Making matters worse is a decline in labor force participation (LFP) among the island’s remaining residents. The Puerto Rican debt crisis has many origins. U.S. Government Accountability Office.  That means that inefficient government bureaucracy is significantly retarding growth. Puerto Rico is hoping to reduce $123 billion in debt and pension obligations. The Costa Rican ColÃ³n (CRC) has been the official currency of Costa Rica since 1896. You can learn more about the standards we follow in producing accurate, unbiased content in our. Puerto Rico is in the middle of a financial crisis. This failed to cause major problems for many decades. "State and Local Government Debt in the United States as a Percentage of Gross Domestic Product in the 2017 Fiscal Year, By State." Unsurprisingly, investment dollars began flooding into Puerto Rican government bonds. U.S. Government Accountability Office. Reduced corporate presence led to GDP declines, worsening the island's debt-to-GDP ratio and hastening its credit downgrade. CNNMoney explains how it got so bad. Accessed July 7, 2020. The central government and the islandâs various public corporations have accumulated approximately $72 billion in outstanding debt, the equivalent of the territoryâs nominal gross national product. S&P Dow Jones Indices. In total, Puerto Rico owes $72 billion dollars. These include white papers, government data, original reporting, and interviews with industry experts. Modern Monetary Theory (MMT) is a macroeconomic theory that says taxes and government spending are changes to the money supply, not entries in a checkbook. The Jones-Shafroth Act of 1917 granted U.S. citizenship to residents in Puerto Rico. "Documents," Download FOMB - Plan of Adjustment - Filed Plan - 2019-09-27.  Rachel Greszler, “Allowing Puerto Rico to Declare Bankruptcy Is Giving It a Federal Bailout,” The Daily Signal, July 8, 2015, http://dailysignal.com/2015/07/08/allowing-puerto-rico-to-declare-bankruptcy-is-giving-it-a-bailout/. Puerto Rico was a Spanish colony for centuries until the US invaded it during the Spanish-American War in 1898. Puerto Rico is facing a severe fiscal crisis, and new crises will be almost inevitable in the absence of major institutional changes in the commonwealth. An economic decline in Puerto Rico led to widening budget deficits over the years. In 2019, the U.S. territory sought approval from bankruptcy courts to cut its debt by 33% through bankruptcy. Puerto Rico scored low on trading across borders (84th) thanks to numerous bureaucratic requirements, and its trade is also limited by the federal Jones Act of 1920. Accessed July 7, 2020. Investopedia requires writers to use primary sources to support their work. We also reference original research from other reputable publishers where appropriate. Accessed July 7, 2020. Debt will continue to rise because the island’s $72 billion in debt does not include roughly $35 billion in unfunded pension liabilities, which will soon affect the island’s budgets and further increase the debt. As a result, in 2019, the U.S. territory asked approval from the courts to slash its ballooning debt through bankruptcy protection. Accessed July 7, 2020. If the economy were growing, Puerto Rico would be much better positioned to address its fiscal crisis and might have averted it altogether.  World Bank Group, Doing Business 2015: Going Beyond Efficiency, 2014, http://www.doingbusiness.org/~/media/GIAWB/Doing%20Business/Documents/Annual-Reports/English/DB15-Chapters/DB15-Report-Overview.pdf (accessed July 23, 2015). When a government issues bonds, it is effectively lending money, with interest, to bondholders. "An Overview of the Special Tax Rules Related to Puerto Rico and an Analysis of the Tax and Economic Policy Implications of Recent Legislative Options," Pages 3-4. Puerto Rico has lost about 10% of its population over the last decade, sparking an economic crisis that worsens by the day. The Numbers. Experts say the islandâs economic crisis is rooted in[PDF] twentieth century legislation that encouraged Puerto Ricoâs reliance on debt to fill federal funding gaps.
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