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As Puerto Rican Economy Lags, Some Question Cuts

A student protester is detained by riot police at the University of Puerto Rico in San Juan, Puerto Rico on Jan. 19.  Students went on strike to demand that university officials eliminate a new $800 yearly fee that went into effect in January.
Ricardo Arduengo
A student protester is detained by riot police at the University of Puerto Rico in San Juan, Puerto Rico on Jan. 19. Students went on strike to demand that university officials eliminate a new $800 yearly fee that went into effect in January.

With its white sand beaches and tropical weather, for visitors, Puerto Rico is close to paradise. But for those who live there, the past decade has been difficult. For most of that time, Puerto Rico has been in a recession.

To see Puerto Rico's economy up close, a good place to start is Rio Piedras. It's a former suburb, now a bustling neighborhood in Puerto Rico's capital, San Juan.

Anna Lourdes Rivera knows the marketplace of Rio Piedras, Plaza Del Mercado Rio Piedras, well. It has been a popular shopping area for more than 50 years and she owned and operated a pharmacy here for two decades. Three years ago, as the economy got worse and people spent less, she was forced to shut down her business. And she's not alone.

Walk through the market and you pass produce shops with stacks of mangoes and plantains, food stands selling roast pork — an island specialty — and clothing and music stores.

But Rivera also points out one empty storefront after another.

"This used to be a souvenir store," Rivera says. "Down there, this was a whole pet shop store. Now the pet shop store is gone. This was a shoe store, also the same story; it's shut down."

At least 40 shops have closed here in the past few years; entire sections of the once-bustling market are now deserted.

"We as merchants — as commenziantes — we are feeling the pain," says
Carlos Declet, who runs a propane gas business. "Sales are going down. I would say on average from 20 to 30 percent. Almost a thousand bankruptcies a month were filed."

For most of the year, Puerto Rico's unemployment rate has hovered near 16 percent — several points higher than the rest of the U.S.

While the U.S. as a whole has been struggling with a weak recovery, in Puerto Rico, the recession — which began here in 2007 — still hasn't ended.

So, how does all that look to the man in charge, Gov. Luis Fortuno?

"We are not where we need to be," Fortuno says. "But if we look back, we have accomplished a lot in just two years."

Puerto Rico's economic woes began long before Fortuno took office. After years of strong growth, for the past two decades Puerto Rico's economy has declined as countries in the Caribbean and Latin America have lured away manufacturing and tourists. The U.S. territory depends heavily on income from the federal government — which pumped more than $15 billion into Puerto Rico's economy last year.

A demonstrator holds a sign that reads in Spanish "Zero Layoffs" while marching in front of a giant Puerto Rican flag in San Juan in October 2009.
Andres Leighton / AP
A demonstrator holds a sign that reads in Spanish "Zero Layoffs" while marching in front of a giant Puerto Rican flag in San Juan in October 2009.

But even with that income, the territory's government was running a huge budget deficit. When Fortuno took office in 2009, Puerto Rico had accumulated a $3 billion deficit. He says he had to borrow money just to make his first payroll.

To deal with the budget, Fortuno cut government spending by almost one-fifth and slashed more than 20,000 government jobs.

He says they were tough measures, but helped restore Puerto Rico to fiscal health.

"We had the worst fiscal situation in the country," Fortuno says. "Today we're 15th. There are 36 states that are worse off than we are. So, in just two years we have closed that gap significantly and we will continue to do so.

The most immediate benefit — and an accomplishment Fortuno often speaks about — is that Moody's and other ratings agencies upgraded Puerto Rican bonds.

Fortuno sees other positive signs in the island's economy. Retail sales and home sales are trending up.

"For the first time in six years, we have a net gain in job creation in Puerto Rico," he says. "We are seeing again all the major economic indicators moving in the right direction. We are not where we want to be. But we are doing much better than what we have been doing for the last few years."

Fortuno is a member of Puerto Rico's New Progressive party, which in his administration has become closely aligned with the GOP.

The economic strategy Fortuno has adopted in Puerto Rico is not unlike that pursued by Republicans in states on the mainland and in Washington. He has pushed controversial plans to privatize the airport and the island's turnpike. He wants to downsize government and leave job creation to the private sector.

Rolando Abreau is standing just steps away from the governor's mansion. Until last year, Abreau worked near here as a tour guide in the Museum of African Heritage. With the government cutbacks, the museum was closed and — like 20,000 other government workers — his job was eliminated. Abreau's now working to finish his master's degree in Puerto Rican studies and land a new job.

"In my area, it's not that easy to find a good job, you know," Abreau says. "So, I've been working with a gallery, an art gallery. Right now, I'm giving a class, but only one class. It's not covering my economic necessities."

There are some in Puerto Rico now who say cutting all those jobs wasn't just bad for workers like Rolando Abreau. It was also bad for the economy.

"For each job you lose in the public sector, you almost lose an entire job in the private sector," says Argeo Quiñones-Perez, a professor of economics at the University of Puerto Rico.

He says the reason is something economists call the multiplier effect. Laid-off workers stop spending money in the private sector — costing jobs in places like the Rio Piedras market.

Quiñones is harshly critical of Fortuno's policies. He points out that as Fortuno prepared to take office, Standard and Poor's issued an advisory warning that large government layoffs could make the recession worse.

If there's something that politicians and economists in Puerto Rico agree on, it's that the island is an economic basket case. It's a place where Quiñones notes, just one-third of the population works.

"You have an economy that is so far away from full employment, so far away from growth," he says. "And then you come in, in the middle of the worst moment of the world crisis and you come and you start slashing government expenditures and throwing out tens of thousands of public employees. That's nuts."

Public dissatisfaction with the government cuts broke to the surface last fall on the University of Puerto Rico campus.

As part of the cutbacks, the Fortuno administration slashed the university's budget by a quarter and oversaw an $800-per-semester tuition hike. Riot police were called in, and protests — last fall and again this spring — turned ugly.

Student leader Xiomara Caro Diaz says the protests were about much more than just tuition hikes.

"I think we started pushing people to question public policy," Diaz says.

Puerto Rico, she says, is in crisis. She believes big changes are needed to the island's economy and its political system.

With the poor economy and lack of jobs, hundreds of thousands have left the island in recent years. This year, for the first time, more Puerto Ricans live on the mainland than on the island. Those numbers include many of Caro's friends — professionals and recent graduates who represent the island's future.

"We can't change Puerto Rico from outside," Diaz says. "We have to stay and we have to create opportunities for a new generation of young people. And if the recent generation of young people won't stay, who's going to do the job?"

That may be Puerto Rico's greatest challenge — crafting an economy where the young and educated can find a good job on the island.

This story was produced for broadcast by Marisa Peñaloza.

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As NPR's Miami correspondent, Greg Allen reports on the diverse issues and developments tied to the Southeast. He covers everything from breaking news to economic and political stories to arts and environmental stories. He moved into this role in 2006, after four years as NPR's Midwest correspondent.