Former IMF Officials Propose Austerity Measures to Solve Puerto Rico’s Debt Crisis, Governor Agrees
TND Guest Contributor: Timothy Alexander Guzman, Silent Crow News
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Puerto Rico is
bankrupt according to Governor Alejandro Padilla because it is
mathematically impossible to pay its $73 billion debt it owes to
creditors. In an interesting turn of events, the Associated Press
reported that Padilla met privately with the New York Times before he
met with Puerto Rico’s political leaders to discuss the uncontrollable
debt problem the island-nation was facing. Padilla was quoted as saying
that
“the last four administrations have kicked the can down the
road,” he continued “At this point; there is no more can to kick. So
we’re going to take some very strict measures and some very profound
measures. It’s going to hurt, but there’s no way out” the AP reported.
According to a Reuter’s article titled
‘Report Gives Damning Review of Puerto Rico’s Finances, Calls for Reforms and Restructuring of Debts’:
Puerto Rico needs to restructure its debts and should make
reforms including cutting the number of teachers and raising property
taxes, a report by former International Monetary Fund economists on the
Caribbean island’s financial woes said. The report, which was obtained
by Reuters, gave a damning review of how Puerto Rico has arrived at its
current state, which it said requires both structural reform and debt
restructuring to fix. “Puerto Rico faces hard times,” the report said.
“Structural problems, economic shocks and weak public finances have
yielded a decade of stagnation, outmigration and debt… A crisis looms
The report titled
‘Puerto Rico-A Way Forward’ was produced by Anne O. Krueger, Ranjit Teja and Andrew Wolfe, all former members of the Washington, D.C. based
International Monetary Fund (IMF). The report determined that Puerto Rico will need to
“restructure its debts”
which will include eliminating public school teachers, raising property
taxes and suspending minimum wage laws. According to Reuters, Anne O.
Krueger mentioned that
“the situation is dire, and I mean really dire” she said
“the
needed measures may face political resistance but failure to address
the issues would affect even more the people of Puerto Rico”. Reuters also reported that the White House
“is not contemplating a federal bailout of Puerto Rico to help the island deal with its debt crisis”.
Can the IMF bail-out Puerto Rico if Washington steps aside? The Puerto
Rico government and hedge fund companies did seek financial advice from
former officials of the IMF earlier this year. There is no indication
that the IMF would get involved at this point, but the main-stream
media, in this case the Wall Street Journal suggested otherwise. The
article titled
‘Puerto Rico, Investors Enlist Ex-IMF Officials’
from April of this year said that Puerto Rico “resembles”
emerging-market countries, a qualification that can possibly enlist the
help of the IMF as an option:
Puerto Rico has retained Anne Krueger, the IMF’s former first
deputy managing director, as a consultant, while a committee
representing the hedge funds is in talks about an engagement with
Claudio Loser, the former director of the IMF’s Western Hemisphere
department, said people familiar with the matter.
The involvement of IMF veterans highlights how market perception
of Puerto Rico—a former darling of the $3.7 trillion municipal-bond
market—has changed. The IMF serves as the lender of last resort
to emerging-market countries, something some investors say Puerto Rico
increasingly resembles
The Wall Street Journal also says that Puerto Rico qualifies for IMF
assistance since they borrowed excessively; are inconsistent with their
financial reports and administer an inefficient tax collection policy.
Can Puerto Rico become a potential candidate for IMF loans? The Wall
Street Journal says Puerto Rico is similar to countries whose economies
are under IMF supervision:
As a U.S. commonwealth, the island also doesn’t qualify
for IMF aid, but the excessive borrowing, inconsistent financial
reporting and low tax collection that landed Puerto Rico in hot water
are common in the developing countries that IMF economists deal with.
Like a lot of those countries, Puerto Rico is wrestling with how to
make politically contentious budget cuts and tax increases without
strangling already-weak economic growth
The Bureau of Labor Statistics (BLS) estimates that Puerto Rico has
the highest unemployment rate in comparison to other U.S. states with
12.4% as of May of this year. Of course the numbers are much higher if
you count those who dropped out of the labor force. One third of the
Puerto Rican population receives food stamps. Since there is also a
steady rise in crime, more gated communities have sprung up for security
concerns. There is a mass exodus of Puerto Ricans ending up in the
already struggling U.S. states such as Florida and New York. Many Public
Schools have shut down due to the declining population and hazardous
buildings that have never been repaired due to budget shortfalls. Puerto
Rico’s has a lower income per capita than any State, including
Mississippi which happens to be the poorest state in the U.S. mainland.
Small businesses have closed due to high electricity, water and tax
bills. Retailers have also seen a decline in sales since many live on
maxed-out credit cards and public assistance. Poverty in Puerto Rico is
close to 45 percent but will increase dramatically if Padilla follows
through with the IMF’s proposals. Padilla said that Puerto Rico’s
economic situation is in a “death Spiral” which happens to be accurate.
