While Puerto Rico generally evokes images of tropical beauty, the view today is unfortunately clouded over by extreme financial woes, $70 billion in public debt. As a result, Puerto Ricans carry the load of very real competitive disadvantages, including a stagnant economy and a lack of investment, spurred by an apathetic banking community.
To remedy this unfortunate situation the Governor’s office can and should take deliberate steps to make good on its outstanding financial obligations and restore confidence in Puerto Rican investment. In doing so, it will send a clear message: elected officials in Puerto Rico are dedicated to a full recovery. If avoided, the road to salvation will continue to be sabotaged by the administration in San Juan.
History shows that the price of a relatively small obligation within the overall world of finance is not worth the risk of losing credibility or burdening the Puerto Rican people with an incalculable debt.
- Jaime Daremblum
I recommend Governor Padilla begin with a well-publicized case with a simple fix — honor its contractual and financial obligations to one of the Island’s most integral and respected financial institutions, Doral Bank.
The case dates back several years, when the mortgage market in the United States nearly collapsed due to problems with banks and other financial entities. In 2012, Doral and the State entered into an agreement ratifying the Government debt with the former — $230 million in overpaid taxes.
Despite the government claiming otherwise – threatening investigations to identify a scapegoat – the agreement was and continues to be a valid contract upheld by the rulings of local tax authorities. In its effort to avoid blame and responsibility, the government has drawn the ire of the financial community – undoubtedly a detriment to a territory in need of progress, not self-preservation among elected officials.
Put differently, this controversy has created a red light that tends to stop investors from doing business here — that last thing the island needs in its road to economic recovery. Denying a legitimate obligation and questioning the validity of a contract from the government makes those who are able to help Puerto Rico stay away, just as we have seen elsewhere in Latin America.
Respected analysts have rightfully drawn comparisons in this case to the situations of Argentina and Venezuela. In the case of the former, similar actions by Argentine President Cristina Kirchner to renege on debts and blame other countries or third parties through falsehoods has created a situation that threatens to sink the nation and will take decades or even centuries to fix.
Likewise, a pitiable Venezuela is now undergoing a fall into the abyss that portends a painful and bloody future.
In both cases, reckless and unaccountable governments implement flawed economic policies that leave the rest of the world with only one logical conclusion: authoritarianism goes hand in hand with corruption and financial ruins. Unfortunately for them though, the trick does not fool creditors. Fortunes disappear in proceedings and courts with the hope of gaining a few days of tranquility. In Argentina, President Kirchner will never recover her credibility, as voters showed in the recent election.
The question for Puerto Rico and Governor Padilla is, Does he want to be like this too? Based on his June 18 remarks in which he puzzlingly stated that “Puerto Rico is a completely open economy that encourages investment,” and that the “banking and financial system is the same in the U.S.,” one has to wonder.
History shows that the price of a relatively small obligation within the overall world of finance is not worth the risk of losing credibility or burdening the Puerto Rican people with an incalculable debt. Would it not be more economically and socially productive to preemptively fix this debt?
It is not just millions of dollars that are in play — it is the immediate future of Puerto Rico.
Jaime Daremblum is a scholar of Latin America, international politics, and international economics. He served as Ambassador of Costa Rica to the United States from 1998 to 2004.