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And They Want to Be a State?

Governor Alejandro García Padilla says the debt is ‘not payable‘ and is seeking bailout. Until Puerto Rico comes up with a long-term plan to turn this around, on a permanent basis, Congress should say no to a Puerto Rico bailout.

Global markets, media, and politicos will be closely watching Greece this week as it seeks to find a solution (i.e., another bailout) to its close to $400 billion headache. Yet right here in the Western Hemisphere, we have a mini-financial crisis in the making. In 2014, the Heritage Foundation called it America’s Greece. I think they were being generous.

It boggles the mind how a tiny island of 3.5 million people can rack up $75 billion in debt, yet that is exactly what Puerto Rico has done. Now they are looking for a bail out from you and me. And if your investment portfolio happens to hold any Puerto Rico bonds, you may want to talk with your financial advisors about adjusting your portfolio holdings.

Puerto Rico’s tax system is long overdue for an overhaul, as is repealing antiquated laws such as the Jones Act. Taxpayers have been sending billions of dollars to Puerto Rico for decades and receiving nothing in return but more requests for mini-bailouts and concessions to protect certain industries such as pharmaceutical and chemical companies as well as big sugar.

More than 30% of Puerto Rico residents receive food stamps, yet the federal government says there is no way to track if the money is spent on food. Annual income per capita is less than half of what it is Mississippi, the poorest state in the Union. Close to half of the island’s population lives at or below the poverty line. Then there is this mind-numbing stat: close to half of the working age population is supposedly out of work.

If Puerto Rico were a Caribbean nation, U.S. tax concessions and contributions would be the largest foreign aid program for the region in U.S. history. And, as with most foreign aid programs, it breeds dependency. Dependency snuffs out innovation and creativity. If you can rely on overly generous local, state, and federal programs, why bother? And keep in mind this is not limited to Puerto Rico; I can guarantee you that very soon, CARICOM countries will come to Washington looking for handouts over a fear that the Cuba market will open soon and take business from them.

When the GOP meets in Cleveland, Ohio for the 2016 Republican National Convention, they should send a clear message that Puerto Rico must begin to get its financial house in order. Rather than adopting the perfunctory statehood plank in the platform, the GOP should include a sentence or two addressing concern about Puerto Rico economic problems as well as solution to break Puerto Rico’s addiction to federal tax incentives and subsidies.

And they better get cracking. Puerto Rico and others the Caribbean players are starting to fret about Cuba’s eventual reintegration into the regional economy. They fear losing travel and other business to the region’s largest island. Rather than worry about things that they will have little control over, Puerto Rico should focus on long-term economic reforms that will position it to lead and get its residents out of poverty.

As for the short-term debt issue, I suspect they will be allowed to kick the can a few more feet down bankruptcy and bailout road. Congress should seize on this opportunity to put Puerto Rico on a more productive path. They spend way too much on government services for what they put in the bank. Puerto Rican residents deserve better. Until Puerto Rico puts its fiscal house in order, statehood efforts should take a backseat.

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