afraid to move to puerto rico because of the debt crisis?

(links and photos on our blog)

I’ve been reluctant to discuss the Puerto Rican government debt crisis and it’s effects because, frankly, there’s really not much for me to say.  We’ve noticed little that’s changed in the year since we’ve arrived.  If anything, we seem to see MORE economic activity around our neck of the woods, with new restaurants and food stands opening up all the time on the Cam Playa and elsewhere in Aguada.

That said, I know from direct messages and other reader feedback that some of you are grapping with the same question that Holly and I grappled with 3 years ago:

Should you call off your move to Puerto Rico because of the debt crisis?

Of course, I would not be so presumptuous as to even try to answer this question FOR you.  What I can do, however, is share how we thought through this with the hope that it’s helpful to those of you who are now in the same boat we were in.

Although the Puerto Rican government debt crisis has escalated in the time we’ve been here, with several mini-defaults followed by an historic default on constitutionally guaranteed debt earlier this month, we can’t say any of this is a surprise.  Even back in 2013, when we first started kicking around the idea of a move, the news coming out of Puerto Rico was dire and it was pretty obvious some sort of default would be inevitable.

The first thing Holly and I did was to remind ourselves that with crisis often comes opportunity.  For example, the Individual Investors Act (Act 22), which put Puerto Rico on our radar in the first place, is a direct result of the government trying to come up with solutions to the debt crisis.  Another example is real estate.  If you want to own your own piece of paradise here in Puerto Rico like we did, the best time to buy is when more want out than want in.  (I would imagine the same could be said to some extent for those who want to rent as well)  Sure we may have to endure some bumps in the road, but I believe we will find the investment to be well worth it in the long run .

This brings me to my next point.  As I said, Holly and I were bombarded with negative press coverage of the Puerto Rico debt crisis as we were planning our move.  We had to remind ourselves to take the sensationalistic articles we read with a grain of salt.  Fear sells.  Doom and gloom gets eyeballs.  Despite the headlines, Puerto Rico is not going to sink into the Caribbean sea.  The sunsets on the beaches will continue to amaze.  The unique culture and vibe that so many us love about this island will continue to evolve and thrive as it has for centuries.

That said, we didn’t want to stick our heads in the sand and end up blindsided by something we should’ve seen coming.  Before our move, we did our best to think through possible worst-case scenarios so we could rationally assess them and look for opportunities to insulate ourselves from their effects should they play out.  Below I list the main debt crisis risks we thought might be possible and our thinking around each one.  If there are other somewhat plausible scenarios you can think of that we overlooked, please share in the comments!

Riots break out at government buildings

This could happen as the result of any number of possible outcomes.  A massive layoff of government employees.  Broken promises to pensioners / bondholders.  Protests against unpopular legislation.  Regardless of the impetus for any such demonstrations, there is also the knock-on risk of a heavy-handed government response.

Our personal decision around this was to simply rule out living in the capital city of San Juan, since I imagine it would be ground zero for this type of scenario.  We don’t like traffic and crowds anyways, so this was a fairly easy choice for us.

A hungry, restive population resorts to looting

Humans can tolerate many indignities for surprisingly long periods of time, but hunger is not one of them.   The saying (paraphrased) “there are only nine meals between civility and savagery” conjures up images of roving gangs driven to crime by an empty stomach.

Our thinking was that this apocalyptic scenario is less likely to happen in a place where tropical fruit trees, including staples such as breadfruit, bananas, and coconut, grow in abundance, the surrounding seas are teeming with fish and shellfish, and the ever-present risk of hurricanes means most families have some food and water stored up for emergencies.  Further, thinking about this only solidified our personal decision to avoid moving to a heavily populated urban area and instead, move to a more “country” area where most of our neighbors have gardens.

Government run schools and hospitals are shut down

What if the government can no longer fund schools and hospitals?  How will the children learn to read and become productive members of society?  How will those that are sick be cared for?  And without government money, who will build the roads?

