It's hard to escape the headlines on Puerto Rico's budget woes and harder still to comprehend why, the island's former Gov. Luis Fortuno told Newsmax.
Had Puerto Rico maintained the spending cuts and fiscal discipline that were its policies from 2008-2012, the commonwealth island would not be facing the $72 billion debt that its present governor called “unpayable” on Monday.
Fortuno spoke to Newsmax hours after his successor, Gov. Alejandro Garcia Padilla, made worldwide news by announcing that Puerto Rico might be unable to meet the roughly $400 million repayment that is due creditors on Wednesday.
The sudden news of Puerto Rico’s calamity rivaled similar reports from Greece — and caused a frenzy of questions at the White House daily press briefing. But unlike Greece, which announced it would not make its own repayment of 1.5 billion euros to the International Monetary Fund Wednesday, Puerto Rico cannot seek rescue loans from similar institutions because it is a U.S. territory.
But Republican Fortuno, defeated by Democrat Padilla in 2012, recalled how the territory also faced fiscal doom when he assumed the governorship in 2009 “and we dealt with it.”
"The fiscal situation had been difficult for more than a decade and during my first year in office, there wasn’t enough money to meet salaries,” he recalled. Fortuno also noted that the deficit was approximately 44 percent of revenues and the ratings agencies of Standard and Poor’s and Moody’s had lowered Puerto Rico’s bond rating to “one notch above ‘junk.’”
Fortuno didn't mince words when it came to root causes: Puerto Rico’s deficit was in direct relation to the salaries of public employees, notably teachers. In his words, “as there was a decline in students, there was an increase in teachers’ salaries, thanks to the unions.”
The new governor moved immediately to slash public spending by 20 percent.
“This required some painful decisions, such as the laying off of thousands of public employees,” he said, “but my first decision was to cut my own salary by 10 percent."
He also moved to consolidate government agencies, eliminate some programs, and slash some benefits for public employees. In addition, Fortuno canceled collective bargaining rights for the public sector.
By 2011-2012, Fortuno’s “austerity agenda” was beginning to show real results. The territory’s deficit was coming down and both Standard and Poor’s and Moody’s “raising our bond rating a couple of notches,” he said. The former governor also recalled how the "economy experienced tepid economic growth in 2011-12, the only time this happened in the last decade.”
All of this changed with Fortuno’s defeat in 2012 and Garcia Padilla’s assumption of power in San Juan. As Fortuno put it, “many of the spending cuts we made were undone, the budget went up 10 percent in 2013, and taxes had to be raised to pay for it all.”
In February of 2014, Puerto Rico was downgraded by the rating agencies and its rating is now “junk.” It lost its credit as well as its access to traditional institutional investors. Our economy began doing on a downward spiral thirty months ago and it hasn’t stopped.”
As it was with Greece before the election of the Party of the Radical Left this January, Puerto Rico had been living within its means under austerity and gradually climbing back to solvency. That ended in 2013, with a change in governors and, with it, a return to spend, deficits, and the bleak outlook that it is now confronting.
John Gizzi is chief political columnist and White House correspondent for Newsmax.
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