Solving The Puerto Rico Debt Crisis: Policy Priorities

Puerto Rico’s current crisis has been years in the making and is not limited solely to the public debt overhang. At the core of the current predicament is a deteriorated development model and economic institutions that have hindered growth. Thus, any solution enacted by the federal government must provide a workable process conducive to a comprehensive restructuring of the debt and recognize the multifaceted nature of the crisis. Following are the priorities identified by the Center for a New Economy to address the crisis:

  1. BROAD RESTRUCTURING AUTHORITY

If Puerto Rico does not address its debt overhang problem effectively, it will be unable to attract the private capital necessary to generate sustainable economic growth in the future. Thus, it is important that the bill provide for a workable and viable mechanism conducive to broad restructuring of the public debt.

  1. SCOPE OF THE OVERSIGHT

A Federal Fiscal Control/Oversight Board for Puerto Rico solely focused on imposing “quick fixes” and addressing public debt issues runs the risk of failing to solve the crisis. If Congress wants to avoid facing the same predicament in 5 or 10 years, any solution crafted in the current juncture must ensure the long-term transformation of the island’s fiscal and development institutions and have the support of diverse stakeholders in Puerto Rico.

  1. SHORT-TERM ECONOMIC AND FISCAL STABILIZATION

Congress should consider enacting short-term measures to stabilize the island’s fiscal and economic situation.  We suggest that Congress gradually treat Puerto Rico as a state with respect to Medicaid funding over the next ten fiscal years and propose a scale of decreasing wage subsidies in the form of a tax credit against the employer portion of the federal payroll tax.

  1. ECONOMIC GROWTH

We recommend creating a federal joint task force or working group to collaborate with an Economic Growth Commission to be set up in Puerto Rico with representatives from the island’s civil society, business sector, labor unions, government, and academia, to develop a medium-term economic growth strategy for the island.

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