In the early days of the Internet, Despair.com came up with a popular series of “demotivational posters” that spoofed the motivational posters supposed to inspire office workers throughout the 1990s. (Like the kitten who just needs to “hang in there!”)
Demotivational posters feature pragmatically bleak sayings displayed against otherwise positive images. The best one is Consulting. Beneath an image of a strong business hand-shake, it reads: Consulting: If you’re not a part of the solution, there’s good money to be made in prolonging the problem.
See that in a coworker’s cubicle or forward the link to a friend and it’s worth a chuckle. The way the reality of that is destroying the island of Puerto Rico, however, is no laughing matter.
The situation in Puerto Rico is bleak, it’s been bleak for a long time, and predictions about the future aren’t particularly great. The island is sitting on a $73 billion mountain of debt — a devastating 70 percent of its annual GDP — and no way to repay that debt through its own means. Even if Puerto Rico weren’t recovering from the worst recorded natural disaster in its history, it’s economy still wouldn’t have the muscle to pull itself out of debt.
Recognizing this, the federal government intervened two years ago, with the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA). It created an oversight board to restructure the island’s debt and oversee vital infrastructure projects. Not much has improved since then, but that board has the opportunity now to approve a proposed creditor deal between the two major groups of creditors — the Puerto Rico Sales Tax Financing Corporation (or COFINA from the Spanish Corporacion del Fondo de Inters Apremiante) and General Obligation bondholders.
The Puerto Rican government could restructure its two largest debt issuances through a trust without requiring any increase to sales and use taxes, under the creditors’ agreement. Under their terms, this compromise would balance property rights and creditors’ priority standing, with the aim of getting Puerto Rico back on its feet.
“After an extended period of uncertainty and litigation, it is encouraging that constructive settlement discussions have gained momentum,” the bondholders said in a public statement. “This framework allows the Commonwealth to benefit from COFINA creditors’ willingness to accept material principal haircuts to consensually resolve the dispute.”
No one wants to see Puerto Rico collapse — that’s bad for Puerto Rico, the bondholders and America. No one wants to see a real-life version of “West Side Story“‘s “America,” where Anita ironically sings, “Puerto Rico, my heart’s devotion” before wishing, “Let it sink back in the ocean.”
Alas the oversight board and Gov. Ricardo Rossello are stalling on this plan — which in two years is the best solution proposed.
Even still, things are going to be rough for Puerto Ricans — at least for those Puerto Ricans who haven’t fled to the mainland. Before Maria struck in 2017, an estimated 3.3 million had left. Since then, the Puerto Rican exodus has become so bad that counting the people who’ve left is, according to Bloomberg, impossible. While that’s great for those Puerto Ricans, who — as U.S. citizens — can easily come stateside, it’s devastating for the island’s economy, which is losing any kind of labor force to keep itself afloat.
Even if Puerto Ricans who relocate to the mainland create a Mexican- or Cuban-style remittance — sending money back to their families — that would only artificially prop up the economy. No one wants to see an American territory reduced to the status of an unsustainable third-world country.
But if there’s no hope for a future there, who can blame able-bodied Puerto Ricans for leaving?
So a lifeline of hope — any kind — is essential to prevent the situation from getting even worse. But that lifeline would interfere with the bottom line of the expensive lawyers and consultants who are gaining from Puerto Rico’s pain. A list of legal and consulting firms have made $180 million in government fees — which Bloomberg estimated was the annual cost of 11,000 Puerto Rican’s pensions.
And that’s just so far.
The longer it takes to resolve this, the more litigation and consulting is required, the more money these lawyers and consultants can bleed from the cash-strapped island. There’s no indication how much longer that will take, but Detroit’s bankruptcy case took 17 months and Jefferson County, Alabama’s, took two years.
Unless they have a better solution, the PROMESA Oversight Board and Gov. Rossello need to shake hands with the bondholders and get the island at least pointing in the right direction. There are no quick, easy solutions, but the longer this takes the more people will flee and the more money greedy consultants will steal.
The high-priced consultants are not a part of the solution, but they’re making good money in prolonging the problem.
• Jared Whitley is a longtime Washington political veteran, having worked in the U.S. Senate, the White House and the defense industry.
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