TIME Economy

Hedge Fund Economists Want Puerto Rico to Lay Off Teachers to Fix Debt Crisis

Puerto Rico Teeters On Edge Of Massive Default
Joe Raedle—Getty Images The Puerto Rican flag flies near the Capitol building as the island's residents deal with the government's $72 billion debt on July 1, 2015 in San Juan.

The island is $72 billion in debt

Puerto Rico can avoid a costly default by upping taxes, cutting teacher jobs and closing schools, a group of hedge fund economists proposed in a report released on Monday, offering a controversial solution to the island’s “unpayable” $72 billion debt crisis.

The report, commissioned by hedge funds holding several billion dollars of Puerto Rico’s bonds, highlights the island’s rising education expenditures against the backdrop of countless school closings and waves of poor families fleeing to mainland America.

According to government figures, education spending rose 39% to $4.8 billion over the last decade, while enrollment fell 25% to about 570,000. Puerto Rico still spends just $8,400 per student, compared to the U.S. national average of $10,667, according to the Guardian.

“The real expense per student has increased enormously without increasing the quality of education,” Jose Fajgenbaum, director of Centennial Group Latin America and one of three former IMF economists who authored the report, told the Guardian.

The hedge fund-backed report arrives in response to the Krueger report, a government-commissioned study released June 29 that proposed a significant debt restructuring with which bondholders were unlikely to agree.

Read next: Everything You Should Know About Puerto Rico’s Economic Crisis

TIME Innovation

How 3D-Printing Gave One Girl a New Lease on Life

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

These are today's best ideas

1. Doctors in China 3D-printed a new skull for a little girl.

By Lizette Borreli in Medical Daily

2. Learn the secret behind this low-income high school’s 100% graduation rate for black men.

By Meredith Kolodner at Hechinger Report

3. Your phone can tell whether you’re depressed.

By Mandy Oaklander in Time

4. Find out how repealing a century-old protectionist law could save Puerto Rico.

By Patrick Holland in E21

5. Iran deal or no deal, it’s time for Arab governments to take charge in the region.

By Tamara Cofman Wittes in Lawfare

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

TIME Innovation

America’s Very Own Greece

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

These are today's best ideas

1. Puerto Rico is America’s very own Greece.

By Felix Salmon in Fusion

2. What’s behind the bloody surge in violent extremism? Competition.

By Justin Conrad and Kevin Greene in Political Violence at a Glance

3. With one decision, the Supreme Court opened the door to political innovation. The next part will be harder.

By Francine Kiefer in the Christian Science Monitor

4. The next nuclear accident is closer than you think.

By Hugh Gusterson in the Bulletin of the Atomic Scientists

5. Upgrading America’s communications infrastructure wasn’t important until Google did it.

By James Surowiecki in MIT Technology Review

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

MONEY The Economy

Puerto Rico’s Debt Is Worse Than Detroit’s Debt Was

Puerto Rico's governor said the island cannot pay its $72 billion debt. Add high unemployment to the equation, and that's a bleak economic picture

Things aren’t looking good for the Isle of Enchantment. Puerto Rico is in 3½ times as much debt as Detroit was in when it filed Chapter 9 bankruptcy in 2013. The island’s $72 billion debt is larger per capita than any state, but the island’s government can’t file bankruptcy like Detroit did because only cities are allowed to file Chapter 9. Puerto Rico’s governor, Alejandro Garcia Padilla, said the island’s debts are not payable, and that he needs to pull it out of a “death spiral.” This is bad news for mainland consumers as 70% of American mutual funds have Puerto Rico bonds.

TIME Economics

Everything You Should Know About Puerto Rico’s Economic Crisis

The island's debt is four times that of Detroit

As Greece’s debt crisis grows increasingly dire, another territory much closer to home — Puerto Rico — has admitted to some major financial woes.

What exactly is happening in Puerto Rico?

Puerto Rico Governor Alejandro García Padilla made a worrisome announcement Sunday that the island cannot pay back its $72 billion in public debt, the New York Times reports. Padilla and his staff, according to the Times, are seeking to defer debt payments for as long as five years, while also possibly seeking concessions from many of its creditors.

“The debt is not payable,” García Padilla said. “There is no other option. I would love to have an easier option. This is not politics, this is math.”

Okay… in English, please?

Puerto Rico is in the midst of a decades-long economic struggle fueled by years of recession and slow economic growth. As a result, its government has taken out massive loans from creditors to cover its costs.

