Puerto Rico reported in 2015 that it would be unable to pay off a debt that amounts to nearly $70 million. Analysts predicted that the Caribbean Islands have even less money than previously imagined.
The extent of this crisis is beyond what is imaginable for many U.S. states. A commonwealth with a population equal to that of Oklahoma has the third largest debt of any state in the U.S., besides California and New York. To put things into perspective, the immense poverty of the island nation is nearly twice as great as the poverty in Mississippi, the poorest state.
The governor of Puerto Rico, Alejandro Garcia Padilla, has not minced his words about the whole affair, and has referred to it as “a humanitarian crisis.” This “crisis,” however, has not come as a shock to economists who have observed the behavior of Puerto Rico’s economy over the past decade, a time lapse over which the island-nation’s debt has doubled. To make matters worse, many Puerto Ricans are fleeing the islands for the mainland, which in turn depletes the island’s tax base and gives them less capital with which to work. Unless the U.S. government acts quickly, the commonwealth could be even farther off a fiscal cliff as it pays $2 billion for principal and interest payments by July 1st of this year.
The Puerto Rican government is not entirely to blame for the economic collapse. The commonwealth, after declaring independence from Spain in 1898, gained special attention from U.S. companies due to its exclusion from state and federal taxes, a policy which attracted many pharmaceutical, textile, and electronics companies looking for tax breaks.
This all changed in the mid 90’s, however, when the U.S government slowly began implementing measures of fiscal regulation, finishing its overhaul in 2006. Such new measures of regulation had dramatic effects on the island’s economy. More than 80,000 people lost their jobs, for example, and by 2009, unemployment rates had reached seventeen percent. Wall Street also contributed to the crash by receiving almost $900 million dollars worth of fees attributed to the island’s bond trading.
The future of the Puerto Rican economy is still very much up in the air, yet officials from both the U.S and the island nation have put forth a number of proposals recently in order to combat the crisis. Republicans and the Puerto Rican government have called for a control board of the commonwealth’s assets with outside help in order to safely navigate economic reform. The Obama administration, on the other hand, has proposed giving the island the same bankruptcy rights as a regular state.
As a nation responsible for highly demanded exports such as rum, medical equipment and chemical products, the welfare of Puerto Rico’s economy directly correlates with the welfare of the U.S. economy and that of the world. The future of the island nation and how it will combat its debt crisis will certainly be on the minds of many, especially voters come election day.