November 3, 2015

The Hill: Puerto Rico’s path to recovery requires strong and decisive action

By Richard Carrion

After a decade of economic contraction, lack of fiscal discipline and increasing public debt, Puerto Rico now stands at a critical junction. As a banker and a proud Puerto Rican, I am frustrated and ashamed that the situation has deteriorated to this point.

Leaders from several administrations and political parties ignored structural problems and postponed difficult decisions because it was easier to keep borrowing and push problems down the line. It is time to take decisive action to address both short-term and long-term challenges and ensure the errors of the past are never repeated.

The decisions made by federal and local entities in the coming months will determine the island’s course for years, if not decades, to come. It is critical that we address the unsustainable debt load, a long history of fiscal indiscipline and a shrinking economy. To do so, a successful solution must include three elements: a legal framework to restructure Puerto Rico’s debt; an effective fiscal oversight and control mechanism; and economic stimulus measures to incentivize new investment and employment.

I must confess that for months I tried to deny the fact Puerto Rico’s public debt must be restructured. However, it is now clear that the size of the fiscal shortfall is so large, even including the impact of revenue and expense measures proposed by the current administration, that some form of debt restructuring will have to occur. A failure to address the entirety of our debt, including the general obligation debt of the Commonwealth, will result in a slew of costly, prolonged legal battles that will further harm the local economy.

A restructuring of the debt must include significant fiscal oversight. The current problems are a direct result of decades of fiscal indiscipline. For too long, policymakers in Puerto Rico have been unable or unwilling to responsibly manage our public finances. Fiscal control boards have proven effective in similar situations, such as New York, and could help guarantee the long-term adherence to the recovery plan. The key issue is not whether it is a federal or local body, but rather that its members are independent and have the necessary expertise and authority to effectively carry out their oversight responsibilities.

There is clearly a need for fiscal discipline – we have more government than we can afford or manage. An overhaul of the central government is necessary, and will surely result in lower spending, but this alone will not be sufficient to bridge the gap. A meaningful stimulus plan must also be implemented to usher the economy on the path of sustainable growth.

Economic growth is the only long-term solution to Puerto Rico’s problems. We need measures that generate economic activity and strengthen the workforce. During its 122-year history, Banco Popular, has witnessed a variety of economically tumultuous events, including a change in sovereignty from Spain to the United States, two world wars, the Great Depression and devastating hurricanes. But each time, Puerto Rico has transformed itself, a testament to the island’s resilience and resourcefulness. Puerto Rico has a modern infrastructure, tested human capital, high enrollment in local universities, a modern communication and transportation network and a solid legal, financial and institutional framework – all important pillars we must strengthen in order to jumpstart the economy once again.

I welcome the plan put forward by the Obama administration, as presented by Treasury Secretary Jack Lew and discussed in the U.S. Senate last week, and believe it has the necessary elements for Puerto Rico to begin its journey to recovery. Problems that took decades to create cannot be solved in months, nor through small or isolated efforts. A real solution will require local and federal action, support from the executive and legislative branches, backing from all political parties and the active participation of all sectors of Puerto Rican society.

I have often been told that an optimistic banker is an oxymoron, but I am convinced that if we come together and take decisive action Puerto Rico will emerge from the current situation with a strong and vibrant economy that will result in better opportunities for all its citizens.

Carrion is chairman and CEO of Banco Popular.

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