Christmas spirit.

Photographer: Joe Raedle/Getty Images

Four Reasons to Let Puerto Ricans Collect Their Wacky Bonuses

James Gibney writes editorials on international affairs for Bloomberg View. He was features editor at the Atlantic, deputy editor at the New York Times op-ed page and executive editor at Foreign Policy magazine. He was a foreign service officer and a speechwriter for Secretary of State Warren Christopher, National Security Adviser Anthony Lake and President Bill Clinton.
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Holders of Puerto Rico's bonds are steamed about Governor Alejandro Garcia Padilla's decision to pay public employees $120 million in Christmas bonuses. The way they see it, Scrooging the workers out of their bonuses would have been only fair, given what one investor called Puerto Rico's "bad year" and a $957 million interest payment due on Jan. 1.

But maybe Padilla's critics should put down their nutcrackers and get with the Christmas spirit.

QuickTake Puerto Rico's Slide

For starters, Puerto Rico may be able to cover the payment, at least for the roughly $350 million in interest due for the island's general obligation bonds. The opacity of Puerto Rico's finances is a matter of disturbing record, but Padilla's administration is well-versed in the art of budget brinksmanship and knows that holders of G.O. bonds might be among the first to sue in the event of a default.

Padilla also had a more immediate legal obligation to meet, since payment of the Christmas bonuses is mandated by a 1969 law. As he told a press conference in Washington last week, "If I have the funds, I have no option but to pay that money."    

And that money will be injected directly back into Puerto Rico's ailing economy, with an estimated overall impact of $150 million. You can't necessarily say that about the interest payments. Big hedge funds now own about one-third of Puerto Rico's $70 billion in debt, more than what is held by commonwealth residents either directly or through mutual funds.

If you're Padilla, and you ask yourself if you'd rather be seen as stiffing government workers or tycoons and their armies of lobbyists, the political if not moral choice is pretty clear.

After all, we're talking about a place where 42 percent of the population lives below the poverty line, more than 12 percent are unemployed (versus about 5 percent on the mainland), and the average weekly wage last year was $505 versus $949 nationwide. Ordinary Puerto Ricans could use a little Christmas cheer.

That said, the 1969 law mandating the Christmas bonus is exactly the kind of thing that Puerto Rico needs to junk. Along with absurd regulations on overtime and severance payments, it forms part of a thicket of labor laws and rigidities that keep the island from becoming more jobs-friendly.

To get rid of it and enact other painful reforms will take a firm nudge from the U.S. Congress, which left for the holidays with only a pledge by Speaker Paul Ryan to consider the plight of the island's 3.5 million U.S. citizens in the New Year. As Santa might say, Ho, ho, ho!

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
James Gibney at jgibney5@bloomberg.net

To contact the editor responsible for this story:
Jonathan Landman at jlandman4@bloomberg.net