Puerto Rico is making headlines for its Greece-like economic failings. As debt mounts and the economy shrinks few Americans have a comprehensive understanding of the problems that have obstructed Puerto Rico's progress. FOXBusiness.com takes a look at the current debt crisis in a holistic context.
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1. Massive Debt
The largest challenge the territory faces is $72 billion in unpayable debt. Unlike municipalities and individuals, Puerto Rico does not have the option to file for bankruptcy, which puts Governor Alejandro Garcia Padilla in a difficult position. The island’s economic future will be grim unless Governor Padilla can successfully restructure the debt owed and postpone its due dates, a move which many U.S. creditors are uneasy about. A meeting was held Monday at Citigroup (C) in New York to give Puerto Rico an opportunity to present its case for restructuring in front of more than 300 individuals representing the territory’s creditors.
2. Shrinking Economy
Once a hub for pharmaceutical manufacturing, Puerto Rico is now home to an economy that is shrinking. Through the latter half of the 20th century, the U.S. government gave major tax incentives to businesses operating in Puerto Rico. Those tax breaks were completely phased out by 2006. The ensuing flight of business in combination with the financial crisis of 2008 created a perfect storm that the Puerto Rican economy has never been able to recover from. The economy has shrunk every year since 2006, with a 0.9% drop in 2014.
3. High Unemployment
Puerto Rico’s unemployment rate was 12.4% in May, according to the Bureau of Labor Statistics. Many attribute this to the relatively high minimum wage on the island that many companies are struggling to pay. Congress requires the island to comply with the federal minimum wage rate of $7.25 per hour, a rate that is challenging for businesses operating in an economy that is contracting.
4. Low Per-Capita Income
Puerto Rico’s gross national income per-capita was $19,310 in 2014 according to the World Bank. The figure is dismal when compared with $55,200 GNI per-capita in the United States during the same year. The debt of $72 billion breaks down to roughly $20,000 per capita, out measuring median individual income. The numbers point to an obvious truth, Puerto Rico’s inhabitants are not earning enough to keep up with their government’s deep debt.
5. Soaring Cost of Living
High transportation costs have led to an extremely high cost of living for residents of the island. The Council for Community and Economic research reports that the overall cost of living is 13% higher in Puerto Rico than in the mainland United States. The costs of utilities and healthcare are a staggering 85% and 55.6% higher than the mainland average, respectively. The high cost of living is partially responsible for the mass emigration that has plagued the territory in recent years.
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