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Puerto Rico’s Blackout and National Resilience

While electricity will eventually return to Puerto Rico following a massive island-wide blackout that left 1.5 million residents in darkness, it may take decades for the island to return to a solid footing. The confluence of unfortunate events that negatively impacted the U.S. territory are of both acute and attritional variety. The blackout, however, is an entirely predictable outcome resulting from decades of mismanagement and under-investment in the backbone of a modern economy – namely the electricity grid. In short, bad things happen in the dark.

Not only are Puerto Rican’s suffering from extortionately high energy costs averaging between 4-6 times higher than the U.S. mainland, their comparatively low GDP per capita under $20,000 compared to $52,000, makes the blackout a painful punctuation mark in an otherwise cruel joke. The resilient Puerto Ricans remained calm in the face of another setback and many took a fiesta.

At the center of this joke is the island’s sclerotic and bankrupt public utility, PREPA. Anywhere else in the world, there would be serious movement towards privatization or some hybrid public-private model to electrification and distribution, which in Puerto Rico’s case would also ease the burden on the public balance sheet. In Puerto Rico, whose financial matters are now in the hands of a Federally-appointed financial control board, this type of bold move may prove politically risky for the board and the island’s elected officials and unpalatable to an otherwise paralyzed Washington griped by a farcical presidential race and bitter partisanship.

The island is at once ground-zero for the U.S. municipal debt crisis, with an eye-watering $73 billion in public debt, the Zika virus, which has affected 1 in 5 Puerto Ricans and crippled its tourism industry, and, with this blackout, an emblem of America’s poor infrastructure scorecard and lack of resilience. All of these crises pose a real risk of contagion to the broader safety and security of the U.S. The Zika-carrying aedes aegypti mosquito, like financial contagion to the municipal bond market and broader economy, do not respect borders.

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