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As Students Leave, Report Calls on Puerto Rico to Close its Schools

A new report, paid for by Puerto Rico's creditors, suggest San Juan close schools to save money.

GettyImages-479120980
GettyImages-479120980

Puerto Rico is looking for ways to pay back an $72 billion in debt it says it can’t pay. To recoup some cash, a new report from three former International Monetary Fund economists recommends what many would consider a radical step: close schools on the island, a U.S. commonwealth.

Puerto Rico is looking for ways to pay back an $72 billion in debt it says it can’t pay. To recoup some cash, a new report from three former International Monetary Fund economists recommends what many would consider a radical step: close schools on the island, a U.S. commonwealth.

In a report released this week by Centennial Group International, entitled “For Puerto Rico, There is a Better Way,” the three economists — Jose Fajgenbaum, Jorge Guzmán and Claudio Loser — argue there is ample room for cost-cutting within the Puerto Rican government, including its education system. They say education spending has increased $1.4 billion over the past decade, even while enrollment declined by about 25 percent as the island’s population leaves in droves to escape economic stagnation. The chart below, taken from the report, illustrates their argument.

Screen Shot 2015-07-28 at 4.18.27 PM

Screen Shot 2015-07-28 at 4.18.27 PM

It could be a tough sell on an island where, in 2012, 56 percent of children lived in poverty, according to a National Council of La Raza report. Last year, San Juan announced it would close about 100 public schools in response to the 40 percent decline in its student population over the last three decades.

According to Reuters, Centennial was paid by a group of holders of so-called general obligation Puerto Rican debt, including Fir Tree Partners, Brigade Capital Management and Monarch Capital Group. Combined, they hold $5.2 billion of the U.S. commonwealth’s government-backed bonds.

In June, Puerto Rico Gov. Alejandro García Padilla said his commonwealth’s debt is not payable.

As Puerto Rico struggles to come up with money due before a looming August 1 payment deadline on $200 million in debt, there are increasing calls to provide it with some kind of formal relief. Former Florida Gov. Jeb Bush, a 2016 GOP presidential candidate whose state is one of the most popular landing spots for Puerto Rican exiles, told Telemundo Monday that San Juan should be allowed to restructure some of its debts under Chapter 9 bankruptcy. That would set up a formal process for Puerto Rico’s creditors to get back some of what they’re owed.

Right now, because it’s a U.S. commonwealth, American law doesn’t permit that. Several months ago, the House introduced a bill that would change this, but it hasn’t moved forward. The Senate recently introduced a similar bill.

“We must give them more flexibility to solve the problem,” Bush said Monday. “Reform the bankruptcy law for Puerto Rico. Just like Detroit had that process, maybe Puerto Rico will also need to do the same thing. But it’s not allowed by federal law, and Congress must act.”

If Puerto Rico doesn’t come up with a way to pay its bills, creditors could be forced to take a so-called “haircut” on their investment, or get paid back less than they owe. The Centennial report says that is unnecessary, and that a series of reforms — including tax increases; budget cuts, including the school cuts and the elimination of teacher’s job; efforts to increase revenue; selling government building; and cuts to Medicaid — could help it to raise the money to begin paying back its debts.

Photo Credit: Joe Raedle/Getty Images

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