Puerto Rico carries more debt than any U.S. state and it is much worse
than Detroit’s debt crises which declared bankruptcy in 2013.
What will happen if Puerto Rico Defaults?
Puerto Rico cannot file for bankruptcy under current U.S. bankruptcy
laws including chapter 9 of the U.S. Bankruptcy Code which is for
municipalities such as Detroit, Michigan or Chapter 11 which is another
option for business entities. Puerto Rico does not qualify for any form
of bankruptcy because it is under the “Commonwealth” status; it is not a
state of the union. Many questions linger about Puerto Rico’s
possibility of defaulting on its loans. Will the Puerto Rico government
shutdown if it defaults? Will the U.S. congress pass emergency measures
with a bailout plan that will leave U.S. taxpayers footing the bill? Or
will Washington allow Puerto Rico to fail so that the IMF can impose a
bail-out plan that would include a structural adjustment program? So far
there is no indication that the IMF or Washington for that matter will
bail-out Puerto Rico at this time. One thing is certain; there is an
unpredictable financial crisis that will make its way to the U.S.
mainland since Puerto Rico’s bonds are traded in the U.S. municipal bond
markets affecting other debt-ridden states.
If Puerto Rico were to move forward with recommendations from the
IMF, it would result in an economic disaster. Countries that followed
the IMF’s prescription, for example during the 1995 Mexican Peso Crisis
due to the Mexican government’s currency devaluation are an example of
how the IMF’s recommendations resulted in more poverty and despair.
According to Global exchange.org
“Under the IMF imposed economic
reforms after the peso bailout in 1995, the number of Mexicans living in
extreme poverty increased more than 50 percent and the national average
minimum wage fell 20 percent.” The IMF managed a $50 billion
bail-out plan for Mexico which led to hyperinflation and a collapse of
the banking institutions who were exposed to bad loans. Interest rates
increased on home mortgages resulting in repossessions leaving tens of
thousands of Mexicans (many were the new middle-class) homeless. Extreme
poverty increased, real wages plummeted and the unemployment rate
nearly doubled.
It is important to remember that the IMF published a report in October 2013 that called for
“global wealth confiscation” with new capital controls and exit regulations. The Report titled
“Taxing Times”
calls for the confiscation of household assets through a “Capital Levy”
against citizens who have a “positive net wealth” to pay outstanding
debts and stabilize global bond markets. This is something Puerto Ricans
should be seriously concerned with.
If the IMF were to administer a rescue package for the Puerto Rican
economy, it will be devastating. Former IMF officials are already
proposing that the Puerto Rican people must face
“tough austerity measures”.
What will happen to Puerto Rico’s economy if the Padilla administration
were to follow through with austerity measures? There is the real
possibility of civil unrest. Will the Puerto Rico government and the
people finally cut its financial and political ties with its colonial
masters to the North? No one knows, but maybe it’s time to think about a
future without the U.S. government, a government that will eventually
default on its own debt obligations. The U.S. currently holds the
largest debt in financial history with over $70 trillion according to
University of California-San Diego economics Professor James Hamilton.
U.S. colonialism has turned Puerto Rico into a modern day slave
plantation where the people are dependent on public assistance, food
stamps and government jobs (although public school teacher positions
will face job losses with IMF proposals).
Unfortunately, sometimes a bad situation makes good medicine. Maybe
the Puerto Rican people can finally have a referendum and vote for
Puerto Rico to leave the United States. Puerto Rico can rebuild itself
and open up its own independent economy without Washington and its Wall
Street cronies. Puerto Rico is a nation that has been under an Imperial
power since the Spanish-American war. Puerto Rico needs a revolution, “a
revolution of the mind”, a new way to think about its future as an
independent nation. However until that vote happens, Puerto Rico must
deal with Washington and its financial institutions under its
“Commonwealth status”. There is no evidence that the IMF will be the
“lender of last resort”
to bail-out Puerto Rico and Washington has said publically that it is
not considering a federal bail-out plan of the cash-strapped
island-nation. Governor Padilla is seeking to postpone its debt
repayment plan for at least several years because
“it’s about math” although he did mention that there is
“no more can to kick”down
the road. Puerto Rico will continue its path down a financial rabbit
hole like Greece and Detroit, Michigan and we all know how that ends.
# # # #
Timothy Alexander Guzman is an independent researcher and writer with
a focus on political, economic, media and historical spheres. He is a
contributing writer to
Globalresearch.ca,
Silent Crow News, and
The News Doctors. His writing also has appeared in The Progressive Mind, European Union Examiner, News Beacon Ireland,
WhatReallyHappened.com, EIN News and a number of other alternative news sites. He is a graduate of Hunter College in New York City.
This article appeared first on
Silent Crow News,
an alternative media site that reports on world events that include
geopolitics, war, economics, media, education, science and technology.
Reprinted with permission.
Source:
http://thenewsdoctors.com/puerto-rico-is-bankrupt-will-the-imf-bail-out-puerto-rico/
