Miguel “Mike” Soto-Class, a Puerto Rican economist and founder of the Center for a New Economy (CNE), an independent, non-partisan think-tank devoted to developing a “new economy” for Puerto Rico, discussed the territory’s fiscal and economic situation at a symposium held by the University of the District of Columbia David A. Clarke School of Law.
Citing a lack of economic growth in the past decade, a fleeing population, ballooning debt, and high unemployment, among other factors, Mr. Soto-Class described the fragile state of Puerto Rico’s economy as a “pervasive, pernicious” humanitarian crisis that is “undermining [Puerto Rican] society in general.”
Mr. Soto-Class traced the genesis of the current crisis from as far back as the 1970s oil crisis to the controversail 1996 repeal of Section 936 of the U.S. tax code, which granted U.S. corporations a tax exemption from income originating from Puerto Rico. With an economy that lacked properly functioning fundamentals, Mr. Soto-Class noted, politicians started borrowing to cover deficits, leading to the ongoing debt crisis and the passage of Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) of 2016.
While conceding the obvious need for fiscal discipline, Mr. Soto-Class criticized PROMESA (which CNE did not endorse) as only postponing Puerto Rico’s economic troubles. PROMESA’s oversight board recommendations for fiscal discipline would contract the economy nearly 16% by their own estimates, Mr. Soto-Class stated, arguing that the debt issue is only part of the problem and that for Puerto Rico to get ahead, it needs “economic development tools” to grow the economy. Mr. Soto-Class advocated for a “parallel track” solution that addresses both fiscal restructuring and economic growth. Additionally, he stressed the need for a fast response that also takes a “sustainable, long term” approach to avoid falling into the same short term traps that he believes have contributed to repetitive crises. In addition to simultaneously addressing fiscal and economic issues, Mr. Soto-Class tied in a resolution to Puerto Rico’s political status as another aspect of a broader solution for its economic malaise.
With PROMESA “falling short” and a looming Medicaid crisis, Mr. Soto-Class senses a “window of opportunity” to address Puerto Rico’s economic troubles once and for all. Accordingly, Mr. Soto-Class and the CNE have established a Growth Commission of thought leaders and economists, including Nobel Prize winner Joseph Stiglitz, with the goal of developing long-term solutions for Puerto Rico’s new economy. The Growth Commission’s first meeting will take place in April in San Juan.