Planning the Economic Future of Puerto Rico
The commonwealth of Puerto Rico is experiencing the worst financial crisis in its history. With the newly elected administration, the people of Puerto Rico have entrusted the new leaders with the enormous responsibility to quickly and boldly address this crisis! The challenges emanating from the crisis are immense, with the potential for catastrophic political, economic and social consequences for generations to come.
Puerto Rico has experienced other financial crises—for example, one in the 1970s that was triggered by the increase in oil prices from the embargo by the Organization of Petroleum Exporting Countries (OPEC)—which had devastating effects on the economy. However, the current financial crisis is different. The severity of the fiscal debt and the chronic stagnation of Puerto Rico’s economy—sparked by Congress’ elimination of Section 936 of the Internal Revenue Code in 1996—forced Gov. García Padilla to approach the federal government to request assistance to restructure Puerto Rico’s $70 billion debt.
Consequently, on June 30, President Obama signed into law the Puerto Rico Oversight, Management & Economic Stability Act (Promesa) to address the island’s fiscal crisis. The federal law allowed the creation of a Financial Oversight & Management Board (FOMB) with the authority to restructure Puerto Rico’s debt. The FOMB, among other authorities, also has the supreme power to review and approve fiscal plans and budgets submitted by the governor; review any act of the Legislature; and obtain official data from the federal government, the commonwealth government and its institutions. Overnight, the creation of the FOMB has altered the local government’s power structure and political environment, making it more difficult, but not impossible, for the governor to lead and plan for the island’s economic future.
Restoring confidence, credibility
In 2014, former U.S. Treasury Secretary Timothy F. Geithner mentioned in his book “Stress Test” that “every financial crisis is a crisis of confidence, and when confidence evaporates it usually happens quickly, and it’s hard to get back once it’s lost.”
Therefore, to restore confidence and credibility in the government, the new administration must immediately assume a strong leadership role and quickly make important decisions. One such courageous decision the new governor must make to restore credibility is to depoliticize the handling of economic matters, which has permeated all aspects of Puerto Rican life for generations. Another critical decision the new governor must make is to strategically partner with the private sector to design an economic future for the island. Finally, with no room for error in managing the debt crisis or a “plan B,” a good working team must be built, which is essential for restoring credibility and to help the governor make accurate decisions. Therefore, incorporating knowledgeable, competent, creative and reputable professionals with vision and a high level of integrity is critical in achieving rapid success and rebuilding the country’s future.
Road to economic growth, prosperity
Restoring growth and prosperity in Puerto Rico is imperative and should be a top priority for the new administration—which is not an easy task in a globalized and extremely competitive business environment. To restore growth and attract new businesses to the island, it is going to take a lot more than implementing local tax incentives, removing some business barriers or changing federal laws and programs that were imposed on the island, which are all currently being assessed by the congressional task force on Puerto Rico’s economy.
The new economic team, along with leaders of the private sector, should assess the economic and educational systems to eliminate structural inefficiencies and strengthen them to compete globally. This team must first re-evaluate Puerto Rico’s competitive advantages within a global economy and, if necessary, implement new business models to attract labor-intensive industries to the island. Second, educational standards at all levels must be reassessed to ensure students are being adequately educated and their skills properly developed to address local business needs to compete globally. Third, the new administration must lower the cost of electricity, which is a major obstacle to attracting investment and a significant cost in doing business in Puerto Rico. Fourth, Congress must decide to remove the Jones Act altogether, or make significant changes to it, to lower transportation costs—which are also impediments for doing business on the island. Finally, the administration should modernize Puerto Rico’s infrastructure to attract new global businesses while also benefiting local industry.
— Félix E. De Jesús is an Adjunct Professor of Global Management & International Business at Monmouth University in New Jersey. His research revolves around the dynamics and challenges of leading global corporations, and includes extensive experience in International Manufacturing and the regulation of Municipal Electric Utilities in New York.