But Puerto Rico has to pay back the money (or figure out a Plan B). In recent years, the commonwealth has raised taxes and slashed pensions in order to pay back its loans, but the island’s “tab,” so to speak, has still spiraled out of control. Many residents have found their businesses collapsing — Puerto Rico’s unemployment rate is double that of mainland America — while others have been leaving the island for better opportunities state-side.

Financial markets across the world have already been rocked by Greece’s debt crisis, and Puerto Rico’s troubles will only add to the current global economic uncertainty.

What does this mean for Americans?

If you’re an investor in municipal bond funds, Puerto Rico’s debt might be your problem, too. Municipal bonds — or loans used by local governments to fund public projects — have traditionally been considered safe investments. But some investors are worried about them — several American cities have filed for bankruptcy in recent years, and the Puerto Rico situation could make things worse. According to the Washington Post, as many as three out of four municipal bond mutual funds held Puerto Rican bonds in 2013.

How bad is the situation exactly?

Padilla called the situation a “death spiral.” And he wasn’t exaggerating: Puerto Rico’s debt is four times that of Detroit’s, and the island has more debt per capita than any American state. Analysts believe the central government will run out of cash as soon as July, according to the Wall Street Journal, which could lead to a government shutdown, emergency measures and an unpredictable crisis.

So what’s next for Puerto Rico?

Good question. While Padilla seeks to negotiate with creditors, his administration is also pushing for the right to file for bankruptcy under Chapter 9, which outlines a plan for creditors to get back some of their money. (That’s what happened with U.S. cities like Detroit, Mich., and Stockton, Calif., last year.) But under current law, that right is afforded only to U.S. cities, not to states or territories including Puerto Rico.

Read next: Everything to Know About Greece’s Economic Crisis

MONEY Travel

7 Ways to Save on a Caribbean Vacation

Caribbean Island
John Kellerman—Alamy

Some islands are better deals than others.

Sugar-soft beaches doused in sunlight. Towering palms that sway in the sea breeze. Perhaps a pina colada — or two, or three — as you lounge by the hotel pool, terrible mystery novel in hand.

If this sounds like the vacation you’re after, then the Caribbean is your soon-to-be spot in the sun. But vacations to this island region can be expensive. From finding cheap flights to uncovering the best accommodations, Hopper has seven ways to save on your Caribbean vacation!

Choose Your Island Wisely

Due to proximity, airline availability, and differences in demand, some Caribbean islands are simply less expensive to fly to than others. If you’re on a budget, you should definitely consider the cost of flying when you choose which Caribbean isle to visit.

Because of its nearness and sheer number of non-stop flights, San Juan, Puerto Rico, is one of the least expensive Caribbean airports to fly to. On average, Americans pay about $372 to fly to San Juan, but many airports, especially in Florida, offer prices closer to $200. Santo Domingo, Dominican Republic, is both popular and inexpensive at $381; Nassau, Bahamas, ($393) and St. Thomas in the picturesque U.S. Virgin Islands ($400) are also good deals.

Another favorite tip: Consider Bermuda. It’s often considered part of the Caribbean, but this distinctly British-flavored isle is actually in the North Atlantic, just off the coast of North Carolina. Non-stop flights from New York City and Boston are inexpensive and quick (Bermudians like to say it’s three hours door to door, which is much faster than the Hamptons or the Cape!).

Keep an Eye on Airfare

Flights to the ever-popular Caribbean can be heart-stoppingly expensive. Depending on the time of year, price increases can be dramatic. So how do you know you’re getting the best deal? Simple: By knowing what an average flight to the Caribbean should cost from your airport and how far in advance you should book. If you know what a “good price” from your airport is, you’ll know if the flights you’re finding are good buys.

In summer generally, flight prices rise (it’s when everyone takes their family vacations, after all). How much do flights go up? On average, flight prices increase about 21% for the most visited destinations in the world each summer. However, flights to the Caribbean increase, at most, about 8.5%. And in some markets, prices fall. Most East Coasters should expect to find Caribbean airfare for around $400 or less ($300 or less if you’re in Florida). If you’re buying Caribbean flights for much more than that, you’re overpaying and are either booking too early or way too late.”

Choose the Right Days to Fly

We are now going to share with you the easiest way to save money on your Caribbean flight: Simply fly out and back on the right days! We looked at billions of pieces of data and found that the average cheapest day to depart for the Caribbean is Tuesday, saving up to $25. And the cheapest day to return? It’s Wednesday, saving up to $37. Boom, you just saved $62 per person without having to lift a finger. And your actual savings could even be higher, depending your route and airline.

