Puerto Rico as Greece: New at Reason

Puerto Rico’s debt crisis is fast turning the island into America’s analogue to Greece. But there could be a solution on the horizon.

Marc Joffe writes:

Now that Puerto Rico’s crisis has deepened, House Republican leadership and the Obama Treasury Department have reached a broad agreement on what needs to be done. The plan, embodied in HR 4900, combines a new legal process for debt restructuring with a federal oversight board to help Puerto Rico balance its budget.

Oversight boards are undemocratic, but they succeeded in New York and Washington, DC. As I discussed in a recent paper for the Mercatus Center at George Mason University focusing on the historical causes and potential solutions for the crisis, this formula also proved effective in Newfoundland—which was transformed from an insolvent British Colony to a debt-free province of Canada by an appointed government.

With Puerto Rico’s population shrinking, many government facilities could be consolidated. Although some schools have been shut, the Commonwealth has resisted closing prisons. Puerto Rico has maintained the same number of correctional facilities in recent years despite a substantial drop in prison population. It has a large number of unused cells and more guards per inmate than any of the 50 states. Puerto Rico’s elected government, susceptible to the influence of correctional officer unions, may be unable to make the necessary cuts. Unelected technocrats staffing an oversight board should be more effective.

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