HARI SREENIVASAN: Puerto Rico went over the financial cliff this week. The U.S. territory home to more than three million people essentially filed for bankruptcy so it can restructure more than $120 billion in debt and pension obligations.
It would be the largest municipal bankruptcy in U.S. history. It owes $72 billion to creditors, many of whom are angry they will have to eat big losses in bankruptcy court. Thousands of protesters took to the streets this week as the pain spreads throughout the island. The government is reducing public services, pensions are likely to be cut, and, today, it announced it will close 184 schools, forcing 27,000 students to find another school.
Its economy remains mired in a slump, while more than 45 percent of the people there below the poverty line.
Its governor, Ricardo Rossello, joins me now from San Juan.
Governor, thank for being with us.
What is the argument that you’re going to be making in court on why you should be allowed to restructure your financial obligations?
GOV. RICARDO ROSSELLO, Puerto Rico: Well, what we asked, Hari, was essentially to have the courts’ protection, so that we wouldn’t be attacked by some — what we feel are frivolous lawsuits.
But we have ensued a conversation with different creditors, and our hope is that we can find a consensual renegotiation route based on the fiscal plan that we have implemented and that’s been certified for Puerto Rico.
HARI SREENIVASAN: Well, how much worse is it going to get? This is just a day after the announcement and you’re already talking about cutting back on schools. What other public services are you going to have to tighten your belt on?
GOV. RICARDO ROSSELLO: Well, the schools initiative was one that was established for a couple of months. We have just announced today which schools are the ones that were going to be closed now.
This initiative, of course, has some fiscal relief, but the objective is for our children to actually consolidate and that we can get more human resource to give a better service to the kids, to the children of Puerto Rico.
HARI SREENIVASAN: What about the $49 billion in pension payments? And that’s the people of Puerto Rico that have been paying into this. What are they likely to see?
GOV. RICARDO ROSSELLO: Well, we’re working on a budget right now, and part of the strategy that we have ensued on the fiscal plan is a pay-go system, so that we’re going to make sure those pension recipients get the funding.
Now, there’s still a discussion with the fiscal oversight plan on how those cuts are going to ensue. Our proposal was that it’s supposed to be on a progressive scale, so that those that are most vulnerable, those that receive less than $2,000 in pensions, will actually not get a cut, and those that receive higher will start getting a progressive cut on their pension.
HARI SREENIVASAN: Governor, I know Puerto Rico is home to you and it’s home to the people who live there. But I have got to ask, how can you keep your people from leaving the island?
Right now, you have unemployment at 12 percent. You have lost 10 percent of your population in the last 10 years. You have lost 20 percent of the jobs that are on the island. If I was a resident of Puerto Rico, why wouldn’t I just pick up and move to Florida or Texas or anywhere on the mainland?
GOV. RICARDO ROSSELLO: That’s been happening so far because we haven’t made the proper changes. We haven’t made the changes to government. Expenditures have gone rampant in Puerto Rico, lack of accountability, total lack of accountability.
And what we’re proposing right now is a complete change in that direction now. I know there are going to be some challenges during these cuts and the right-sizing of government.
The truth of the matter is that we are being very aggressive, so that we can lay the foundations for investors to come to Puerto Rico, for jobs to be created, and for opportunities to ensue. And our objective, again, is for Puerto Rico, for the people of Puerto Rico who want to stay here, for them to have the opportunity to stay here.
Now, there’s one last thing we need to point out. And it is a fact that Puerto Rico is a colonial territory of the United States. This puts us in a very significant disadvantage to all of the other states and to all of the other American citizens.
As a matter of comparative, the U.S. citizens, the Puerto Ricans that live in the United States have much better incomes, more than twice as much, participate in the labor force of greater scales, have better results in the education system and so forth.
And the one key difference is that Puerto Rico is a colonial territory. We don’t have representation. We have a difficult time getting funding from the federal government. So, this is another critical component that we need to change.
HARI SREENIVASAN: So, in the meantime, as your population continues to move to the mainland, your tax base shrinks, which only compounds this problem.
GOV. RICARDO ROSSELLO: Right. I agree.
But we’re trying our best to develop sort of strategies. We have already turned into law a labor reform law that will allow for more opportunities to ensue. We have also established a permits law that will facilitate permits in Puerto Rico. We are about to roll out a comprehensive tax reform that will enhance the base and will reduce the rates in Puerto Rico.
And energy has been a big challenge in Puerto Rico. We are pushing very aggressively with a comprehensive agenda, so that we can collaborate with the private sector and reduce a lot of the costs.
HARI SREENIVASAN: Your debt has been tax-free, which made it very, very sought after for municipal bond funds, 401(k) funds. What do you say to U.S. taxpayers who have helped — they kind of put their faith in your future. What happens if their retirement funds suffer because of this?
GOV. RICARDO ROSSELLO: Listen, I just arrived to this position a little over a hundred days ago.
I am 38 years old, and I want to live in Puerto Rico and I want to create a path forward for growth. I realize that have come at the most challenging times to become governor, but I want to push things forward.
I know that, with clear leadership, with a clear path forward, understanding that the times are tough and that there are great challenges, if we put a step in the right direction, I think we can push forward for a better Puerto Rico and, of course, renegotiation efforts with different creditors, so that it is something that is reasonable for them and something that is reasonable for us.
HARI SREENIVASAN: What’s been your most recent conversation with the Trump administration? Just recently, the president tweeted out. It didn’t seem very supportive of a bailout for Puerto Rico. I know you met with the treasury secretary in February.
What’s been the last thing that you agree on?
GOV. RICARDO ROSSELLO: So, we met with the secretary of health and human services. We met with the administrator of CMS, and we actually got a letter supporting what our claim was for Puerto Rico.
The secretary stated that Puerto Rico needed $900 million to have a path forward, to have some runway. It’s not a bailout. It’s actually the moneys that were assigned to Puerto Rico and that we need to have a system that actually works.
We’re already cutting, mind you, over $300 million in health care expenditures over the coming years. So we’re putting our part. If the health care system over here collapses because we have a lack of funding, the cost to the U.S. taxpayer base is much higher.
For every dollar that is spent here in Puerto Rico for a patient, all of the states and the federal government would have to pay $4 for that. So this is not a bailout by any means. It’s reasonable ask. It’s what’s fair for Puerto Rico, and we’re doing so in a context where we’re already making changes, we’re already cutting costs, and we would prevent much more costs on the state level and on the federal level if we do this.
HARI SREENIVASAN: All right, Governor of Puerto Rico Ricardo Rossello, thank you for joining us.
GOV. RICARDO ROSSELLO: Thank you so much.