The debt picture
Puerto Rico has piled on debt – enough that only two U.S. states (California and New York) have more. But its debt is “not payable” and needs restructuring, the island’s governor said in late June. Puerto Rico’s public entities, however, cannot file for Chapter 9 bankruptcy protection like U.S. municipalities. Changes to the U.S. Bankruptcy Code may provide the clearest way forward.
Economic malaise
Puerto Rico has been locked in an economic funk for the past decade. Its economic activity index – a measure of four key monthly indicators – has steadily slipped over that time. The economy took a hit in 2006, when federal tax breaks for manufacturing firms in the U.S. territory were phased out, resulting in the departure of many businesses.
Fewer people, fewer workers
Puerto Rico faces a demographic crisis: Both its population and labour force are shrinking. The island’s labour participation rate sits more than 20 percentage points below the overall U.S. rate. Puerto Rico is subject to the U.S. federal minimum wage, which may hinder hiring on the island, where the jobless rate of 12.4 per cent is substantially higher than the national American rate.
“In many ways Puerto Rico resembles the northern rustbelt States in the mainland U.S.: A declining population and manufacturing base mean that it becomes increasingly harder to service existing debts as tax revenues dry up,” said Paul Ashworth, chief U.S. economist at Capital Economics, in a note on Tuesday.