The current predicaments of Greece and Puerto Rico have been a long time in the making. No single policy or economic agreement is to blame, but the difficulties involved in both situations are likely to negatively impact many people, creditors and debtors alike. Unfortunately, regardless of the resolutions, it is probable that the poor will suffer most.
The situations of Greece and Puerto Rico are similar in many ways. Both are suffering economically under a staggering amount of debt — over $300 billion for Greece and $72 billion for Puerto Rico. High unemployment in both places has contributed to the increase in poverty rates, both of which are around 45 percent. As implementation and negotiations continue, it is clear that there are no easy solutions and that the full effects of these difficult circumstances are still yet to be realized.
Although the situations in Greece and Puerto Rico are very similar, there are some key differences. Greece’s debt is primarily held by other countries in the European Union. If Greece fails to pay back these loans, there will be economic repercussions throughout Europe. Conversely, Puerto Rico’s debt is primarily held by American citizens and corporations in bonds. Although Puerto Rico’s situation doesn’t have the same international complexity as the mess in Greece, tension has continued to build in anticipation of the possibility of Puerto Rico’s debt restructuring — something which is currently not possible under federal law.
So how will the eventual resolutions of the situations in Greece and Puerto Rico affect individuals around the world? Those who have purchased Puerto Rican bonds or lent money to Greece face the possibility of losing part or all of their investments. Citizens of Greece and those in Puerto Rico can anticipate the possibility of higher taxes, fewer government benefits and continued economic recession. At this stage, it appears that both sides will need to make sacrifices.
As difficult as the situation may be for the governments and creditors involved, it is almost always the poor who are hurt most in these types of situations. Already there have been large economic recessions in both Greece and Puerto Rico, and it’s unlikely either economy will recover quickly. The poor are usually least equipped to weather such economic storms since they typically have limited education and skills. Consequently they are often the first to suffer as jobs become scarce, and the last to recover as recessions recede.
In the last 10 years, as the recession in Puerto Rico has worsened, tens of thousands of people have moved to the U.S. mainland — something which is fairly easy to do since Puerto Ricans are U.S. citizens. Unfortunately the poor usually do not have the financial means to make such a move, and they are left to shoulder burdens in a weak economy. For Greek citizens, moving within Greece is unlikely to help their situation, and moving to another country is more complicated. For the Greeks, strengthening the economy appears to be the main way out, and there appears to be no obvious way to do that.
The current situations of both Greece and Puerto Rico are complex and will be difficult to solve. Generally in these situations the creditors’ voices are heard the loudest, demanding payment for unpaid debts. We also hear the voices of politicians and government leaders as they work to find solutions. But the voices of the poor are — as so often is the case — muted. In working to find solutions in both Greece and Puerto Rico, it is imperative that the needs of the millions living in poverty are considered.
Often policies to encourage entrepreneurship, employee ownership and non-dependency oriented assistance are not taken seriously as regions of the world go through hard times. They should be.
See: What Will It Take to Solve Puerto Rico’s Debt Crisis? Act Now
John Hoffmire is director of the Impact Bond Fund at Saïd Business School at Oxford University and directs the Center on Business and Poverty at the Wisconsin School of Business at UW-Madison. He runs Progress Through Business, a nonprofit group promoting economic development.
Richard Payne, Hoffmire’s colleague at Progress Through Business, did the research for this article.