In 2015, more than 100 schools have been forced to close in Puerto Rico. Now hedge fund managers are calling for the termination of teachers and the closing of more schools so that the country can repay some of its $72 billion in debt that is held in US municipal bonds.
A group of 34 hedge fund managers that hold $5.2 billion in bonds have issued a report compiled by former IMF economists that suggests Puerto Rico should reduce its spending to prevent a default on its debt. The report is titled “For Puerto Rico, There is a Better Way”.
The small Caribbean island has entered a ‘death spiral’ situation with an ‘unpayable’ debt, Alejandro Garcia Padilla, the island’s governor, says. Although the governor insists that Puerto Rico’s municipal governments and public institutions should declare bankruptcy, the hedge funds managers are against declaring bankruptcy.
In their report the managers state that Puerto Rico has to raise taxes, cut health benefits and make cuts to education to reduce the budget and avoid a default.
Three former IMF economists, Jose Fajgenbaum, Jorge Guzman and Claudio Loser, recommend that Puerto Rico sell off public assets worth $4 billion and implement more austerity measures.
Education spending has increased 39% in the last decade, but enrollment has declined by 25%, the economists state. This shows Puerto Rico can afford to lower its educational expenditure, the economists argue based on their data.
The drop in student enrollment is partly due thousands of families who are emigrating to the US for a better future. Some families who have stayed behind have to travel long distances to attend schools that are still open.
With just 43% of its active labor force working, the number of young people seeking better job opportunities outside Puerto Rico is growing. 56% of Puerto Rico’s children live below the poverty line, and critics of austerity argue that implementing further education cuts could deteriorate their education potential even further.
Currently, education spending in Puerto Rico is at $8,400 per student, about $2,000 less than the United States average. Federal law prevents Puerto Rico to declare itself bankrupt because it is a US commonwealth territory.
New York City Council Speaker Melissa Mark-Viverito says the hedge funds that are holding some of Puerto Rico’s debt are “vultures that are eating off the misery of Puerto Rico.” A few days before, New York City Mayor Bill de Blasio called on President Obama and Congress to initiate a federal fiscal rescue of the island before it’s too late:
“It’s the federal government’s obligation to act, because they can’t stand idly by and watch Puerto Rico fail,” de Blasio told a City Hall crowd.
Alongside Mayor de Blasio and Mark-Viverito, many other elected officials and labor leaders of New York City joined a nationwide event that argues in favor of a last-minute Washington rescue initiative for Puerto Rico.