Visit in the Off-Season

Winter, when many Americans and Canadians are buried under snow, is high season for the Caribbean. Expect hotel and flight prices to skyrocket around the winter holidays and February, when even the most basic accommodations become the Ritz (at least in price). Luckily, this expensive period tapers off around mid-April, and prices stay low until December.

This is the time to go to the Caribbean, if you’re looking to save.

While weather can be extra-humid, hot, and rainy, you’re likely to find big savings on hotels. Check for summer rates or low-season packages — you can often find discounts of 40% or more. Flights will generally be cheaper, bottoming out at a countrywide average of $424 in the fall.

One caveat: You’ll likely want to invest in travel insurance, in case of severe weather (like hurricanes). Check with your credit card company or existing insurance policies to see if travel-specific insurance is offered. And know that some Caribbean islands, like Aruba, are largely outside the hurricane belt.

Consider a Vacation Rental

Vacation rentals from HomeAway and Airbnb are ever-popular for budget-minded travelers heading to big cities. After all, apartments are inexpensive and allow you to experience the destination like a local. (Plus you can save money by dining in your temporary home!) While rental inventories tend to be lower on Caribbean islands due to lower home stock, you can often find well-priced, well-located vacation rentals, especially during the off-season. We uncovered some great rental options starting well under $100 per night in the Virgin Islands, Puerto Rico, Aruba, and elsewhere.

Keep in mind that groceries can be expensive on some Caribbean islands, but many vacation-home owners include supplies like fruit and water, while others stock their own snorkeling equipment, towels, chairs, and even bicycles for guests!

Don’t Rule Out All-Inclusives

Don’t let the sticker shock, well, shock you too much. All-inclusives can seem more expensive at check-out, but remember, those prices generally include your room, meals, drinks, activities, and any other neat inclusions the resort throws in (like airport transfers). When doing your hotel research, honestly ask yourself which inclusions and amenities you will need and need to pay out of pocket for and which are automatically included by the resort. If you know you’re going to want three square meals a day plus water activities, consider that all-inclusive! And again, check for off-season rates, which can reduce prices by up to 40%.

Pack Essentials

On this writer’s very first trip to the Caribbean, she neglected to pack sunscreen. Imagine her surprise when she stopped in a shop and found that a tiny bottle of lotion cost well over $30! Don’t make this rookie mistake. Instead, pack everything you need so you don’t have to buy on-island.

First, check to see what toiletries and supplies your accommodations include. Check TSA-approved travel-sized toiletries if you want to avoid checked-bag fees (Consider packing a few three-ounce sunscreen bottles to last for your entire stay.) Don’t tote along snorkeling equipment if the hotel provides it gratis. Contact your hotel or vacation rental and ask whether beach towels, hair dryers, and other necessities are included.

You will quickly find that most tourist-focused stores, souvenir shops, and hotel boutiques are extremely pricey, so save by being a conscientious packer first.

More From Hopper:

This article originally appeared on Hopper.com. Hopper is a travel app that tracks and predicts airfare prices.

More From Hopper:

TIME medicine

Puerto Rico Governor Signs Executive Order to Legalize Medical Marijuana

183834727
Getty Images

The order goes into immediate effect

The governor of Puerto Rico signed an executive order Sunday to permit the use of medical marijuana in the U.S. territory.

“We’re taking a significant step in the area of health that is fundamental to our development and quality of life,” Gov. Alejandro Garcia Padilla said in a statement. “I am sure that many patients will receive appropriate treatment that will offer them new hope.”

Padilla noted that research supports the use of marijuana to relieve pain and symptoms from disorders that range from multiple sclerosis to glaucoma.

Puerto Rico’s health secretary has three months to release a report on how the executive order will be implemented in the territory and what its impact will be, the Associated Press reports. Medical marijuana is legal in 23 U.S. states.

[AP]

TIME animals

Young Male Monkeys Prefer Spending Time With Daddy, Study Says

A rhesus macaque monkey grooms another on Cayo Santiago, known as Monkey Island off the eastern coast of Puerto Rico, Tuesday, July 29, 2008.
Brennan Linsley—AP A rhesus macaque monkey grooms another on Cayo Santiago, known as Monkey Island off the eastern coast of Puerto Rico, on July 29, 2008

Turns out quality father-son time is not just a human phenomenon

Male rhesus macaque monkeys prefer the company of their fathers, according to a new study, marking one of the first times gender partiality has been exhibited in primates before they leave the colony.

