Home' Trinidad and Tobago Guardian : May 7th 2015 Contents Puerto Rico is in trouble, after years
of bad policies, mismanagement,
excessive debt and bad luck. Its econ-
omy has been shrinking or stagnant
for a decade and the unemployment
rate sits at nearly 12 per cent. The
commonwealth and its utilities have a debt of US$73
billion, its public pension funds are woefully under-
funded and one state agency has warned that the
government could be forced to shut down soon
because it might run out of money.
Lawmakers in Washington and San Juan need to
come up with a plan that addresses the financial
and economic problems of the territory, which is
home to 3.6 million American citizens. The island s
difficulties also affect investors in the 50 states who
own the tax-exempt bonds issued by Puerto Rico s
government and utilities.
Once a growing manufacturing center, Puerto Rico
began a long decline in the mid-2000s after federal
tax incentives for businesses that produced goods
on the island were phased out, prompting some
employers and tens of thousands of workers to leave.
Puerto Rican leaders made the situation worse by
not investing sufficiently in the economy and by
borrowing excessively. Investors eagerly extended
loans without properly analysing the territory s dete-
riorating financial health. They did so in large part
because interest earned from Puerto Rican govern-
ment bonds is exempt from federal and state income
One of the biggest and most immediate problems
for the island is the roughly US$20 billion debt owed
by three government-owned companies: the elec-
tricity utility, the water and sewer system and the
highway authority. Because Puerto Rico is a territory,
these businesses are not allowed to restructure their
debt in Chapter 9 bankruptcies. Congress should
approve a new bill that would allow these and other
Puerto Rican government-owned companies, as well
as municipalities, to use Chapter 9.
Some analysts and bankruptcy experts say that
Congress should go even further and allow the gov-
ernment of Puerto Rico to file for bankruptcy. Some
also argue that federal lawmakers should appoint a
financial control board to oversee the island s finances;
this drastic step may not be warranted yet, but it
is worth studying.
There is a lot that can be done to revive Puerto
Rico s economy. Stronger efforts to boost tourism,
manufacturing and the services sector through tar-
geted public investments could lead to faster growth.
For example, Puerto Rico gets relatively few visitors
despite its natural attractions. It had 3.2 million
tourists in 2013, down from 3.7 million in 2005. By
contrast, the Dominican Republic had 4.7 million
tourists in 2013, up from 3.7 million in 2005.
The government could also improve its finances
by raising taxes, which are very low by international
standards. Puerto Rico only collects about 11 per
cent of its gross domestic product in taxes, compared
with the 33 percent average for advanced countries.
Governor Alejandro García Padilla has proposed
replacing the island s seven per cent sales tax with
a 16 per cent value-added tax. That might be too
large an increase given the economy s weakness, but
a smaller increase phased over time and higher
income tax rates could help, as would better policing
of tax evasion.
In addition to fixing its finances, Puerto Rico has
to answer a bigger question about its future: Should
it become a state? The government ought to hold
another voter referendum on the issue. The last one,
a nonbinding vote in 2012, was poorly worded and
did not clearly establish that the majority of Puerto
Ricans want statehood.
Puerto Rico is about 1,000 miles from Miami, but
it can seem a world apart. The island s financial
problems are a reminder that benign neglect has
had terrible consequences for millions of Americans.
MAY 2015 • WEEK ONE www.guardian.co.tt BUSINESS GUARDIAN
THE ECONOMIST | BG21
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Candidates should be in possession of a Bsc in Civil Engineering with a
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SITE MECHANICAL/ELECTRICAL ENGINEER (1)
Responsible for overseeing the installation and operation of all
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Candidates should be in possession of a Bsc Electrical or Mechanical
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CONSTRUCTION TECHNICIAN (5)
Responsible for advancing the completion of civil engineering projects
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Candidates must be in possession of a Civil Engineering Technician's
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ADMINISTRATIVE ASSISTANT (1)
Responsible for the provision of a range of administrative support
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# 5 A Fitt Street,
or e-mail to:
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wishes to recruit suitably qualified individuals to the following positions:
on the brink
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