Last November, I wrote about the dilapidated state of Puerto Rico and its economy, but I reserved hope that the island could be resuscitated by taking a course of decisive action.
Unfortunately, recent news that Puerto Rico’s bonds were downgraded to junk status has only reinforced the severity of our island’s problems.
According to The Washington Post, this credit downgrade will make it extremely difficult for Puerto Rico to borrow money and, as a result, finance projects that could help reverse the tide.
Despite these setbacks, I still hold the steadfast belief that Puerto Rico can make the changes necessary to rejuvenate its economy and, once again, be recognized as premier travel and business destination in the Caribbean with a rich heritage and growing economy.
While Governor Alejandro García Padilla has taken some steps to implement austerity measures to reduce government costs, there are still more significant spending cuts needed in order to address the island’s $70 billion of debt.
Since Puerto Rico’s constitution prohibits the government from declaring bankruptcy, these cuts aren’t optional; action is required.
Economic crisis in Puerto Rico
Even more morose than Puerto Rico’s budget situation is its unemployment rate, which currently stands at more than double the average in the United States.
There are a number of other economic indicators that point to a poor standard of living for most people in Puerto Rico.
The per capita income on the island is roughly $15,200 and nearly half of all households are food stamp recipients.
Let’s call a spade a spade – there are a lot of poor people in Puerto Rico today and the dire economic situation is driving the high crime rates – so much so that there were 1,136 murders in 2011.
Although there is reason for hope considering the number of homicides fell to 883 in 2013, rampant crime is having an adverse effect on economic growth.
It is scaring away tourists and investors, which are one of the driving forces behind the island’s economy.
Resorts, hotels and restaurants, rely on the tourism industry and are finding it harder to persuade people to visit Puerto Rico, which is directly impacting their bottom line.
Investors rely on stability when considering investments.
All these conditions are driving an exodus of people from Puerto Rico to other parts of the Unites States. Island residents are also leaving for better opportunities in other places.
According to The New York Times, “In 2011 and 2012, the population fell by nearly 1 percent, according to census figures. From July 2012 to July 2013, it declined again by 1 percent, or about 36,000 people. That is more than seven times the drop in West Virginia, the state with the steepest population losses.”
The simple but hard truth is that states like California, Texas and Florida offer a better and more stable life.
Puerto Rico cannot let go of its professionals and young people so easily as it will have devastating consequences on the integrity of its workforce.
Puerto Rico’s talent is our life blood and we most stop the hemorrhaging. In order to prevent our best and brightest from fleeing to other destinations, we have to make the economy more attractive and offer incentives encouraging them to stay and build prosperous lives on the island.
Additional measures can include looking at the current tax structure, which is in dire need of reform. Under the present tax code, many small- and medium-sized businesses with net profit margins fewer than five percent are penalized, some reportedly paying an effective tax rate of 130 percent.
This is the embodiment of the type of stifling policy that needs to be fixed immediately; otherwise, Puerto Rico will continue to face a plethora of problems over the long-term.
Puerto Rico public officials must make it a priority to proactively address problems by offering bold and sweeping reforms that will incentivize investment and retain our best assets.
While it is true that Puerto Rico’s situation has worsened since I last opined on the subject, I still have faith that with hard work and pro-growth policies Puerto Rico can once again prosper.
This island has everything to offer, we just need to implement meaningful solutions, so that it can realize its full potential.
Javier Ortiz is a Republican strategist, principal at Crane & Crane Consulting, and an advisor on public policy and regulations for a D.C.-based global law firm.