The financial analyst Cate Long(@cate_long), a columnist and guest blogger for the news agency Reuters, made some observations about the Puerto Rican economy that were not very reassuring. In her blog MuniLand, she published an article, in which she stresses the similarities between Puerto Rico's and Greece's economies:
Puerto Rico could be described as America’s own Third World country. It has a per capita income of $15,203 — that’s less than half the level of the poorest state, Mississippi, where it’s $31,046 — and the official unemployment rate is 15.5 percent. Forty-five percent of Puerto Ricans live below the poverty line, and 20 percent of personal income in the commonwealth comes from federal or Puerto Rican public funds. In short, it’s an economy going nowhere.
But it’s Puerto Rico’s massive debt load that makes it resemble another crisis-stricken country that’s been in the news lately: Greece.
What motivated her to write the article was the recent issuance of municipal bonds by the Puerto Rico government, which has been remarkably successful for Long, since, according to her, in the future Puerto Rico could become insolvent due to its economy not growing fast enough to ensure compliance with its long term public debt payments.
The analyst Sergio Marxuach from the Center for the New Economy agrees:
At a more fundamental level, neither country has control of monetary policy, so neither can devalue its currency to jumpstart the economy; neither has a strong productive base it can bootstrap to ignite growth; and perhaps more important of all, both economies are economic mirages based on consumption that has been sustained by a monetary illusion, that is, by having access to a stronger currency than their fundamentals warrant. So, in my view, the fundamental similarities outweigh any superficial differences between both countries.
This information is not new for economists. Nonetheless, Long's article prompted strong reactions on the Internet. The website Alerta Progresista [es] (Progressive Alert), one of the official pages of the New Progressive Party's campaign, the party headed by current governor Luis Fortuño, accused Cate Long of being an Occupy Wall Street activist, of not being a true financial analyst, and of being ordered to write the article as part of an agenda against governor Fortuño's administration. However, several people came to Long's defense on Twitter.
Long was surprised by all the controversy her article created and the strong negative reactions she received from the Fortuño administration. Be that as it may, she realized that those who paid the most attention to her article were people who were not involved with the bond market:
But it turned out the attention my piece was getting was from people outside the bond market. Those who were responding to it were those who love Puerto Rico and are concerned about its future, namely its citizens. They seized on what I wrote and passed it around on Facebook. Newspapers like elnuevodia.com [es] and blogs [es] picked it up and debated the fine points of the island’s unemployment rate and deficit spending. I’ve never seen anything like it in the United States.
A week later Long published an open letter to the Puerto Rican Governor in which she reaffirmed her original statements and expressed her displeasure with respect to the personal attacks she has received. However, she did admit that she committed an error in her first article:
… I made one mistake in that piece, which I did not discover until I read the rating agencies’ reports about the commonwealth. Your constitution requires that bond principal and interest be repaid before your government can make any other expenditures. That means bond repayments take precedence over payments for education, healthcare, government-worker wages and pensions. Bond markets cheer for this, of course, but I’m not sure that your citizens are entirely aware of it.