An Update on the Competitiveness of Puerto Rico’s Economy

Our Commitment
At the Federal Reserve Bank of New York, we are proud that Puerto Rico is part of the Second District, which we represent in the Federal Reserve System. We have a deep commitment to the people of Puerto Rico and to the future growth and prosperity of the Commonwealth. Our commitment is reflected in the ongoing work of our Outreach and Education teams with our many partners on the Island, and in the research conducted by our economists, who monitor local economic conditions and analyze issues that affect the Island’s economy.
Where Puerto Rico Stands
Economic activity in Puerto Rico remains generally flat at a depressed level and there are no strong signs that a meaningful recovery is taking hold. Recently, serious fiscal challenges have surfaced that are closely interrelated with the Island’s weak economic performance. In light of the rising fiscal pressures Puerto Rico faces, the Federal Reserve Bank of New York has undertaken this update of an earlier report that examined the competitiveness of the Island’s economy.
Challenges
In 2012, we highlighted some of the key challenges facing Puerto Rico’s economy. In this report, we revisit each of these challenges and discuss the progress made in several areas:

  • Improving Labor Market Opportunities
  • Developing Human Capital
  • Reducing the Costs of Doing Business
  • Mobilizing Finance for Business Development and Growth
  • Reducing Dependence on a Shrinking Industry
Fiscal Developments
In this report, we discuss the outlook for the sustainability of Puerto Rico’s debt and outline recent Commonwealth efforts to strengthen the Island’s public finances:

  • Rising Debt Levels and Market Access Concerns
  • Effects of Stress in Puerto Rico on Financial Markets
  • Government Efforts to Strengthen Public Finances
Steps toward Fiscal Sustainability
Puerto Rico has an opportunity to restore its fiscal health, but it needs to act. In the spirit of assisting the Commonwealth in this endeavor, we describe the steps required to improve fiscal outcomes and restore access to low-cost credit:

  • Reinvigorate efforts to raise economic growth
  • Reform the Commonwealth’s tax system
  • Improve the Commonwealth’s financial reporting
  • Strengthen performance and harden budget constraints for public-sector corporations
  • Adopt a capital budget and a binding balanced-budget rule for the central government
  • Adopt a legislative framework requiring multiyear budgeting, specific fiscal targets, and monitoring mechanisms to help ensure that targets are met
Key Data Points
13.8%
Puerto Rico
6.3%
United States
0.3%
Puerto Rico
1.9%
United States
2000
58.8%
2006
74.6%
2012
101.8%
Authors
This report was prepared by the project team of Jaison Abel, Jason Bram, Richard Deitz, Andrew Haughwout, Thomas Klitgaard, and James Orr of the Research and Statistics Group; Hunter Clark, Tricia Kissinger, Jonathan Landesman, and Monica Sanz of the Emerging Markets and International Affairs Group; Rae Rosen and Javier Silva of the Communications Group; and Akash Kanojia of the Markets Group. The views expressed in this report are those of the authors and do not necessarily represent the views of the Federal Reserve Bank of New York or the Federal Reserve System.
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2012 Report
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Contacts
Research Inquiries:
James Orr
Vice President and head of Regional Analysis in the Research and Statistics Group
james.orr@ny.frb.org


Rae Rosen
Vice President and Regional Economist
rae.rosen@ny.frb.org

Media Inquiries:
Eric Pajonk
(212) 720-1735
eric.pajonk@ny.frb.org