SAN JUAN, puerto rico — 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 has turned off the air conditioning to lower his power bill. With fewer customers, he has 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 farther.
The unemployment rate is above 12 percent. About 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 increasing 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 Aug. 1 went unpaid, with the government making only a partial interest payment of $628,000 in what Moody’s Investors Service characterized as a sign of further missed payments to come.
“This is a first in what we believe will be broad defaults on commonwealth debt,” said Moody’s vice president Emily Raimes on Monday.
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, 65, a 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.”
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 to 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, an investment research firm, 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.
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.”
