An Update on Puerto Rico's Economy

April 27, 2016

Puerto Rico has been in an economic recession for nearly 10 years, and since tax credits for manufacturers ended in 2006, employment in Puerto Rico has continued to fall as more citizens move to the mainland. In fact, in 2014, the immigration to the U.S. mainland from Puerto Rico increased by 38 percent as 84,000 people arrived last year.1 As the jobs in Puerto Rico dwindle, so does the government’s tax base.2 In order to fund its budget, the government has relied heavily on the sales of bonds. Puerto Rico’s bonds are attractive to investors because they are exempt from local, state, and federal U.S. taxes.3  

Recently, Puerto Rico’s economy grew more unstable as the question of a bond default arose. As of October, negotiations between the government and bondholders has soured and the government may run out of money soon.4Moreover, earlier in the year in March, the Puerto Rican government passed Public Law 7, “a special law declaring a state of emergency and establishing a plan for fiscal stabilization to save the credit of Puerto Rico” to keep Puerto Rico’s bonds from becoming junk by calling for drastic cuts in government spending including reducing the number of government employee and suspending job benefits.4

These austerity measures have angered workers and in San Juan on October 15, roughly 200,000 people protested the government’s harsh reform measures. The protesters began their march from eight different points in San Juan and converged at Puerto Rico’s biggest mall, Plaza las Américas. This location was symbolic, as Arlene Dávila, a New York University professor of anthropology, explains, “The selection of Plaza las Américas as the gathering point showcased a key predicament of neoliberalism: that if there are no jobs, there can’t be shopping. When the prerequisite for a consumer society disappears—a job, a salary, the type of job security that allows people to make big purchases—only social strife and inequalities remain.”5

Furthermore, a report titled, “Puerto Rico-A Way Forward,” informally known as “The Krueger Plan” about a five-year program of economic changes was written by current and former International Monetary Fund (IMF) employees Anne Krueger, Ranjit Teja, and Andrew Wolfe.6 It is unclear who commissioned the report as news outlets reported conflicting information. The New York Times reported that the governor of Puerto Rico commissioned the report, while The Financial Timesclaimed the bondholders commissioned it, and The Atlantic indicated the report was commissioned by the Government Development Bank.7,6,8 Overall, the Krueger Plan is an IMF neoliberal policy prescription reminiscent of the type of policy recommendations given in the Washington Consensus that included fiscal discipline and privatization of state enterprises.

As Puerto Rico continues to negotiate with bondholders, it will be interesting to see how the island tackles its economic problems while balancing the interests’ of its citizens and the bondholders. Will neoliberalism prevail, or will Puerto Rico fight for economic autonomy?

 


 

References

1) Krogstad, Jens Manuel. "Puerto Ricans Leave in Record Numbers for Mainland U.S." Pew Research Center. N.p., 14 Oct. 2015. Web. 30 Oct. 2015.

2) Schoen, John W. "Here's Why Puerto Rico's Broke." CNBC. N.p., 04 Aug. 2015. Web. 30 Oct. 2015.

3) Kaske, Michelle, and Martin Z. Braun. "Puerto Rico's Slide - QuickTake." BloombergView.com. Bloomberg LP, 29 Oct. 2015. Web. 31 Oct. 2015.

4) Yglesias, Matthew. "The Puerto Rico Crisis, Explained." Vox. Vox Media, Inc., 3 Aug. 2015. Web. 30 Oct. 2015.

5) Bonilla, Yarimar, and Rafael A. Bolgio Martínez. "Puerto Rico in Crisis: Government Workers Battle Neoliberal Reform." The North American Congress on Latin America. N.p., n.d. Web. 30 Oct. 2015.

6) White, Gillian B. "What's Really Happening in Puerto Rico?" The Atlantic. Atlantic Media Company, 29 June 2015. Web. 30 Oct. 2015.

7) Corkery, Michael, and Mary Williams Walsh. "Puerto Rico’s Governor Says Island’s Debts Are ‘Not Payable’." The New York Times. The New York Times, 28 June 2015. Web. 31 Oct. 2015.

8) Bullock, Nicolle. "Puerto Rico Bondholders Present Debt Plan." Financial Times. N.p., n.d. Web. 09 Nov. 2015.

 

 

About Author(s)

Marissa Ferrighetto
Marissa Ferrighetto is an undergraduate at the University of Pittsburgh majoring in economics and is pursuing minors in Spanish and history and certificates in Latin American Studies and leadership. The fall semester of her junior year she studied abroad in Buenos Aires, Argentina and fell in love with Latin America. She is in her senior year and is a contributor to Panoramas.