Misery deepens for those in Puerto Rico who can’t leave

In this Wednesday, July 29, 2015 photo, the Puerto Rican flag flies in front of Puerto Rico’s Capitol as in San Juan, Puerto Rico. Nearly 10 years into a deep economic slump, Puerto Rico is no closer to pulling out, and, in fact, is poised to plummet further. The unemployment rate is above 12 percent and tens of thousands have migrated out of the island. (AP Photo/Ricardo Arduengo)
In this Wednesday, July 29, 2015 photo, the Puerto Rican flag flies in front of Puerto Rico’s Capitol as in San Juan, Puerto Rico. Nearly 10 years into a deep economic slump, Puerto Rico is no closer to pulling out, and, in fact, is poised to plummet further. The unemployment rate is above 12 percent and tens of thousands have migrated out of the island. (AP Photo/Ricardo Arduengo)

SAN JUAN, Puerto Rico (AP) — Most tables are empty at Walter Martin’s coffee shop in San Juan’s colonial district. His brow is furrowed with concern and glistens with sweat in the sweltering Caribbean morning.

He’s turned off the air conditioning to lower his power bill. With fewer customers, he’s cut staff hours and tried to make up the lost income by raising some prices. But Puerto Rico’s entrenched economic crisis is leading people to either cut their personal spending to the basics or flee to the mainland to search for jobs, contributing to the struggles of those left on the island.

“We’re making every single adjustment needed,” Martin said. “We have to make these decisions because if not…”

He trailed off, hesitant to complete the sentence.

Nearly 10 years into a deep economic slump, Puerto Rico is no closer to pulling out, and, in fact, is poised to plummet further. The unemployment rate is above 12 percent. Some 144,000 people left the U.S. territory between 2010 and 2013, and about a third of all people born in Puerto Rico now live in the U.S. mainland. Schools and businesses have closed amid the exodus. The population of 3.5 million is expected to drop to 3 million by 2050.

The government has tried to boost revenue by hiking the sales tax to 11.5 percent, higher than any U.S. state, and closing government offices. Its debt-burdened power utility already charges rates that on average are twice those of the mainland, and is under pressure from bondholders to raise them higher.

A $58 million bond payment due Saturday went unpaid. If defaults continue, analysts say Puerto Rico will face numerous lawsuits and increasingly limited access to markets, putting a recovery even more out of reach.

Carmen Davila, a 65-year-old retired truck driver and window dresser, recently withdrew her money from the bank amid fears the government would shut down and seize it.

“Things are happening in Puerto Rico that we’ve never seen before,” Davila said. “Puerto Rico has always had its ups and downs, but you could handle it. This now is serious.”

The exodus of people from the island, mainly to central Florida and New York, is palpable. Nearly everyone knows someone who has left, or plans to do so soon. The impact of the departures, and the decline in spending of those remaining, is obvious.

Crowds have thinned at restaurants and movie theaters; families like Davila’s have cut back on summer excursions to beaches and mountains; and even San Juan’s notorious traffic jams have dwindled somewhat.

Jose Hernandez said his commute into San Juan’s colonial district, once about two hours, now takes roughly 20 minutes.

The 62-year-old lottery vendor would join the departure, too, if not for the grandchildren he helps support — even though he recognizes doing so would only add to the trouble.

“Fewer people means there are less of us to help boost the economy,” he said. “This is the worst I’ve seen it. … There are no people on the street. They’ve disappeared.”

His lottery business has fallen by nearly 10 percent, forcing him to keep grocery shopping to the basics and to cut back on luxuries such as movies and restaurants.

“What you used to do three or four times a month, now you only do once,” he said. “You cut out a lot of things.”

Davila said her monthly $600 Social Security payment isn’t enough to cover expenses. She and other relatives are pooling their money to buy back-to-school supplies for her 12 grandchildren. She cares for them while her own children work and study, but she yearns to move back to New York.

“We don’t have money to live,” she said.

A list of cost-cutting measures proposed by a group of hedge funds that holds $5.2 billion of Puerto Rico’s debt has riled islanders: laying off teachers; cutting Medicaid benefits; and reducing subsidies to the main public university.

Meanwhile, a report commissioned by the government called for wage levels to be set below the federal minimum, paid holidays cut, and energy costs reduced.

The administration of Gov. Alejandro Garcia Padilla has argued public agencies, including the utilities, should be allowed to declare bankruptcy. As a U.S. territory, Puerto Rico is barred from doing so even though supporters say it would provide an orderly way for the island restructure its debt.

U.S. open-end municipal bond funds own more than $11.4 billion of Puerto Rico’s debt, while hedge funds hold about one-third. Morningstar said investors likely face more volatility and cuts to their investments.

“Puerto Rico is far from out of the woods,” it stated. “It’s clear that this is setting up to be a long and complicated ride.”

In addition to the already difficult situation, Puerto Ricans are bracing for a new services tax set to take effect Oct. 1.

Some economists warn that measures like new taxes could further depress the economy, a concern shared by small business owners.

“They’re going to keep going until the people can’t take it anymore,” said Ignacio Veloz, who owns a condominium administration business.

At the Fantasy Shop beauty salon, owner Antonia Ortiz works alone. There wasn’t enough business to keep the two assistants she once had.

“It’s terrible,” she said. “People are now coloring their hair at home. They’re doing everything at home. “

At the Aromas Coffeehouse, Martin is keeping a tight rein on expenses. He has saved some $2,000 a month by turning off the air conditioner and has cut about $500 from his weekly grocery costs.

“We have to be on top of every little detail now,” Martin said.

Martin’s father, who is the uncle of pop star Ricky Martin, opened the coffeehouse five years ago. It was a longtime dream, and the young Martin is determined to keep it going.

“I’m staying here,” he said. “I will persevere.”

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Danica Coto on Twitter: http://www.twitter.com/danicacoto

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