BARBADOS, JAMAICA, ST KITTS & NEVIS, Puerto Rico and the rest of the Caribbean have more in common than what separates them.
Yes, they are island-countries that are heavily dependent on tourism to put hundreds of thousands of their people to work. And while they don’t speak the same language – Puerto Rico’s is Spanish while most members of CARICOM speak the Queen’s English – they have managed to upgrade their people’s standard of living to remarkable levels in the past half century.
There is something else that binds them: they have amassed a huge pile of debt, some of which is coming due. As a matter of fact, the islands, Barbados among them, are on the list of the world’s most highly indebted countries with debt-to-GDP (gross domestic product) ratios of more than 100 per cent.
Interestingly, Puerto Rico is an American colony while Barbados and Guyana, for instance, are celebrating 50 years of independence from Britain.
But the issues of debt and the political status of Puerto Rico highlight a major difference between the countries and give the United States (US) territory a crucial advantage over its neighbours as they worry about declining economies and how to repay billions of dollars in loans. Puerto Rico has Washington to which it can turn for help to pay back US$72 billion in debt which the island has already warned it can’t service.
In a sense, that’s where the rubber of constitutional status and the debt is hitting the proverbial road. As an American colony it can expect, Congress to step in with a measure of relief while the English-speaking nations are on their own to sink or swim.
Just the other day, the natural resources committee of the Republican-dominated US House of Representatives released the details of a proposed rescue plan for Puerto Rico. It immediately triggered a firestorm of a row.
According to the House panel which drafted the proposed scheme in collaboration with Democrats and officials of the US Treasury Department, Puerto Rico would be allowed to get out from under some of its massive debt if it agreed to give a US presidential board the power to monitor the island’s finances and make some crucial decisions.
In essence, Puerto Rico would be allowed to restructure much of its debt, something the island wants to do, but in return it must surrender a pound of flesh, which would be giving up some of cherished authority to manage its domestic affairs.
That’s a proposal the island’s leaders abhor. No way, said Alejandro Garcia Padilla, the territory’s governor who called the proposal “shameful and degrading.” As he sees it, implementing such a plan would deprive the island “of its government.”
Eduardo Bhatia, president of the Puerto Rican senate, vociferously objected to the draft scheme as well. He described it as an insulting 18th Century ploy that brought back memories of the “worst colonial subjugation”.
The real trouble is that the clock is ticking on a solution. Puerto Rico must find US$2.4 billion to meet loan payments that are due between May and July. Stated another way, Puerto Rico is looking down the barrel of a gun loaded with potential loan defaults and the chaotic situation they would trigger.
The hard reality is that restructuring debt is not a pleasant step because it often leaves a country’s reputation in tatters along Wall Street. But however the Congress, the governor and Puerto Rico’s other leaders slice and dice the debt bomb, a rescue package must be on President Barack Obama’s desk for signature soon if the nightmare of default is to be avoided.
But Padilla, who has consistently argued that the island’s debt was “unpayable”, isn’t giving in to Congressional demands without a fight. If the oversight board is to be appointed, he said, most of its members must be Puerto Rican, not people from the US mainland.
In any case, the Senate president is adamant that the plans must be revised because the votes aren’t there in Congress to get it passed.
But how do average Puerto Ricans feel about it? The New York Times reported indicated that large numbers of Americans seem to disagree with the governor. They equate the presidential oversight board with surgery that would be painful but necessary.
As a matter of fact, Pedro Pierluisi, Puerto Rico’s delegate to the House was quoted recently as saying that although he disagrees with many things in the draft, the governor’s position was “completely unrealistic”.
After all, he said: “If a bill does not become law [in Washington] Puerto Rico and its creditors will almost certainly go over a cliff together this summer.”
This much is clear. All sides must sit down and reach a reasonable compromise that would avoid default but pave the way for a restructuring of the debt.
When the issue of restructuring Barbados’ debt was raised last month, Dr Delisle Worrell, Governor of the Central Bank, rejected it out of hand as unnecessary and unworkable. After all, he told an audience in New York, Barbados had always paid its bills on time.
But, then, Barbados’ debt profile hasn’t been so high before and with its credit rating languishing in junk territory it is understandably reluctant to even consider it with the proverbial Sword of Damocles hanging over its head.
