Puerto Rico’s Planning Board Friday projected that the territory‘s economy would shrink .8% during the year that began this past July 1st.
The prediction sharply reversed the agency’s earlier estimates that the economy would grow.2%.
It similarly contradicted Governor Alejandro Garcia Padilla’s assertion October 9th that the territory’s economy was in “recovery.”
The Planning Board projection also indicated that the territory’s economic decline is accelerating. The contraction during the year ending this past June 30th was .3%.
The new Planning Board numbers were more in line with those of respected private economists. Their various estimates are for a drop in economic activity from 1-2%.
The numbers have serious implications for the Commonwealth‘s credit — a major concern as the nation’s government credit rating agencies have raised risk worries about the Commonwealth as an investment, downgrading some of its debt to just above ‘junk’ status, and as Commonwealth bonds have lost 17% of their value this year.
The Commonwealth relies on borrowing to pay for its current operations as well as for expanding and improving its infrastructure because for years it has raised less revenue than its annual expenses.
Its budget is premised on .2% economic growth and the revenue that would generate. Economic activity 1% less, as now projected, will, presumably, result in less revenue. Not meeting its revenue projections would be likely to lead to further credit downgrades and an inability to borrow money needed to operate the Commonwealth government at current levels.
With the exception of December 2011 through October 2012 when Puerto Rico’s economy grew .1%, it has been in recession since early 2006. And the recession followed three years of decreasing growth.
In insisting last month that the economy was expanding, “Commonwealth” party chief executive Garcia Padilla dismissed factual economic indicators and analyses of experts as “pessimism,” proclaiming that he had “decided not to be part of negativism.” Instead, Garcia contended, expansion of the economy “is gathering speed and strength.”
Economist Sergio Marxuach reacted to the Governor’s statement by saying, “People know in their daily lives that things are bad. A person who is a leader cannot make a speech that is socially unreal and then expect people to believe it, and obviously investors believe it even less because they see economic statistics.”
Puerto Rico’s unemployment rate has increased even though the number of jobs and the population has plummeted and the percentage of the territory’s residents in the workforce has slid to less than 40% (compared with more than 60% in the States). The jobless rate rose to 13.9% in August.
The unprecedented population decrease over the past dozen years has occurred as hundreds of thousands of Puerto Ricans have chosen statehood over the limits of the Commonwealth’s territory status by moving to a State. This mass migration demonstrates the interrelationship between Puerto Rico’s problems and the United States as a whole, showing that Puerto Rico’s challenges stemming from its status as a territory are national issues.
The economic decline of the past decade followed three decades in which the incomes of residents of the territory grew at a slower rate than the already much higher incomes of residents of the States, after only a couple of decades of the gap narrowing.
Garcia’s administration has not yet changed its claim that the territory’s economy will expand 2.6% by the fiscal year beginning July 1, 2016.
Puerto Rico’s ‘Commonwealth’ economy was built on pillars that no longer exist, such as an advantage for products in access to the U.S. market in comparison to foreign goods, low-paid labor, cheap energy, exemption from Federal as well as territorial income taxation for island manufacturing by companies in the States, and a lack of environmental and other regulations.
The economy currently suffers most from being denied many billions of dollars a year in Federal spending due to Puerto Rico’s territory status.
President Obama’s Task Force on Puerto Rico’s Status reported in 2011, “Identifying the most effective means of assisting the Puerto Rican economy depends on resolving the ultimate question of status.” This is the question of whether the territory will become a State or a nation.
In a plebiscite last November, Puerto Ricans rejected territory status by 54% and chose statehood in preference to nationhood, with statehood winning 61.2% of the vote.
Because Garcia and his “Commonwealth” party majorities in Puerto Rico’s legislature dispute the vote, the Obama Administration — which hailed the plebiscite results — has proposed another vote under U.S. Justice Department auspices. This would make it difficult for ‘commonwealthers’ to dispute the status choice of Puerto Ricans. The Republican-controlled U.S. House of Representatives Appropriations Committee has approved the Obama proposal.
In addition, Puerto Rico’s representative to the Federal government, who has a seat without a vote in the U.S. House, statehood party President Pedro Pierluisi, and 125 other House members have sponsored a bill for a plan for a transition to statehood if Puerto Ricans vote for the status in a Federally-authorized referendum.
