Home' Trinidad and Tobago Guardian : August 3rd 2014 Contents AUGUST 3 • 2014 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
INTERNATIONAL | SBG23
New York s Federal Reserve
Bank released a report
Thursday in which it warned
that Puerto Rico needs to
improve its financial health
soon or face what it called
a "painful adjustment."
The report comes as US investors waited
to learn whether the island s power company
would meet a July 31 deadline to make pay-
ments on US$671 million it owes to banks or
extend the deadline once again.
The 30-page report makes several recom-
mendations that the New York Fed believes
are needed to help push the US territory out
of a nearly decade-long economic slump.
"The island appears to face two alternatives:
either manage its own economic adjustment
and put the Commonwealth on a secure fiscal
basis, or wait for outmigration and the dis-
cipline of the market to force an even more
painful adjustment, particularly for those
unable or unwilling to leave the island," the
William Dudley, president of the New York
Fed, questioned whether Puerto Rico s level
of debt can be sustained and said the gov-
ernment s challenge will be to revive the econ-
omy without accumulating more debt. The
island is struggling with nearly US$73 billion
in public debt after having sold a record US$3.5
billion in general obligation bonds in March
despite having its credit rating downgraded
to junk status.
After a brief uptick in 2012, the report found
that Puerto Rico s economy has stagnated
since 2013, noting that the island of 3.65 million
people has a 45 per cent labour force partic-
ipation rate and has seen a significant drop in
Puerto Rico also struggles with a largely
uneducated working-age population, although
the number of people with a college degree
increased from about 25 per cent to nearly 28
per cent between 2010 and 2012.
"Economic activity in Puerto Rico remains
generally flat at a depressed level and there
are no strong signs that a meaningful recovery
is taking hold," according to the report, which
updates a previous 2012 report.
Analysts also found that the economy suffers
because of bureaucracy, limited credit avail-
ability and a low tax-collection rate coupled
with a thriving underground economy.
They recommended that Puerto Rico shrink
its underground economy, broaden its tax base
and reduce rates, and strengthen its public
corporations, which account for nearly 40 per
cent of the island s debt.
Analysts said the government also should
approve legislation requiring the creation of
a long-term budget that outlines revenue and
expenditure plans for the next five years, as
well as provide more transparency in its finan-
"Puerto Rico s unique status means that it
is one of the few places in the world where
finances are not regularly surveyed by a public
agency," the report stated.
The administration of Governor Alejandro
Garcia Padilla has taken numerous steps to
help boost the economy, including imple-
menting changes in public pension plans,
streamlining its business registration and per-
mitting process and cutting expenditures. Gar-
cia also appointed an advisory group for tax
reform that is expected to release a report by
year s end with plans to implement it by fiscal
Meanwhile, US investors remain wary of a
recently approved law that would allow certain
public corporations to work with creditors and
restructure their debt if needed. Many speculate
that the island s Electric Power Authority
would be the first to take advantage of the
law given its US$9.3 billion debt load.
It was not yet known by late Thursday
morning whether the agency would meet a
July 31 deadline to make payments on credit
lines held with Citibank and Scotiabank.
Barbara Morgan, a spokeswoman for the
island s Treasury Department, said she did
not have immediate comment on the issue.
NY Fed: Puerto Rico should
seek economic reforms
This July 16, 2014, photo shows an aerial view of the financial district in San Juan, Puerto Rico. The territory's government has managed to buy
some time to stave off an economic crisis, but it may only be for a moment. Creditors are closely watching whether the government tries to
reach substantial agreements with banks this month on how to handle upcoming payments. AP
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