HOW TO HELP PR ECONOMY

How to help Puerto Rico?

The hard working and decent people of Puerto Rico deserve every effort to help them recover from the awful devastation of hurricane Maria.

Some thoughts on how we might proceed.

First we must reduce the Puerto Rican debt burden..Investors in PR bonds and other financial  instruments will have to forgive much of the $70 billion in loans the government has accumulated. Prior to the hurricane it was impossible for the commonwealth of three million islanders to pay back such a burden given their economic situation--after the devastation of hurricane Maria it is unthinkable.  The island’s infrastructure and economy are in tatters.  There can be no thought of full repayment.  But neither should the burden of loss be shunted onto the shoulders of mainland taxpayers for repayment. Well meaning financial  help for aid for infrastructure repair should not be funneled from the PR government into the coffers of Wall Street investors.    The investors themselves must take responsibility and the loss for their failed investments.

Then Congress and the Trump Administration must make it more appealing for industry to return to the island.  Years back before the impact of globalization and the drain of jobs to Mexico and China, the island was a good place to establish a business.  In those days Puerto Rico had a deal with Washington.  Companies which located on the island got a tax break.. That good deal was rescinded during  the Clinton or Bush Administrations---for some unknown reason.  That was too bad.  It should be restored.

Also some of the rules and regulations which apply to US states are simply wrong or out of place on a tropical island  situated in the balmy  Caribbean.  The USA minimum wage law is one of these.  The cost of living on the island is generally lower than on the mainland USA (although most food is imported and manufactured goods cost more due to transportation costs).  These lower living costs should be reflected in lower wages--a fact that would be an advantage to the PR economy.  Forcing companies to pay USA standard minimum wages to island workers has eliminated one of the key advantages that tendered to attract manufacturing firms to the island.  This fact (with others noted below) are one important reason why the unemployment rate is so high--about 12%---in Puerto Rico.

Like Greece...which was economically disadvantaged by having to use the high value Euro as its currency, PR is similarly saddled with the US dollar.  The dollar is a  high value currency, the value of which is set in Washington.  The island government can not alter the value of its money to attract business or adjust to economic circumstances.  There seems no obvious direct solution to that problem.  Though tax breaks and other economic stimuli may be the answer.  But it does shed some light on the source of economic problems the island faces.

Then there is the "Jones Act" which prohibits foreign flagged (non USA ships) from docking in PR ports.  The result of this law is that all goods entering or leaving PR have additional transport  costs.  For  example, manufactured goods bound for PR and imported from  say Japan or Canada must first land in a US port..perhaps Jacksonville FL, where the products are off loaded, repackaged and reloaded on an American flagged ship for transit to Puerto Rico.  These add significant costs to the price of goods, and contribute to the higher costs for imported products in PR vs the mainland.  In like manner, products manufactured on the island must also be first trans-shipped from PR by an American ship before they can actually be sent abroad....adding to their costs. and as a result making PR manufactured goods less competitive than materials produced on the mainland.  These US policies have contributed immensely to the decline of the economy on the island and have discouraged companies from locating there.

Finally, Puerto Rico suffers from a brain drain and youth drain.  The population is aging faster than it should, due to rampant out-migration.  Young people in the prime of their productive lives leave the island for better jobs, and other attractions on the mainland.  That leaves a smaller and older, less productive population to shoulder the tax burdens needed to sustain the economy and infrastructure of the island.

In this last matter only Puerto Ricans can change the status quo.