The enormous challenges left to us in Puerto Rico
© Getty Images

The United States Territory of Puerto Rico is entering the second decade of an historic economic recession. According to official data from the Federal Reserve Bank of New York the Island was already submerged in a prolonged “regional recession” by the start of 2006. An economic recession is defined as a period of two consecutive quarters of falling Gross Domestic Product (GDP) output.

Since the second quarter of 2006, Puerto Rico’s GDP not only was falling dramatically, but it actually went into negative territory, accentuating the recession. For calendar year 2007, the average monthly GDP was -1.2 percent, while. Then, in 2008, the GDP dropped to -2.8 percent, a slide that continued into 2009 with a -3.7 and in 2010, which closed with -3.6 percent reduction. Statistics provided by the government’s Planning Board shows that our economy will contract 1.5 percent in 2017 and a full 2 percent the following year, basically perpetuating the recession for another three years. This disheartening scenario, coupled with a massive public debt, which topped the $67.5 billion mark, bad administrative decisions, and the inequality in federal allocations due to the current political status, has deprived us of the tools to restart our economy.

ADVERTISEMENT

With an economy on the ropes, the local government took the road of overtaxing its population, placing even more pressure on an already decompressed sales market. The outgoing administration imposed, what amounted to a massive four percent increase on all sales and services with the expected results. Almost overnight, prices on common goods such as toothpaste, soap, auto parts, books, electronic appliances and most of all professionals services went up. The government of Alejandro Garcia Padilla was betting that a series of small tax credits would offset all the consumption taxes they placed. It backfired dramatically. There were no wage increases for the Island’s less than one million-strong work force to offset all the taxes imposed. Thus we ended up with a collapse in consumption spending.

In essence, the Garcia Padilla administration tried to follow the model implemented in Japan. Back in the spring of 2013, the International Monetary Fund (IMF) recommended that the Japanese government raised its consumption tax rate in order to reduce its huge national debt. Then, on April 2014 the country increased this tax, going from 5 percent to 8 percent, with the idea of raising it again that November to 10 percent. The results were disastrous. The Japanese GDP felt by 0.4 percent in the third quarter following a 1.8 percent contraction in the second quarter, mainly due to a collapse in consumer spending. Because of this, Prime Minister Shinzo Abe halted the second tax increase. Many financial analysts blame the fall in household spending on the consumption tax increase, while an expected pick-up in wages also failed to materialize.

Their recipe for healing our economy did not only failed, it produced a trickle down effect. Bad administrative decisions, and an uncanny urge to concealed financial information led to an even more pressing problem: the immediate collapse of the public employee retirement system. The debt amassed in the last four years was estimated to be more than $500 million. That’s enough to bankrupt the system by the end of 2017.

Puerto Ricans decided to change the course last November, voting for a new government and legislature. The New Progressive Party (NPP) advocates for reducing the people’s tax burning, restoring market confidence and gaining equality to the American residents that reside on the Island trough statehood.

We are going to take steps to alter the course of our economy. First off all, we need to restore the Island’s credit confidence in the capital markets. Access to short-term capital is at a premium for our government. The lack of transparency these last four years affected the ability of the government to access municipal bond markets. Then, we have to reduce expenses. In the last few weeks, we have been working closely with the newly elected governor, Ricardo Rosselló, to craft legislation that would reduce expenses without cutting jobs or services to our people. We are also going to take steps to develop novel, new industries which, in turn, will generate new jobs. 

Puerto Rico will change course, but we need Congress to act in the form of granting the Island admission into the Union as its 51st state, in accordance with the will of the people of Puerto Rico, democratic and freely expressed in the 2012 status referendum in which 54 percent of the voters rejected the current, immoral colonial political relationship with the United States. In that same election, 61 percent of the people that participated selected statehood as the final political status with our Nation.

It’s time for Congress and the White House to finally recognize the inequality of the current colonial system and their obligation to the almost 3.5 million American citizens that reside in this Caribbean Paradise. Give us equality now.

Mendez-Nunez is the newly elected Speaker of the Puerto Rico state House of Representatives.


The views expressed by authors are their own and not the views of The Hill.