Puerto Rico Faces Unified Strike

Bates Group, via our strong connections to the island, has been hearing rumors of a government strike for the last several weeks. Since May 21, more than 20 leaders of various workers’ syndicates representing government employees have made it known that they are planning an island-wide work stoppage to protest the government's proposed Fiscal Sustainability Law. They argue that the law would strip them of too many benefits, and that the bulk of the reforms and government cutbacks have fallen onto workers rather than onto the island's debt holders. Catering the island's fiscal policy to the needs of bondholders and other lenders is steering the economy towards ruin, according to statements made by the protest group. 

This past week, the Governor's chief of staff, Ingrid Vila, has been meeting with the police commissioner and other heads of government to discuss which steps Governor Alejandro Padilla should take. At the same time, the director of the Puerto Rico Economic Development Company, Alberto Baco, has decried the possible strike as irresponsible.

At this point in time, the workers' representatives have made it clear that they will go ahead with the work stoppage, but are keeping the exact date the strike will begin a secret. They have also indicated that they intend the strike to last for multiple days and have been coordinating their efforts to ensure that this occurs. 

The repercussions of the strike are very worrisome for the local economy, and there are already estimates by several economists pegging the cost at $80-90 million a day, though Secretary of Treasury Melba Acosta, has declined to provide her own estimate. The cost will largely depend on the ability of the striking workers to close off access to port facilities. As an island nation, Puerto Rico is very sensitive to any disruption to its import process, which would have effects on food availability, gas prices, etc.

There are many other potential (and probable) impacts of the strike, such as damage to the perception of the island as a tourist destination, relations with bondholders of Puerto Rico debt, and most significantly on possible additional downgrades from the major credit rating agencies which have so far unanimously cited Puerto Rico's political will for reform as a major reason that further downgrades were not considered. 

This is a serious situation which could have a substantial impact on Puerto Rico's economy and its public debt for the remainder of 2014. We will keep you updated as the situation develops.