Editorial | Puerto Rico’s unravelled bootstraps
There was a time when Puerto Rico, the United States territory that is one of Jamaica's Greater Antilles neighbours, was heralded as a developmental model for the Caribbean and was, in many respects, the envy of the region.
Initiated shortly after the Second World War by Governor Luis Munoz Marin, by the 1950s and '60s, Operacion Manos de la Obra, or better known by its proximate English translation, Operation Bootstrap, was in full swing. American companies, lured by low labour costs, generous incentives and seamless access to the US market, were dizzyingly establishing factories, industrialising the economy away from monoculture agriculture.
There was rapid growth and development. But there was increasing criticism in the Caribbean of the Puerto Rican model, for its supposed exclusion or alienation of domestic participation in a process of development that favoured foreign capital. Still, the Puerto Rican engine maintained a strong head of steam.
Indeed, by the 1980s, the president of the United States was using Puerto Rico to channel largesse to like-minded governments in the Caribbean. Under the then Section 936 of the US tax code, American companies operating in Puerto Rico enjoyed major concessions on federal income for keeping their profits in the island. Mountains of cash accumulated in Puerto Rican banks.
President Reagan's proposal was to allow Puerto Rico to lend some of this cash to favoured Caribbean countries. Indeed, Section 936 money financed a not inconsequential portion of the heavy industries established at Port Lisas, in southern Trinidad, in the late 1980s and early 1990s. A smattering of 936 cash came to Jamaica, but the Edward Seaga administration of the 1980s did not model our trade and investment promotion agency on its Puerto Rican counterpart, Fomento.
Economy in recession
These days, and for a long time, Puerto Rico is far from shiny. Its economy has been in recession for a decade. The island, during that period, has lost nearly 10 per cent of its population, American citizens who left primarily for the mainland seeking to better their lives. Unemployment is stratospheric and nearly half of the island's residents now live below the official poverty line.
Last Wednesday, declaring itself unable to pay its debts, Puerto Rico filed for bankruptcy under a special law for US territories passed by Congress last year, after long resisting such a scheme for the islands. Puerto Rico owes bondholders, mostly American funds, an estimated US$74 billion, about four times Jamaica's official debt. It also has US$49 billion in unfunded pension obligations. The debt, combined, is equivalent to the territory's gross national income.
By the time the dust settles on this matter, everyone, bondholders, pensioners, will likely have to accommodate deep haircuts. The quality of life for Puerto Rico's residents will likely decline even further before it gets better.
The basis of Puerto Rico's problems is not unlike what caused Jamaica's own crisis, which spawned an austerity agreement with the International Monetary Fund when our debt reached nearly 150 per cent of GDP. For a long time, the Puerto Ricans, like Jamaicans, were fiscally undisciplined. The government borrowed heavily to meet recurrent expenses. Moreover, they maintained a bloated, inefficient public sector, and like Jamaicans, Puerto Ricans paid little of their taxes.
But worse, the Puerto Ricans, for too long, shied away from the painful job of putting things right. While they have in the past delayed paying some debts, the Puerto Ricans have undertaken the kind of fundamental reforms that Jamaica has been at for five years. Doing the hard stuff is now inevitable.
The lesson for Jamaica is that it can't falter in its own process. We can expect no cushion from anyone.