New York’s Federal Reserve Bank has urged Puerto Rico to look for ways to reform its economy and reduce the debt threatening to push the island back into recession.
The unincorporated U.S. territory, whose credit rating has long been downgraded to junk status, is struggling with nearly US$73 billion in public debt.
In a 30-page report, the New York Fed has expressed doubts about Puerto Rico’s ability to revive the economy without increasing its debt burden; but dismissed concerns that its economic struggles are causing troubles for other U.S. municipal borrowers.
“In addition to coping with the growing stock of publicly issued debt, Puerto Rico faces large future contingent liabilities through unfunded pension system liabilities,” the New York Fed said.
The report blames Puerto Rico’s rising debt level on the loss-making public corporations. The island’s growth has remained “depressive” and the economic recovery is not “taking hold,” it states.
Home to about 3.5 million people, Puerto Rico is struggling with rising unemployment among the working-age population. Although it showed brief signs of recovery in 2012, its economy has stagnated since 2013.
The local administration took some measures to boost the economy, including implementing changes in public pension plans, streamlining the business registration process and cutting expenditures.
Analysts say broadening the tax base and privatizing public enterprises are the only viable options for the government to put the economy back on track.