As Puerto Rico’s government looms on the edge of a $72 billion default, local business and community leaders with ties to the island territory voiced concerns that a prolonged crisis on the island could hurt South Florida’s economy.
“This is very real,” said Maurice Ferré, a Puerto Rican-born former mayor of Miami who keeps a close watch on island issues.
“Puerto Ricans live all over the state of Florida,” Ferré said. “They have families in Puerto Rico that will be affected.”
South Florida shares economic ties with Puerto Rico, as it does with much of the Caribbean. Many South Floridians do business in Puerto Rico and vice versa, said Luis De Rosa, president of the Puerto Rican Chamber of Commerce of South Florida. Exporters of consumer goods such as cars and clothing have always found willing trade partners in San Juan.
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“If God forbid we default,” he said, “it would delay shipping. Costs would go up and people would worry about the government not paying its bills. You need to have confidence. It’s the key to business.”
Puerto Rico’s long-shaky financial situation hit crisis level when the governor of the U.S. commonwealth said Sunday that the island could no longer pay its $72 billion public debt. Monday, in a televised speech, Gov. Alejandro García Padilla announced that he would seek a moratorium of several years on debt payments.
Padilla’s administration also released a report Monday it had commissioned from a team of international economists. That document paints a grim picture: “Puerto Rico faces hard times. Structural problems, economic shocks and weak public finances have yielded a decade of stagnation, outmigration and debt. … A crisis looms.”
Still, De Rosa said he is optimistic that Puerto Rico will reach an arrangement with its creditors — or, in the worst case, that Congress will pass legislation allowing the U.S. territory to file for bankruptcy, an action that current law forbids.
“I don’t think it would be in the interest of the United States to allow this to happen,” De Rosa said. “There are so many Puerto Rican-owned businesses here. It would be a complete disaster.”
According to the U.S. Census, Puerto Ricans — who are U.S. citizens — owned nearly 17,000 businesses in Miami-Dade County in 2007, the last year for which Census data is available.
Florida has become an attractive new home for Puerto Ricans seeking better jobs after a deep recession pummeled the island’s economy during the financial crisis.
Nearly 900,000 Florida residents identify themselves as Puerto Rican today, according to U.S. Census data. Central Florida has the highest population with about 300,000. Miami-Dade, Broward and Palm Beach counties have nearly 220,000 Puerto Ricans.
A prolonged crisis
The crisis will likely take several years to unfold, as has happened in Greece. In the meantime, Puerto Rican banks could be threatened by a government default, which might have ramifications for financial institutions in South Florida, too.
The island’s biggest banks both have major offices in Florida: First Bancorp., which owns FirstBank Florida, has its regional headquarters in Miami, and BancoPopular North America is based in Orlando. (Doral Bank, Puerto Rico’s third-biggest bank, also had offices in Miami but was shuttered and sold by federal regulators earlier this year.)
Shares of Popular fell 10 percent Monday, and First Bancorp was down 13 percent, Reuters reported. Shares of OFG Bancorp, another major bank, fell 14 percent.
Ken Thomas, a Miami-based banking industry analyst, said that average account holders don’t need to worry about bank failures because the federal government insures deposits of up to $250,000.
A bigger problem could arise if South Florida banks have bought large chunks of Puerto Rican debt, as have many investment and pension funds around the country. Puerto Rico’s municipal bonds were downgraded to junk status in February.
“It’s not really clear how exposed local banks are to Puerto Rican debt,” Thomas said. “I’m not concerned yet, but it’s something to watch simply because it’s so close to home.”
Several Puerto Rican universities maintain campuses in South Florida and could be caught up in a prolonged crisis. Polytechnic University of Puerto Rico and Carlos Albizu University both have campuses in Doral, and Ana G. Mendez University System has a location in Miramar.
Companies that do business with Puerto Rican clients may feel pain in the short term, too.
“Our clients are going through the typical trials and tribulations of an economic crisis,” said Kobi Karp, a Miami-based architect who has worked in Puerto Rico since 1988 and is currently redesigning the Normandie Hotel in San Juan.
But Karp said the crisis also offers an opportunity.
In Miami, developers took advantage of the financial downturn to snap up properties on the cheap and redevelop then when the market healed. Karp said the same phenomenon could play out in Puerto Rico.
“This is when the savvy investors in real estate step in and buy land and buildings at extremely reasonable values,” he said. “In the long run, I believe the Puerto Rican economy will be stronger than before.”
Bright spot for South Florida
Amid all the potential points of concern, Puerto Rico’s troubles may have an unexpected benefit for South Florida: An exodus of talented workers heading to South Florida, where job prospects are brighter than at home.
Puerto Rico’s unemployment rate stands at 12.2 percent, more than twice the U.S. average.
“So many people are emigrating,” said Marco Vidal, a former president of BlueCross BlueShield of Puerto Rico. “People are very concerned because we don’t foresee any growth in our economy.”
Vidal said he splits his time now between homes in Doral and Puerto Rico but plans to move to Florida full-time within the next few years. His sons both work in Miami. They both plan to stay here too.
“We foresee many more opportunities in Florida,” Vidal said.
Puerto Rico’s population fell by about 200,000 between 2000 and 2013, according to the Pew Research Center. Almost all those who left came to the U.S. seeking better jobs.
“People are going to try to leave,” said David Vega, who owns a touring and shuttle service in Puerto Rico. “If you’re able to find a job in the states and pay less for basic services, you’re going to go. You’re going to go to the states. Here we’re paying more taxes, but you’re not receiving 100 percent of the services.”
After living in Puerto Rico for more than 40 years, Glenn Patron, a native New Yorker who owned several small businesses in Ponce and San Juan, decided to cut his losses.
“We could see that it was getting very bad — the crime, the economy,” he recalled. “We just wanted to get out, even though it had been our home for so long.”
He and his wife, Gale, started selling their island properties in 2006 and moved to Miami. The last of their five properties — a warehouse in Ponce — finally sold last month.
Patron said he’s grateful to have left before Puerto Rico’s financial troubles came to a head on Monday.
“It’s a laissez-faire, let things go, everything will be OK tomorrow kind of viewpoint,” Patron said. “And now tomorrow’s here.”
Information from the Associated Press and the Public Insight Network was used in this report.