On Sunday evening the governor of Puerto Rico, Alejandro García Padilla of the Popular Democratic Party, announced that the US commonwealth would need to restructure its $72 billion in debt. The island of 3.5 million people has been in a deep economic crisis since 2006, experiencing high unemployment, large-scale emigration and severe austerity measures.
Between 2004 and 2014 Puerto Rico had an average revenue shortfall of $1.5 billion a year, pushing its overall debt to 100 percent of its Gross National Product (GNP). Debt service took up $4.5 billion, or 16 percent of the government’s 2014-2015 budget.
After adjusting for inflation, Puerto Rico’s real GNP is only 87 percent of what it was a decade ago. The housing market has been particularly hard hit, with prices falling 27 percent in real terms since 2007. The island also has widespread unemployment with a labor participation rate of just over 40 percent as compared to the US average of 63 percent. The official jobless rate is just under 12 percent.
The government of Puerto Rico has tried to balance its budget through austerity measures implemented by both the Popular Democratic Party and the New Progressive Party, the local affiliates of the Democrats and the Republicans. The last budget, passed in May, included $674 million in cuts to public schools, the University of Puerto Rico system, and a variety of health and social services.
These local cuts have been combined with chronic underfunding by the US government. As part of the Affordable Care Act, reimbursement rates to Puerto Rico’s 250,000 Medicaid Advantage enrollees will be reduced by 11 percent, around $300 million in total. Although the island’s residents are US citizens who pay federal taxes, Medicaid reimbursements for Puerto Ricans are capped at 70 percent of the rate for US states.
The social devastation caused by these policies has produced a large-scale exodus from the island. Approximately 144,000 Puerto Ricans moved to the US mainland in 2014. Overall the population has declined from its peak of just over 3.8 million in 2006 to 3.5 million today.