Sep 23, 2022 - Economy & Business

Puerto Rico's intersecting crises

Illustration of the Puerto Rican flag falling apart to leave an exclamation point
Illustration: Natalie Peeples/Axios

Even after several years of political and legal battles over how to revive its economy and fix its basic utilities, Puerto Rico continues to careen from crisis to crisis.

Why it matters: The territory and its 3 million residents are caught in a quagmire of financial and infrastructure challenges with a steep human cost — including including a 41% poverty rate last year.

Driving the news: Puerto Rico's entire power grid — which has been in bankruptcy for the last half decade — went down after Hurricane Fiona ripped through on Sunday. It's another humanitarian crisis for an island that was supposed to be keeping the lights on by now.

  • Only about 32% of Puerto Rico residents had power restored as of Thursday, while about 3 in 4 were still without clean water, according to Jubilee USA Network, an organization that has advocated for debt relief for Puerto Rico.
  • "Even relatively minor storms can shut down the power grid on the island," Jubilee executive director Eric LeCompte tells Axios. And "the water supply is dependent in many parts of the island on the electrical grid."

The big picture: Debt reduction has helped Puerto Rico by freeing up cash to spend on basic services, but numerous troubles continue to dog the island, including a history of corruption, insufficient revenue and the ongoing dispute over the prospect of statehood.

  • "It's not just the electrical grid — it’s also the sewers, it’s also the streets, highways, bridges, schools," University of Puerto Rico economist José Caraballo-Cueto tells Axios. "Almost every area of the government infrastructure is needing renovation."

Context: Puerto Rico exited the largest municipal bankruptcy restructuring in U.S. history earlier this year — a five-year process that resulted in the commonwealth shedding 79% of its debts.

  • But the island's public utility, the Puerto Rico Electric Power Authority (PREPA), remains mired in bankruptcy. The island's federal oversight board said days ago that it's reached an impasse with bondholders over how to restructure the entity's debt.

Flashback: When Hurricane Maria and Hurricane Irma devastated Puerto Rico in 2017, causing tens of billions of dollars in damages, the territory's ability to provide electricity to its residents collapsed.

  • It took months to restore power, illustrating the depths of PREPA's problems, including accusations of sweetheart deals.
  • In 2021, operational control of the island's grid was transferred to a private operator called LUMA Energy in hopes of improving the dilapidated system.
  • LUMA "has failed miserably," Caraballo-Cueto says, noting that it's led to rate spikes and more blackouts.
  • Critics — such as Sen. Chuck Schumer, the U.S. Senate's Democratic majority leader — have blasted LUMA and island leaders for failing to put billions of dollars in federal aid to use in reconstructing the system.
  • Local officials are now re-examining the deal, the Wall Street Journal reported Monday.

The other side: LUMA did not respond to a request seeking comment.

  • But LUMA public safety manager Abner Gómez said Thursday in a public statement that the company "continues to conduct damage assessments, reenergization efforts and power restoration across Puerto Rico" and "will not stop until every customer in Puerto Rico has their power restored."

The big question: Would statehood solve the island's problems?

  • Debate persists — both in Washington and in Puerto Rico — over whether the island would be better off if it were a state or if it were on its own.
  • "If we really want to see permanent or sustained economic growth, a change in the nature of the political relationship with the United States will be necessary," says Caraballo-Cueto, who is currently immersed in a study over the potential effects of such a change on Puerto Rico's economy.

💭 Our thought bubble: Puerto Rico's financial crisis is sure to continue as long as its population continues to decline. The island has lost hundreds of thousands of residents in recent years — most of them moving to the mainland in pursuit of a better life.

  • When they leave, they take their tax dollars with them — and that means less money for the island to pay its debts and invest in public services, continuing its destructive cycle.
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