If the bankruptcy of Puerto Rico's government has had any positive effect, it is that it has shown us how obsolete the island's governmental and economic structures are. Likewise, government insolvency exposed bad fiscal practices and how the absence of an economic strategy precipitated our productive collapse.
The preliminary costs of the bankruptcy, amounting to $1 billion so far, should be a powerful incentive for us to force structural reforms that will save Puerto Rico from a second bankruptcy and an economic cliff. It would be an act of collective folly to ignore the reasons that led us into the fiscal hole and to have become the first state government in the United States to file for bankruptcy.
Personally, I was embarrassed that the government had to default on its fiscal responsibilities in 2015, and hence, the federal legislation that enabled a Fiscal Oversight Board (FOB) in 2016. Since then, a body made up of unelected officials has taken control of the government's finances.
Since 2016, the Fiscal Oversight Board (FOB) has been in place in Puerto Rico January 20, 2023 - Convention Hall of the Sheraton Hotel in Miramar (Pablo Martinez Rodriguez/Staff G)
From 2017 to the present, despite the blows of Mother Nature and the COVID-19 pandemic, some sectors of the Island have gradually begun to understand that radical reforms are urgently needed to make a new, fiscally and economically viable Puerto Rico viable.
The FOB itself and, with a certain degree of timidity, our political class, have begun to move forward with some structural reforms that will allow the island to achieve a long-term recovery. From this perspective, I describe some of those reforms that are indispensable to building a new future that does not depend on federal aid and that is anchored in better governance.
Government reform: Government experts have raised the need to review the government structure and the objectives of the institutional apparatus. For example, is it necessary to have a government of 140 agencies and corporations, almost all of which are now bankrupt? Should we move to a smaller, more agile government whose role is to facilitate private initiative? The public-private partnership model seems to be the vehicle that gradually allows many losing operations to pass into private hands, in order to achieve efficiencies and better services.
Fiscal Reform: High government spending was one of the triggers for the Commonwealth's bankruptcy. A level of spending supported by high levels of debt without efficiency and productivity metrics should be a thing of the past, and the PROMESA Law itself has instituted a culture of fiscal prudence through the adoption of annual fiscal plans. Transparency and accountability are essential parts of this new fiscal culture that must prevail even after the FSB leaves.
Tax Reform: After two decades of tax increases and the creation of other taxes. Last Monday, the government took an affirmative step by presenting a proposal that would begin to provide some tax relief to businesses and individuals. In this first stage, if approved, it would return $550 million annually to taxpayers.
The reduction of rates to levels comparable to those of the United States, and the possible elimination of other taxes such as the inventory tax, the adjustment -for inflation- of tax thresholds and the simplification of the tax system should improve the island's commercial competitiveness.
Energy reform: In January, the Public-Private Partnerships Authority approved the contract that would transfer the operation of the power plants of the failed and bankrupt PREPA to private hands. With this decision, both energy production and transmission would be operated by private entities, which in turn should translate into better service as the most radical change the island's energy system has undergone in modern times is irreversibly underway.
Reform of the permitting system: Another area of great lag is the permitting process, which drives up the cost of doing business for the corporate sector and puts us at a disadvantage with other competitors. The government should accelerate efforts to reengineer the permitting process, which today involves 30 government agencies.
Reform of the welfare state: Last but not least, there is an urgent need to modify social assistance programs to make them conditional on work. This reform is important to increase the workforce and strengthen the work ethic.
This article was published originally in Spanish by El Nuevo Dia.
