July 27, 20223:56 PM

Populism and the economic failure of Puerto Rico

The ink with which the agreement to get the government out of bankruptcy had been signed, under Title 3 of the federal law PROMESA, was not dry when the local political class was already devising new populist legislation such as the one that led us to insolvency. They act like minors, who do not learn from their mistakes and scolding of their parents, and continue to commit them without consequences.

Perhaps it is a matter for sociologists and psychologists to study to understand what is in the mind of the ruling class, which claims to govern us, when they insist on continuing to implement legislative measures that undermine the economic competitiveness of the Island, and only seek to secure the votes of the masses to be reelected, at whatever cost. The viability of Puerto Rico is at stake.

Populism or the political vocation of promising benefits to the majority with the least possible effort, with high public spending, high taxes and government debt, has been the great cause of Puerto Rico's fiscal and social failure. Our political class does not want to accept it, and, therefore, there is no change in the course of its actions. Not even the Fiscal Oversight Board itself, created by federal law, has been able to regenerate the populist genetics of our political leadership.

Antonio Medina with David Skeel and John Nixon, from the Fiscal Oversight Board. (Xavier J. Araújo Berríos)

Stipulating the above, it should be up to the people to begin to reverse and judge with their vote those who insist on taking us to the abyss with these measures. If we want to leave a viable Puerto Rico for future generations, we must start from the bottom up with a real change in the way the economy is governed and managed.

The era of economic progress and good governance

After decades of social turbulence, at the beginning of the 20th century, Puerto Rico became one of the economies with the highest economic growth in the hemisphere during the second half of the previous century. The politicians of those times, seeing the poverty and misery, knew that there was no time to waste, and they focused all their energy on lifting the island out of economic stagnation. They achieved it, but they never thought that decades later another generation of politicians would focus on destroying what they achieved

Under the old Section 936 and the geopolitical value provided by the "Cold War", we were the preferred destination for multinational investment and foreign capital. A professional middle class was also created, which today is dying out or emigrating. Economic pragmatism was the north of the leaders who alternated in power within the main political parties. Neither the narrative nor the actions were hostile towards the development and attraction of capital.

The elimination of Section 936 led to the closure of manufacturing plants in Puerto Rico.

The 2006 government shutdown and the beginning of a long crisis

Everything changes from 2006, when the government runs out of cash, forcing the first government shutdown. From there, the conditions were created for the long fiscal and economic crisis that ends in 2016, with the imposition by the federal congress of PROMESA and a Fiscal Oversight and Management Board (FOMB). The governments in power (each one for a single four-year term) moved away from the possibility of promoting a long-term economic project and focused on managing the crisis within the political restrictions imposed by the four-year term. Politicians' addiction to taxes and debt to artificially keep the government apparatus alive cemented a narrative that government was essential at the expense of the productive sector. The government itself has created a dangerous spiral of economic contraction with higher taxes and spending.

On the other hand, the federal congress has its share of responsibility, by continuing to send federal aid without requesting corrective measures or institutional reforms from the various governments.

Bankruptcy, the federal “mantengo” and the survival of populism

The traumas of the government bankruptcy and the natural disasters should have created a reflection and changes in the way of governing, but none of that has happened. The clashes between the government and FOMB have prevented the implementation of economic reforms to avoid a second bankruptcy. The massive federal aid associated with the passage of Hurricane Maria and the pandemic has created a false sense of economic prosperity and, therefore, has discouraged reforms for fear of electoral costs. This being the case, collectively the "status quo" is accepted as the social and economic regulation.

There are no changes because there are no incentives to change. The solution to our economic problems will always come from the North, as it has historically. From crisis to crisis, waiting for some real change, which may never come.

This piece originally appear in Spanish in El Nuevo Dia


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