Our thinking around these concerns, was to remind ourselves that just because the government may be forced, even temporarily, to stop funding the provision of certain services, doesn’t mean those services will stop being provided.  I’m not saying it would be a seamless transition, but in the unlikely event of a interruption in government funding, private hospitals, clinics and schools will continue to provide services.  For those that cannot afford essential services in this kind of scenario, I believe that family, friends and charities would fill the void.

For us as unschoolers, government run schools shutting down is not something we personally lose sleep over.  If you happen to be familiar with the philosophy behind unschooling, you understand why.  As far as healthcare, we have no firsthand experience since none of us has gotten sick or injured in the time we’ve been here.  The impression I get though is that healthcare is MUCH more affordable here than in the states, though the experience is not as posh.  I figure that as long as we have an emergency stash of savings set aside, which will likely go a lot further for us here, we should be in pretty good shape.  We are also planning to shop around for a high-deductible health plan so that we are covered in case of a major catastrophe.

The government jacks up taxes and fees to oppressive levels

The Puerto Rican government desperately needs cash and with all the scrutiny the debt crisis has brought on, I’m sure there is an army of public officials racking their brains to figure out how to get more of it.  Last year, we saw the sales tax jump from 7% to 11.5%.  Next year, the government owned electric company is set to raise rates by 26%.  I hesitate to imagine what else may be coming down the pike.

We tempered these fears by remembering that tax competition limits how high the government can raise taxes.  If the government pushes too far, it runs the risk of further eroding it’s tax base as MORE Puerto Ricans are driven to leave the island.  High tax jurisdictions HATE tax competition, but it is an important check on any government’s taxation authority.  The time to get more concerned about this would be if there were a move to restrict the freedom of movement, but I think that is extremely unlikely to occur.


My advice to those struggling with this monumental decision is to carefully weigh the risks (and rewards!) that YOU perceive in the context of your personal situation.  If you decide to make the move, put together a solid game plan with a generous margin of safety AND a plan B, just in case.  As you can see, Holly and I ultimately decided to take the leap in spite of all the ominous potential scenarios we contemplated above.  We understand there are risks, but so far, we don’t regret our decision one bit.

Very good piece, well thought out and explained.
Just some opinion here, I dont thing those worse case are overly likely for the following reasons:

Civil unrest --- can happen if the federal goverment intervenes, PR still recents some of the interventions prior to 1950, the national guard would not abuse the protesters because they are under the control of the governor and they are Puerto Ricans, some looting can ocuur but fairly minor. What would spark a big one would be intervention by federal goverment and that is not likely. I would not rule out that the mayors and maybe even the governor would join some of the protests under some coditions. Young may get a little out of hand but they will calm down soon, intervention can grow the flames but it will not become a riot unless they bring federal marchalls or military. We yell, we scream but rarely bite.

Food shortages --- likely to some degree if storms sink some of the ships that bring food to PR. But people here know how to eat on a couple of dollars a day, so they will ride it out just fine. Those with gardens will do the best. Family helps too. We know how to cook with a pot and some firewood. We can make bread at home too. A piece of bread, some olive oil, some onion and you have a great meal. Add salt and pepper to taste.

Medical is the big issue, more and more specialist are leavin the island, leavin general practitioners and not as experienced doctors around. This has to change, maybe the goverment may start a very low taxation of doctors in combination with the US granting PR equality in Medicare and Medicaid payment to resolve the issue.

A lot of what will happen will happen within a year when the control board starts to make its presence felt. Thier actions will determine how the people react. They have to be careful or be at risk of causing mayor recentment to the federal goverment. A lot of Puerto Ricans join the military, if the recentment grows they will not join, they will instead go to the states and look for jobs there or welfare whick would hurt the states.

The US goverment and the board has to walk a fine line or PR will be recentfull and cause all sorts of problems that would not look good to the world opinion and may result in PR becoming independant with who knows what sort of goverment.

