Hedge funds would rather Puerto Rico cut teachers and close schools than default on its debts.
A group of 34 hedge funds hired former IMF economists to solve the island nation’s debt problems, reports the Guardian. The solution? Raise taxes, sell off $4 billion of public buildings, and slash public spending, particularly in education.
Puerto Rico has already closed almost 100 schools in 2015, and more than half of the country’s children live in poverty. The hedge fund report argues that Puerto Rico increased education spending by about $1.4 billion in the last decade, but enrollment has declined 25%. One report writer says:
“The real expense per student has increased enormously without increasing the quality of education. It’s for the government to decide [how much to cut spending by], but you don’t want to waste government resources. There has to be efficiencies. It is more important to establish a position for growth.”
Puerto Rico set itself up for the criticism. The country has desperately reached for vulture funds, including Fir Tree Partners, and Davidson Kempner Capital Management, selling millions of dollars of debt in the last year as it edges closer to bankruptcy. But the Puerto Ricans say extreme austerity is not the answer to their problems. (Sound familiar?) Says one Puerto Rican legislator:
“The Puerto Rican government has already closed down almost 100 schools this year and reconfigured 500 more, as well has having closed down 60 the year prior. I am not sure what else they are expecting. If they expect us to lay off teachers or cut their already-low salaries, they are out of their minds…These guys need to chill out and give Puerto Rico some breathing space.”
Photo:Alan Kotok