be structured. Fortunately, a direct infusion of taxpayer-financed federal aid is unlikely now, though there appears to be sufficient support for legislation that would create an independent financial control board to tackle the mess. There’s a genuine concern, however, that such legislation could lead to a trampling of bondholders’ rights and provide an incentive to other states in our union — with their own growing debt problems — to hold out for help from the federal government. Other critics argue that Washington should focus on removing federal regulations that impede the island’s economic growth and force the Puerto Rican government to confront decades of fiscal profligacy.
To be sure, policymakers could help the island by exempting it from the federal minimum wage —which helped foster the island’s high unemployment rate — and the federal Jones Act, which requires shippers to use costly U.S. flagged ships that result in Puerto Rican consumers paying artificially higher prices for goods.
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