Recovering from Hurricane Maria seems like an impossible task for Puerto Rico, given the island’s already-crippling debt. That’s why so many commentators cringed on Tuesday when President Donald Trump playfully tossed paper towel rolls into Puerto Rican crowds, as if such essentials were commemoratives of his visit. But before leaving the Island, he did say that Puerto Rico’s staggering $73 billion debt would have to be forgiven – which would indeed dramatically improve the prognosis for Puerto Rico – if it can and does happen.
Marie Mora is a professor of economics at The University of Texas Rio Grande Valley who has a book on the population, migration and socioeconomic outcomes of Puerto Ricans coming out in November. She explains how the U.S. territory came to owe so much money to creditors on the mainland, as well as on the Island.
“The year 2006 is when a lot of things fell apart,” she says. “It’s something that my coauthors and I have described as the year of a perfect storm. One of the things that happened in 2006 was the complete expiration of a particular provision in the tax code that allowed businesses in Puerto Rico to be able to get corporate income tax credits.”
As a result of this, many businesses on the Island left or scaled back, according to Mora.
“So you lost a lot of business. You lost jobs. There was then a decline in income, so the government began borrowing to make up for the differences,” she says.
And now Hurricane Maria has compounded the island’s economic crisis by adding a humanitarian crisis on top of its crippling debt. Damages to Puerto Rico from the hurricane amount to somewhere between $80 and $90 billion, according to Mora, who says Puerto Rico also has $50 billion in unfunded pensions to contend with.
But President Trump may throw a lifeline to the Island. Speaking to Geraldo Rivera of Fox News on his recent trip to Puerto Rico, Trump said: “They owe a lot of money to your friends on Wall Street, and we’re going to have to wipe that out.”
This statement immediately raised some questions, the most pressing of which is whether or not the federal government has the authority to forgive Puerto Rico’s debt.
“I was actually very surprised when I saw him say that,” Mora says. “Since then, the White House has essentially backpedaled a little bit on that.”
Yesterday, Director of the Office of Management and Budget Mick Mulvaney said the president’s statement shouldn’t be taken “word for word.”
“My thought it that it’s not the president who would have to make that decision, it would have to go through Congress. But being the president, he could certainly encourage Congress to take a close look at that,” Mulvaney said.
Puerto Rico could be facing a shutdown by October 31 if it doesn’t get an infusion of money to deal with the damages from Hurricane Maria. The Island’s options are very bleak, according to Mora.
“I would think, in this case, they may need to appeal very strongly to US Congress to help them through this awful time,” she says.
Written by Kate Groetzinger.