SAN JUAN -- Puerto Rico Gov. Luis Fortuño Friday warned that a potential shutdown of the federal government could affect the nation’s economy.
Puerto Rico has experience with such shutdowns. The commonwealth’s central government screeched to a halt in April 2006 as lawmakers spared over spending, forcing the government to suspend all non-essential services.
What followed was a prolonged contraction in the island’s economy that has yet to see a positive growth. Officials anticipate Puerto Rico’s gross domestic product will decline by 1% in fiscal 2011, which ends June 30. GDP is expected to generate a modest 0.4% growth in fiscal 2012, according to the administration.
The pro-statehood governor said that of Puerto Rico’s 11,000 federal employees, 7,000 to 8,000 would continue working as they provide essential services, while the remaining workers would be without pay. Fortuño said there could be financial ramifications with a federal shutdown.
“The government shutdown took us into a tailspin in 2006 and has taken us five years to finally get out of,” he told reporters after greeting municipal bankers, lawyers, and investors at the commonwealth’s annual credit conference outside of San Juan. “So I hope that people in Washington understand the potential implications of a government shutdown.”
While suspending all non-essential federal government operations is not ideal, the governor said he is more concerned about the rising cost of oil and the country’s dependence on foreign oil. The bulk of Puerto Rico’s energy production comes from oil and the administration last year passed an energy reform initiative to incorporate more natural gas and alternative energy sources on the island.
Carlos Garcia, the former president of the Government Development Bank for Puerto Rico, had a stronger message for federal lawmakers. During his conference presentation on the administration’s fiscal policy towards boosting economic growth, he cautioned against a potential shutdown in Washington.
“The key issue here is what happens to the economy, what happens to the confidence of the people … what happens to the investments that are not made? It’s not only the short-term effect,” Garcia said.
Fortuño will release his $9.2 billion fiscal 2012 spending plan Tuesday evening. The proposed budget is slightly larger than the current year’s $9.13 billion budget.
The fiscal 2012 spending plan will have a structural deficit of $550 million to $650 million, according to Juan Carlos Batlle, who succeeded Garcia as head of the GDB in early March.
That projected fiscal 2012 deficit is down from a $1 billion shortfall in fiscal 2011 and a $3.3 billion gap in fiscal 2009.
The administration has used sales tax bond proceeds to fill a majority of the commonwealth’s deficits. Fortuño anticipates ending structural budget gaps by fiscal 2013.