Rhesus macaques are generally found in Asia, but by studying a colony on the small Puerto Rican island of Cayo Santiago the team was able to identify individual moneys and document socialization patterns, according to the BBC, citing a report in the American Journal of Primatology.

Researchers discovered that infants and juveniles spent more time with their mothers, but as they developed into adulthood the role of the father (and his relatives) becomes increasingly important.

Scientists think this is because male monkeys eventually leave the colony, so young adults spend more time with their fathers to help them prepare for the challenges of a nomadic lifestyle.

While gender preference had been observed in primates before, the new study shows that parental bias begins before the males go off on their own — a departure from the previous idea that favoritism is the result of females forming strong bonds with their relatives by remaining in the group when the males leave.

[BBC]

TIME LGBT

Puerto Rico Drops Opposition to Gay Marriage

"Today is a great day for my island," wrote Puerto Rican superstar Ricky Martin.

The Puerto Rican government announced on Friday that it would drop its opposition to same-sex marriage.

Justice Secretary Cesar Miranda said at a news conference that the Puerto Rican justice department would no longer oppose a suit challenging the constitutionality of the socially conservative island’s ban.

“Our constitutional system does not allow discriminatory distinctions such as that contained in the Civil Code concerning the rights of same-sex couples,” Gov. Alejandro Garcia Padilla said in a statement posted to his office’s website. “Everyone knows my religious beliefs, but it is not for political leaders to impose our beliefs. We must push for progress in civil and human rights for all citizens equally. As Governor of Puerto Rico, that’s my duty.”

Puerto Rico native Ricky Martin, who has advocated for gay rights since he announced he was gay in 2010, said on Twitter that he was grateful for the move.

In a lengthier statement, the singer called Padilla a “leader who is not afraid of the present challenges.”

“Today is a great day for my island,” he wrote. “How proud I am to live a country of equality. I love you Puerto Rico.”

TIME Television

Watch John Oliver Cast His Ballot for Voting Rights for U.S. Territories

Rock the vote

To help commemorate the 50th anniversary of the march on Selma, Alabama, John Oliver focused his Last Week Tonight ire on a topic that does not tend to generate headlines: voting rights for the U.S. island territories — that is, the U.S. Virgin Islands, Puerto Rico, Guam, American Samoa, and the Marianas Islands.

According to Oliver, there are 4.1 million people living in Puerto Rico and the island territories. Of that population, 98.4% are racial or ethnic minorities, none of whom have the right to vote in U.S. elections. According to Oliver, the more you look into the reasons that the U.S. territories don’t have voting rights, the harder it is to understand why these dated laws have not been changed. Way back in 1901, it was said that the island territories were inhabited by “alien races” that couldn’t “understand Anglo-Saxon principles” and thus were denied the vote. That hasn’t changed, despite the fact that even at the time, American legal thinkers thought that the territories’ lack of voting power should only last for a limited time. Fast forward 114 years and the U.S. citizens living on these territories still can’t vote, which Oliver compares to failing to update your computer operating system for over a millennium.

To bolster his argument that many U.S. citizens don’t understand the relationship between the 50 states and the U.S territories, Oliver showed clip after clip of news sources reporting that U.S. Supreme Court Justice Sonia Sotomayor was the child of Puerto Ricans who “immigrated” to the United States. As Oliver says, “If Puerto Ricans are immigrants, so is anyone who moves anywhere.” Despite the fact that Puerto Ricans are U.S. citizens—and has more U.S. citizens than 21 states— they can’t vote for president, have no representation in the U.S. Senate and send only one non-voting delegate to the U.S. House. Oliver compares this status to letting a six-year old “vote” on where to spend the family vacation.

But Puerto Rico is lucky compared to some of the other U.S. territories. American Samoans aren’t even automatically granted U.S. citizenship, which, according to Oliver, renders the “American” part as moot as the phrases “social media expert” or “People’s Choice Award nominee.” Instead, they’re considered U.S. nationals, but not citizens. Over on Guam, 27% of the island is occupied by U.S. Navy and Air Force bases, and a staggering high number of Guam citizens are veterans of the U.S. military, but they still have no voting rights. Despite that, Guam holds a straw poll every presidential election and has higher voter turn-out than any other U.S. state — you know, the ones whose votes actually count.

It’s a valuable civics lesson and an important reminder to ask — if you don’t mind cribbing a line from Oliver — how is this still a thing?

 

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