The Center for the New Economy (CNE) has just published its analysis of the proposals contained in the Governor’s budget request for fiscal year 2013. The analysis also includes a review of the fiscal trends for the fiscal year 2012, which ends on June 30, as well as an update of ten budget indicators that CNE has followed over the last five or six years.
Recently there has been a public debate regarding the amount of Puerto Rico’s fiscal deficit for Fiscal Year 2012. Before moving on to provide our analysis of the Commonwealth’s deficit, we believe it is appropriate to differentiate among and between three different definitions of the term “deficit”, which, unfortunately, oftentimes are erroneously used interchangeably in the public debate. In order to clarify our analysis we pause briefly to explain each one of these definitions:
Budget Deficit – Is defined as the excess of spending over income for a government, a corporation, or an individual during a particular period of time. For purposes of this calculation the recurrence or non-recurrence of income and spending is not material. Similarly, the timing of the cash receipts or disbursements associated with a particular income or expense stream is irrelevant for purposes of this calculation. The important thing is to correctly and timely recognize income and expenses during the appropriate fiscal year.
Recently, Cate Long, a reporter at Reuters stirred-up a hornet’s nest by writing that Puerto Rico is America’s Greece. Although any comparison between a sovereign country and a crumbling colonial backwater like Puerto Rico needs to be taken with a grain of salt, in general, Ms. Long post is on point.
There are, of course, some differences between Puerto Rico and Greece, but the similarities are simply overwhelming. Both have been running primary deficits for years; both have high debt ratios, Puerto Rico’s debt to GNP ratio is close to 100%, and that is excluding unfunded pension liabilities, (in Puerto Rico GNP is a better yardstick of economic activity); and both suffer high unemployment, widespread corruption, and massive tax evasion. READ MORE
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