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Lack of confidence in Puerto Ricos leadership
By ELISABETH ROMAN
June 3, 2005
In the Feb. 24 issue of CARIBBEAN BUSINESS, we warned of a fiscal crisis looming in the commonwealth government. At the time, we predicted the Commonwealths credit rating would be downgraded because of the high level of debt left by the Calderón administration; excessive government spending; the huge bureaucracy; a government pension that was near collapse; the Calderón administrations policy of borrowing excessively from the Government Development Bank to balance the Commonwealth budget; failure of the past administration to implement a tax reform even though it had informed the credit rating agencies they would do so; and the hundreds of millions in subsidies provided to public corporations that were created to operate as private firms, but ended up employing thousands of political campaign supporters. Just over two weeks ago, the credit agencies, Moodys and Standard & Poors, downgraded the Commonwealths credit rating. Among the reasons given for the lower rating were the same reasons we cited just three months earlier.
On April 7, CARIBBEAN BUSINESS again sounded the alarm that the Commonwealth budget, presented by Gov. Aníbal Acevedo Vilá, would increase the governments operational expenditures by over $820 million and reduce investment capital improvements by nearly $400 million. The bottom line is Acevedo Vilá in his 2005-2006 budget seeks to spend almost 80% on the Commonwealths operational expenses and less than 12% on capital improvement projects, in addition to raising our taxes by over $1 billion. Even if approved, it is doubtful the credit rating agencies would be positively impressed by such a budget.
While we hate to say we told you so, the fact is we did; which is why we also find it hard to buy the excuses given by the administration in the local media that the credit downgrade was caused by the battles in the Puerto Rico Legislature and failure to approve the 2005-2006 budget. Even if the new budget already had been approved, the likelihood that the credit rating agencies would have downgraded the governments bonds is high. The Commonwealths credit was at risk because of the fiscal crisis left by the Calderón administration. Of course, Acevedo Vilá cant admit to this fact since he was a part of the Calderón administration and prefers to echo the local media and orchestrate the blaming by some business leaders on the Puerto Rico Legislature.
Why is it the private sector isnt demanding the government cut its budget beyond cellphone use and a few cars? Anybody knows that if a company is spending more than it earns, it will end up bankrupt. A complete government restructuring is necessary from cutting government spending, eliminating outdated agencies, and imposing a fiscal tax policy where tax evaders and those who dont file tax forms pay their fair share.
The fact is Puerto Ricos economy took a turn for the worse during the second month of the new administration, primarily because nothing was being done to face up to the fiscal problems left by the Calderón administration. The economy was already practically stopped prior to the battles for the Senate presidency.
For Puerto Ricos economy to improve after the disaster of the past four years it requires positive, concrete plans that will generate optimism and confidence among the business community. The same type of positive and concrete-action plans that were laid out by President Ronald Reagan when he took office and had to deal with the disastrous state of the economy left by President Jimmy Carter. Reagan entered office with so many positive plans that, in just six months, the economy began to recuperate, before he had presented any legislative bills, or his budget came into effect on Sept. 1. Why did this happen? One word: confidence. The business-sector people were so confident Reagan could turn the economy around, they immediately started to invest, expand, and hire. In Puerto Rico, the business sector lacks confidence in the current administration simply because it hasnt demonstrated it is facing up to the real problems affecting the island, which are big government, its excessive spending, and large deficits.
This Caribbean Business article appears courtesy of Casiano Communications.