The street-level impact of Puerto Rico's looming default

The Puerto Rican government yesterday made a bond payment that narrowly avoided default this month on part of its $72 billion debt— but Puerto Rico Gov. Alejandro Garcia Padilla told the U.S. Senate Judiciary Committee that his administration has no money left and does not know how it will come up with next month’s payment.

How this plays out is crucial not just for Puerto Rico but for the whole United States, because if Puerto Rico receives from Congress the bailout many on the left are calling for, the precedent will enable states like Illinois, New Jersey, New York, and California to go deeper into debt with the anticipation that Washington will bail them out.

Barring earth-shattering news, the cover story in the issue of WORLD Magazine that goes to press next week will explore the crisis and include a sidebar on one of the states that may be next in line, Illinois. But for now, as discussion of a Puerto Rican bailout continues at suite level, I want to give you a sense of how Puerto Ricans at street level are feeling the pressure.

WORLD correspondent Ismael Hernandez has just talked with Erwin Ferri, a resident of the municipality of Sabana Grande who retired from a government position. Grande said he is anxious to see what will happen to his pension. He is cutting back on his utility usage, and his mother is concerned about a health system “in shambles. Her home has devalued to half its cost.”

Ferri added, “I give thanks that my children live in the States. Nevertheless, we are deprived of their presence due to the lack of job opportunities and quality of life.” He sees “stores closed and abandoned. Unemployment is rampant.” He knows of 10 families that have left Puerto Rico: “I feel I will soon follow during the New Year.”

Hernandez also talked with John Stewart, a Puerto Rican who has his own law firm in Arecibo. He may have to “close the office and work from home in order to reduce operational cost. Another alternative is to eliminate the administrative assistant position.” Both of his parents have pensions that may go unpaid.

Stewart sees in his city numerous “for sale signs, store closings, graffiti, people hanging on corners. … In my neighborhood, Isabela, there are plenty of empty houses for sale or foreclosure.” Twelve couples from among Stewart’s relatives and friends have moved to the U.S. mainland in the past year, and Stewart plans to head there also if the only education choice for his children becomes the poor public school system.

This is what happens when governments year after year spend much more than they take in. It can happen in U.S. states as well as the territory of Puerto Rico if politicians buy votes and count on someone else to rescue them.

With reporting by Ismael Hernandez.