Puerto Rico debt crisis drives exodus to U.S.

New austerity measures are imposing more economic pain on U.S. territory Puerto Rico, which already has a poverty rate almost double that of America's poorest state. In turn, many are deciding to leave the island for better opportunity and pay in the states. Special correspondent Chris Bury reports.

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    But, first, an ongoing financial crisis in a U.S. territory.

    Special correspondent Chris Bury looks at how Puerto Rico's government debt burden is crippling the island's economy, and spurring its people to leave. It's part of our weekly series Making Sense, which airs every Thursday on the "NewsHour."


    For Yaritza Lozano, who owns a bakery in San Juan, the capital, this is a time of high anxiety. The 28-year-old, laid off from her job as an art teacher, turned her passion for baking into a business only a year ago. Now Puerto Rico's debt crisis is trimming her profits in an already troubled economy.

  • YARITZA LOZANO, Owner, Double Cake:

    My major concern is our customers. I wonder if I am raising my prices too high.


    Lozano is raising her prices because the cash-strapped government has dramatically hiked sales taxes, from 7 percent to 11.5 percent, far higher than any in the United States, taxes that Lozano has to pay on sugar, eggs, butter and flour. So her popular red velvet cupcakes are now selling for $3 each, up from $2.75.

    What's your concern about the taxes going up?


    That I have to keep raising my prices and eventually lose business because people won't be able to afford anything.


    For the people of Puerto Rico, about 3.5 million of them, new austerity measures such as higher sales taxes are imposing more economic pain on a U.S. territory that already has a poverty rate nearly double that of Mississippi, America's poorest state.

    The government raised taxes to help pay back the billions that it has borrowed, selling bonds on Wall Street and to residents here, the bonds popular because they are tax-exempt and pay a higher yield than other municipal debt, and many are backed by a Puerto Rican government guarantee.

    Eye doctor Raul Franceschi bought some to save for his children's college education.

    When you bought those bonds, how safe did you think they were?

    DR. RAUL FRANCESCHI, Puerto Rican bond owner: Oh, when I bought them, it was pretty safe, because in Puerto Rico — the Constitution of Puerto Rico, you cannot stop paying the bonds.


    But now Puerto Rico claims it cannot pay at least some of the $72 billion owed, more debt per capita than any state.

    For all intents and purposes, is Puerto Rico bankrupt right now?

    ORLANDO SOTOMAYOR, University of Puerto Rico: I believe Puerto Rico is bankrupt.


    University of Puerto Rico economist Orlando Sotomayor says Wall Street was just as eager to lend the money as government leaders here were to borrow it.

    Did the Puerto Rican government borrow too much money with little thought to paying it back?


    Without any question, yes. The money was available, they took it, and they were happy to get it. I'm sure, in their minds, they would be saying, I'm going to benefit from the money that I will be able to spend today, and the next governor will have to pay the debt.


    Kick the can down the road.


    That's right. We are experts.


    Puerto Rico's status as a territory, not a state, also played a role in the island borrowing so much, according to Pedro Pierluisi, Puerto Rico's resident commissioner and nonvoting representative to Congress.

  • PEDRO PIERLUISI, Puerto Rican Resident Commissioner:

    Financially, we don't get the same federal funds that states do. And yet we're American citizens. We aspire to have the same quality of life as our fellow American citizens, and to some extent the government was kind of making up here, trying to provide assistance to the needy population without the resources to — for doing so. So they ended up borrowing a lot.


    The debt burden has been building here for decades. But a deep recession, now nearly 10 years old, has battered the island's economy like a hurricane. Thousands of businesses have closed, hollowing out entire neighborhoods, and leaving the government with far less tax money to pay its bills.

    In San Juan's Rio Piedras neighborhood, this variety store, among the few left open, promises bargains for a hard time. But its owner tells us shoppers are being picky.

    ERNESTO SANCHEZ, San Juan business owner (through interpreter): Once they put the new sales tax into place, sales went down. People are really just buying the necessary things.


    For Omayra Torres Muniz, a school custodian, the debt crisis is one domino too many. Laid off once before, she fears for her job again. Puerto Rico has already closed 100 schools this year alone.

    OMAYRA TORRES MUNIZ, San Juan resident: It got me — my mind crazy. I don't know what's going to happen to me. I can't believe this is my Puerto Rico. I can't believe it. Everything is bad, economy, government, the people.


    So now the 42-year-old mother of three had decided to leave Puerto Rico, and her parents, to start a new life in Orlando, Florida.

    Do you worry about leaving your family behind, your parents?


    Yes, I do. Listen, this hurt me. But I have to do it, because I got three kids, and I want the better for them.


    Omayra is part of a massive exodus to the mainland; 50,000 Puerto Ricans a year are leaving for the U.S., accelerating a population decline that began with the recession in 2006.

    Are you confident you can find work in the U.S.?


    Oh, yes. There's a lot of work over there. I would do anything, anything. I don't care. But I'm going to work.


    Daralee Vasquez-Garcia, visiting her mother in Puerto Rico, has already made the move to New York, where she teaches in a public school. Leaving her family and friends was difficult.

    DARALEE VASQUEZ-GARCIA, New York City teacher: It was like someone was ripping a part of my heart.


    But, in New York, Vasquez-Garcia earns nearly four times what she made as a teacher in Puerto Rico.


    There's a lot of talent here. So, but when the talent is not given opportunities, we took the opportunity to say let's go reach out to a place where our talent is accepted.


    States like Texas are actively recruiting that talent in Puerto Rico. The "For Sale" signs, "Se Vende," are everywhere.

    Economist Heidie Calero calls out-migration the single greatest threat to the island's economy.

  • HEIDIE CALERO, Economist, H. Calero Consulting Group:

    The problem is that the people who are leaving are young people, they are professionals, those who are working, or a working age, and I need them to be here in the labor market, so that they pay taxes.

    So, unless the opportunities are here, we are going to see an exodus of people, and unlike other countries in the world, we have a U.S. passport. Remember, we are U.S. citizens.


    The debt crisis is complicated, too, by Puerto Rico's tangled, often troubled ties to the U.S. The territory has been subject to the whims of Congress, since the U.S. took the island from Spain in 1898.

    For example, a 100 year old law, the Jones Act, requires that most goods shipped to and from Puerto Rico must be carried on ships built in the U.S. and staffed by American crews. That means Yaritza Lozano has to pay much more for her raw ingredients.

    For years, Congress offered generous tax breaks to attract manufacturers to Puerto Rico, including many big pharmaceutical companies, employing thousands of workers. But, by 2005, those subsidies had been phased out, leaving shuttered factories behind. But Congress still requires Puerto Rico to pay the federal minimum wage, $7.25 an hour, much more than its Caribbean neighbors pay.

    And some economists say generous welfare benefits, the same food stamp and disability programs as the U.S., as well as local benefits, such as subsidized electricity, provide a perverse incentive not to work.

    Even so, Yaritza Lozano would like to pay her 12 employees at the bakery even more than the minimum, because, she says, they work so hard.


    But I really can't. So I actually take from my own salary in a way.


    For Lozano and many others, the crisis is clearly taking its toll. More than 150,000 Puerto Ricans are projected to leave in the next five years. For now, this young baker has decided to make a go of it here, even though both her parents have left for the states.


    I think that my place is here, you know, in my country, trying to help in a way that I can.


    But the government, broke and beholden to creditors, may cut services, including bus routes, and raise taxes even more. In this tropical paradise, many of those left behind feel caught in a vicious circle of uncertainty.

    I'm Chris Bury for the PBS NewsHour in San Juan, Puerto Rico.

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