It is a fine line, population can not be allowed to become recentfull or they will become irational, besides we tend not to get too annoyed, so their is some leeway.

There is no need to be afraid, Puerto Ricans have no dislike of mainlanders even if we may become annoyed with the president or congress.

There is a wide gap between what you read in the media versus what daily life is like in Puerto Rico.  Be not afraid.

Unlike Venezuela and Cuba, PR supermarkets are full, the only way they could be empty is if a storm sinks a bunch of ships and if that happens, we will tighten up our belts for a couple of weeks, we could use loosing some weight in PR, we eat too fattening as it is.

Dave and Rey, both excellent posts.

Thank you all for your insightful/ helpful posts... I always enjoy and appreciate the input!
Completely agree as well which is why we made a permanent move here ...been here for three months and very happy with the decision!

Just something to think about, what follows is my opinion, I could be way off:

There are 3 mayor moves for PR
1- become a state if congress accept it (not likely for another 10 years)
2 - become a free associated state (independent but with a special deal with US, ruling out things like communist government and allowing for mutual defense, maybe vote at  UN with USA needs)
3 - Full independace

Due to congress current inability to consider PR for statehood, in my opinion number 2 is more likely.

None of the 3 will be cheap for US.
Option 2 and 3 will require US to ease the transition of decolonization, which means about 10 year transition likely to cost them 50 billion over that period. PR will be expected to be US friendly and respect US citizens property and status in the island. This will take about 3 administrations before t is done.

If congress changes their mind, then statehood is the most likely to occur. However if PR ask and congress set ridiculous requirements, it will piss PR. Nothing like asking for marriage and being turned down.

Anybody been following US / Cuba negotiations? - Cuba is willing to pay 4.2 billion to the Americans that lost their properties and businesses when they were nationalized, but it is asking for the removal of the sanctions, blockade, and 300 billion compensation for damages to the country.  :D I'll give you 4 if you give me 300. Great deal. This may take 2 different administrations not counting obama's.

If turned down for statehood PR will likely ask for compensation for 118 years of being a colony and take it to the UN, which it will win unless US uses veto power.

We shall see what happens, but regardless of any of the 3, Americans will be treated well and their properties respected. So no fear.

But first, the board is going to start dealing with the bonds issue.

There are two parts to the debt crisis, the past, and the future.  The past is the debt itself.  PR can only pay what can be paid.  Those on the hook are the bondholders.   The only rioting in the streets will be on Wall Street and in LA where most of the big tax-exempt mutual funds live.  In a situation where there is civil unrest, or starvation,  100% of the debt would be wiped out - end of the debt crisis. 

The future is the more problematic,  if one assumes that the entire debt is wiped out, the government will still have to live within its means as new debt would not be likely to available.  If the debt is settled 50c on the dollar,  it will have to tighten even more. 

A government that has to live within its own means, is a good thing and will eventually be good for the PR economy.   The level of pain to pay off some of the debt can only be as much as can be tolerated without the dark scenarios described by davidtx.

Would be nice if USA and PR both had to run a balanced budget, never spending more than they take in
Not easy, too many powerful people pushing for their special pork barrel.

Does anyone know why congresional bills always seem to include more than 1 amendment item(sometimes hundreds), often unrelated to the original purpose?

Seem to me that voting should be based on the merit of the proposed bill and that other pork barrel and poison pills should be voted separetly.

Nothing like a 50 page law becoming 320 pages that nobody is going to read and that have unintended concequences bacause people feel forced to accept unrelated amendments so that the original bill can pass.

Seems completly wrong to me.

Rey; Puerto Rico is already a free associated state...

mac00677 :

Rey; Puerto Rico is already a free associated state...

The PPD would like you to believe that, it is a colony at the moment.

Puerto Rico is full of opportunities right now!...just look for more info in the crazy out here!

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