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How irresponsible or incompetent can a governor be?


June 3, 2005
Copyright © 2005 CARIBBEAN BUSINESS. All Rights Reserved.

The past administration under Gov. Sila Calderón did more harm to Puerto Rico, economically and financially, than any knowledgeable observer would ever have predicted. She governed with the criteria of a "spoiled brat." That is, whatever she wanted or felt was desirable, she ordered it to be carried out, irrespective of the consequences.

When she began her administration, projects were being developed and constructed everywhere. Essential highways, aqueducts, and purification plants; new modern educational facilities, sewage systems, and sewage treatment plants; and many other infrastructure and public works projects, such as the Urban Train, a world-class Coliseum, and a first-class Convention Center, were being constructed. The economy was thriving, and we had achieved the lowest unemployment levels since World War II.

Instead of supporting and continuing the strong and vibrant economic development, Calderón ordered every single important project be put on hold until the investigations, which she ordered, were carried out. The purpose, to see if any wrongdoing could be found to substantiate her campaign to criminalize the New Progressive Party, the growing statehood movement, and the previous governor, Pedro Rosselló. She spent millions of dollars of the people’s tax money on those investigations, which produced very little, if anything.

One of the most incredibly stupid suggestions made by the political persecutive committee, hypocritically labeled the "Blue Ribbon Committee," was to implode the condominium building, known as "The Millenium." The implosion of a condominium which had all the federal, state, and municipal permits necessary and in which not only had many apartments already been sold to third parties, but had obtained a multimillion-dollar loan guaranteed by a mortgage, would have had a very negative effect on Puerto Rico’s credit, destroying our government’s credibility in financial circles.

The order to stop work on all infrastructure and public works projects until they were investigated, caused unemployment, financial damage to contractors, and slowed down the economy. It also substantially increased the cost of Route 66 from San Juan to Fajardo, the cost of the Urban Train, the cost of the Coliseum, the cost of the Convention Center and many, many, other public works. The increased cost of all these projects, when added together, is in excess of $500 million.

As a matter of fact, I am probably being very conservative in my estimates. I wouldn’t be surprised if the final overrun in the cost of all these projects reaches the $1 billion mark. That doesn’t include the social and economic injury caused to workers, the surrounding communities, the people in general, and the contactors individually.

To Calderón, the power of the governor’s office was first of all to be used to persecute those who had opposed her. That is, the leaders and members of the New Progressive Party and all statehood supporters whom she demonized as "corrupt" without evidence, and then used all her power and government funds to try to prove her slanderous accusations.

The second purpose of the power of the governor’s office, as far as she was concerned, was to be able to use the public funds as she felt like it. Her pet project, the "special communities," she proudly announced would be assigned $1 billion in five years to be invested in all communities which she designated as "special." She committed $1 billion without any conscientious study and analysis in all those communities as to what was needed in each community and how much it would cost. What was important was the votes she believed she could get with $1 billion. She didn’t care how she got the money. She ordered the Government Development Bank to put up the money, regardless of whether the process was legal or not, and regardless of the financial burden such an outlay would put on the Government Development Bank.

To top it all, she appointed her then-lover Ramón Cantero Frau as the person to administer this $1 billion project. In approximately two years, Cantero Frau committed over $500 million to advisers, counselors, planners, and a little bit to contractors to actually build something. How irresponsible and arrogant can you get?

No wonder that when the transition was finished, Gov. Aníbal Acevedo Vilá’s own advisers acknowledged the government’s deficit was anywhere from $1.3 billion to $2 billion.

Obviously, with a deficit of $1.3 billion to $2 billion, the order of the day must be to economize and cut down on all expenses.

But, has Acevedo Vilá really looked for ways to economize and reduce spending in government? No. On the contrary, he submitted the most irresponsible budget he could muster. Instead of reducing expenditures, he proposed an increase in expenditures, $800 million. Not only did he submit a budget increase, instead of reducing expenditures, but his plan to cut spending during the second half of the 2004-2005 fiscal year is haphazard. He should have implemented an effective and rigorous plan to reduce spending by 10% in all departments and agencies of government. Instead, he already traveled to Italy twice and to Washington, D.C., and the mainland, probably more often than he traveled to Washington when he was resident commissioner. Not a very good example of austerity, is it?

Precisely because he increases expenditures by almost $800 million, to pay for the increase, he then proposes increases in taxes, without analyzing the deleterious effect on the economy. For petty political reasons, he skirts the sales tax, which all serious economists and analysts support. He proposes the elimination of the excise tax exemption to all articles of first necessity, thereby burdening the poorest in our economy more heavily than the wealthy. The added value tax of 10% he proposes is too high and very difficult and costly to implement. A sales tax of 5%, maintaining the exemption to articles of first necessity, is more than sufficient to increase government revenue without burdening the poor. It would also be a much easier system to implement and monitor.

If we need more revenue, we can obtain them by legislating a 5% to 10% tax on all tax exempt industries. A small tax on these industries won’t adversely affect the economy and won’t chase those industries away. It is easy to implement and, at the same time, will make our tax system much fairer to all others who have to pay taxes, while the wealthiest of all in Puerto Rico are exempt.

Finally, the most economically dangerous of all Acevedo Vilá’s proposals is the 4% or 5% tax on gross revenue in interest earned by banks. In the first place, banks are subject to income tax like all other companies in Puerto Rico. They are not tax exempt. To put an additional 4% or 5% tax on gross revenue from interest, without allowing deductions for the overhead and personnel costs, could cause some banks to have a loss instead of earnings. It would reduce the net earnings of all banks in Puerto Rico at a time when our banking institutions are going through very difficult times in the financial market. The investors’ confidence in Puerto Rico’s banking industry is at a low point. All of our banks have suffered a serious loss of value in their shares.

As of last Friday, Banco Popular shares were down by 18.9%; Eurobank by 32.1%; FirstBank by 39.8%; Westernbank by 40.6%; Oriental Bank by 50%; R-G Bank by 63%; and Doral Bank by 73.6%.

A tax, such as the one proposed by Acevedo Vilá, would most probably further devaluate the shares of all our banks. This would hurt all shareholders, 60%, who are fellow Puerto Ricans and many of whom are employees and officers of those banks. The banks would probably increase the interest they charge borrowers, thereby further increasing the cost of loans, and depriving many Puerto Rican families of the opportunity to buy a home. And on and on, the harmful effects of such a tax would cause such damage to our economy and our financial credibility that it would take years to repair it. How irresponsible or incompetent can a governor be?

Carlos Romero Barceló is a two-term former governor of Puerto Rico (1977-84), a two-term former resident commissioner (1993-2000), and a two-term former mayor of San Juan (1969-78). He was president of the New Progressive Party for 11 years.

This Caribbean Business article appears courtesy of Casiano Communications.
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