Puerto Rico was hit by a powerful Category 4 hurricane with 150 mph winds on September 20, 2017. The hurricane had a devastating effect on the island. About 50 people died, thousands of homes were ruined, and thousands of small companies went out of business.
According to a November 2017 forecast by the Economist Intelligence Unit (EIU), the territory’s economy is estimated to shrink by eight percent in 2018. The island is getting help from the U.S. federal government, but it is not proving sufficient to counteract Puerto Rico’s economic decline. Hence, Puerto Rico’s economic crisis will continue in 2018. At present, Puerto Rico is recorded as the slowest-growing economy in the world.
Hurricane Maria has worsened the territory’s problems. Ongoing blackouts are not allowing thousands of businesses to re-open. According to preliminary official statistics, Puerto Rico’s financial crisis continues to be at its peak. The territory lost around 29,000 jobs in October 2017. Also, about 175,000 employed people reported their inability to work that month due to the hurricane-related reasons. At that time, around 100,000 people left the island.
A decline in the overall population means there also is a decrease in the number of customers who spend money and pay taxes to the government. This will send Puerto Rico deeper into its debt crisis and will reduce its gross domestic product (GDP).
Therefore, there is a need to adopt and implement an effective economic plan to rebuild Puerto Rico’s economy.
Puerto Rico’s Financial Crisis: Hurricanes Irma and Maria Worsened the Conditions
After being affected by Hurricane Irma, which started in August 2017, Hurricane Maria devastated Puerto Rico in September 2017. The wild storm caused massive flooding, damaged many houses, and destroyed cell phone towers and the electricity supply. About 68 percent of Puerto Rico still doesn’t have power. This has hampered the economy badly, spreading the financial crisis and unemployment woes among the people.
Hurricane’s Impact on Agriculture
The agriculture sector is a small part of Puerto Rico’s economy. It contributes just 0.8 percent to its GDP and employs 1.6 percent of its labor force. Hurricane Maria wiped out this sector badly, destroying 80 percent of the crop value. This amounts to a $780.0-million loss. The island imports nearly 85 percent of its food, but that number is likely to increase because of Hurricane Maria’s effect.
Hurricane’s Impact on Drug Industry
Puerto Rico is the fifth-largest area in the world for drug manufacturing. The industry generates more than 25 percent of the territory’s GDP, and is responsible for more than 18,000 jobs on the island. The devastating hurricane has adversely affected this sector. All the drug companies are waiting for previous conditions to be restored, which will probably take three to six months.
Hurricane’s Impact on Tourism
The tourism business in winter is a big boost for Puerto Rico’s economy. It’s a popular destination for vacations during winters, but very few people are going there now because of the hurricane’s effects. Most vacationers are avoiding travelling to Puerto Rico, and instead are flying to other destinations, since they don’t like to watch struggling people.
Debt & Declining Tax Revenue Forced Puerto Rico to File Title III Bankruptcy
Puerto Rico filed for Title III bankruptcy protection for debt backed by sales tax revenues on the U.S. commonwealth, also known as Corporación del Fondo de Interés Apremiante (COFINA). The main aim behind this move was to maintain essential services for its existing population. Analysts appreciated this decision by the U.S. territory, which owes more than $70.0 billion in public debt. Nearly half of the island citizens live in poverty, and filing for bankruptcy was an attempt at bringing the debt back to manageable levels.
Many factors are responsible for Puerto Rico’s economic crisis, which has enabled the island to file for bankruptcy. The most prominent factors are listed below:
- Over the last decade, there was about a 10% decline in Puerto Rico’s population. With a poverty rate of nearly 50%, the territory’s population is expected to fall more this year. This will make the island’s debt more difficult to pay.
- The island has lost 25% of its jobs since 2007, and it is still in a recession.
- Its massive government bureaucracy and regulatory structure acted as barriers to investments and growth.
- Pensioners are at risk of cuts that could range up to 20%.
- Because of the budget and political issues, Puerto Rico receives proportionately less medical funding than U.S. states.
The initial bankruptcy filing of the island included only its central government, which owes $18.0 billion in general obligations. The itle III bankruptcy filing has pulled another $17.0 billion in debt. The overall debt of the government and various agencies amount to more than $70.0 billion, which is impossible for them to repay.
Puerto Rico’s economic crisis will continue to grow as terrible disasters like hurricanes hit the island. Now it’s totally in the hands of economic policymakers to plan for restoring Puerto Rico’s infrastructure. If they act quickly, they will still be able to save Puerto Rico from a major economic crisis in 2018.
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