There is a better way for bringing fiscal stability to Puerto Rico than a Federal control board, the Puerto Rico think tank Center for a New Economy said Monday.
The passage of a fiscal responsibility law and adoption of an overall economic plan that deviates from some of the austerity proposals made this summer offer a better path to economic growth and fiscal stability, CNE professionals said in a conference call. They also called for a restructuring of the island's $70 billion of public debt.
The group presented its plan as an alternative to the imposition of a Federal control board, which is under consideration in U.S. Congress.
Among the problems of a federal control board is that it "reeks of colonialism and has outdated imperialistic overtones," CNE said in its presentation. Such a board would probably try to put in place strict and inflexible control measures that have already failed, the group said.
The Puerto Rican people and government workers would reject a federal control board, said CNE president Miguel Soto Class. Some members of the ruling Popular Democratic Party have called for civil disobedience as a response to a control board, he said.
A spokeswoman for Gov. Alejandro García Padilla, who is a member of the PDP, said she had not heard of this.
Puerto Rico should pass a fiscal control rule whereby spending would remain fairly stable, unaffected by the business cycle's movement of revenues up and down, CNE said. An independent panel of professional economists and other fiscal policy experts would determine the appropriate level of total government spending. The government would leave a small surplus.
By being independent of the year-to-year ups and downs in revenue, Puerto Rico would be able to avoid painful cuts in spending in downturns, said CNE public policy director Sergio Marxuach.
The surplus would allow the government to handle liabilities like public pensions, its healthcare system, and help the Government Development Bank for Puerto Rico regain financial strength.
Within the overall spending limits, Puerto Rico's elected government would allocate spending.
Marxuach also called for the reforming of Puerto Rico's public financial management. Among the things the government needs to do is implement performance based budgeting and utilizing medium term expenditure plans. The legislative branch has to improve its abilities to analyze budgets submitted to it.
New Zealand, Chile, Columbia and other countries have fiscal rules, Marxuach said. Enforcement of the fiscal rule can be done in several ways, said Deepak Lamba Nevieves. In some countries politicians can be arrested for breaking the rule. In some countries the government has the power to invalidate government contracts.
Soto Class said the CNE was working on a set of proposals for the economy. These will probably avoid some of the austerity-oriented measures in the so-called Krueger report issued this summer, which led Puerto Rico government's debt toward restructuring proposals. Austerity measures won't work in Puerto Rico, he said.
