Hard economic times hit Puerto Rico

The sun is bright and the beaches are great but there's trouble in paradise: Puerto Rico is drowning in debt and its people are feeling the sting of economic crisis.

People in this US island commonwealth in the Caribbean are seeing their work hours reduced, for example.

Sales at stores are way down because of a big increase in sales tax aimed at helping the government raise revenue.

Those who can are simply packing up and leaving for the US mainland, to places like Florida and New York.

Consider the plight of Jorge Telon, who runs a chain of department stores frequented by working class Puerto Ricans. He's had to cut his prices to stir demand, so his profit margin is down to almost nothing.

"We have to sell really cheap," Telon, 55, told AFP.

His stores are strung along Paseo de Diego, which used to be a major commercial thoroughfare. Now it is desolate: many stores are shuttered and others are begging for customers.

"Things are tough. People don't want to buy," said Telon, who added that his saving grace is that he owns the stores. "If we had to pay rent, we'd be finished."

Then there's Rosaura Guzman, who runs a food stand on the street. "Before, on a Saturday, I would do 1,000 dollars in business. Today it is never more than 300," she said.

Indeed, merchants on this island of 3.5 million people are feeling the pain from an increase in sales tax from 7 percent to 11.5 percent.

- Effort and sacrifice -
Governor Alejandro Garcia Padilla said last month that Puerto Rico owes 73 billion dollars and cannot pay it back.

He is seeking a moratorium from creditors so money that would go toward debt payments can instead be used to stimulate economic growth.

The economy of Puerto Rico has posted negative growth for eight years. Ratings agencies like Moody's classify Puerto Rican debt as junk bonds.

The governor asked the people of Puerto Rico for effort and sacrifice.

Because it is a commonwealth and not a state, Puerto Rico cannot file for protection from creditors under US bankruptcy law, as, say, the city of Detroit has.

So starting Monday the government will begin tough negotiations with bondholders to try to win a moratorium and avert default.

In the meantime, life grinds on for everyday people facing a jobless rate of 12.4 percent, compared to 5.3 percent in the United States.

Noemi Vargas, 59, is looking for work on Paseo de Diego. The store where she works recently cut her weekly hours from 30 to 16.

"It's a good thing my children are already married," said Vargas. Otherwise she could not support them.

Grumbling is also audible in the territory's largest shopping mall, Plaza Las Americas. There, people stroll and browse but don't seem to buy much.

"The situation is really bad, especially if you have kids," said Dagmaris Santiago, 38.

She said she was at the mall to buy a gift for her 13-year old daughter. Her husband is a construction worker who is really struggling.

"He will work a week, then be off for two," Santiago said.

The watchword for people mired in this recession seems to resignation.

"You have to get used to it," said a woman named Sarina Ostolaza.

- Growth is key -
The crisis has been simmering and growing for years, said Jose J. Villamil, of the consulting firm Estudios Tecnicos en San Juan.

Since the early 2000s "what has happened typically is that each government has put off taking measures. They had no money, so they would issue debt to cover the deficit," said Villamil.

But those days are over because now no one will touch Puerto Rican debt with a barge pole, as it has the junk bond rating.

In the past, many American companies set up shop here because they got tax breaks. But these perks expired, so the firms left.

That sapped the island's ability to generate growth, Villamil said.

The island slid in a vicious cycle of contraction, emigration, austerity and taxes, according to governor Garcia Padilla.

He is holding talks with different economic sectors to fashion a plan to get things rolling again. But that is a tall task.

"The hardest thing is to reactivate the economy, and that is going to take time," Villamil said.