Public finance Economy of Puerto Rico

1 public finance

1.1 monetary policy
1.2 public debt
1.3 taxation

public finance
monetary policy

puerto rico not have local coin, using instead united states dollar local , currency. because of this, puerto rico not control money supply nor interest rates, being subject instead monetary policy of united states particularly operations performed federal reserve system. puerto rico, however, has representative in federal reserve bank of new york through local businessman name of richard carrión, chairman , ceo of popular, inc., has served member of board reserve bank several times.

public debt

the public debt of puerto rico has grown @ faster pace growth of economy, reaching $46.7 billion in 2008. in january 2009, governor luis fortuño enacted several measures aimed @ eliminating government s $3.3 billion deficit.

since 2000, government of puerto rico has experienced 17 consecutive negative cash flows has contributed enlargement of public debt, government incurs in new debt in order pay older one.

on february 4, 2014 standard & poor s downgraded debt of puerto rico junk status. puerto rico has $70 billon outstanding debt population of 4 million inhabitants. despite small population third issuer of municipal bonds in 50 states , territories. first being california, second new york.

in 2017, puerto rican government-debt crisis posed serious problems government saddled outstanding debt of $70 billion or $12,000 per capita @ time 45 percent poverty rate , 14.2% unemployment more twice mainland u.s. average.

the commonwealth had been defaulting on many debts, including bonds, since 2015. newly elected governor ricardo rosselló discussed situation in interview international financial times in mid january , indicated seek amicable resolution creditors , make fiscal reforms. there real fiscal oversight , willing sit down. taking steps make bold reforms. ... asking runway establish these reforms , have washington recognise have role play. had instructed puerto rican government agencies cut operating expenses 10 per cent , reduce political appointees 20 percent. ensure funds available pay essential government services, rosselló signed fiscal emergency law on january 28, 2017 allow setting aside funds might otherwise required debt payments.

in mid january, cash strapped government having difficulty maintaining health care funding. without action before april, puerto rico’s ability execute contracts fiscal year 2018 managed care organizations threatened, thereby putting @ risk beginning july 1, 2017 health care of 900,000 poor u.s. citizens living in puerto rico , according letter sent congress secretary of treasury , secretary of health , human services. said congress must enact measures recommended both republicans , democrats fix puerto rico’s inequitable health care financing structure , promote sustained economic growth. in late january, federal control board created under promesa gave government until february 28 present fiscal plan (including negotiations creditors) solve problems. essential puerto rico reach restructuring deals avoid bankruptcy-like process under promesa. moratorium on lawsuits debtors extended may 31.

governor rosselló hired investment expert rothschild & co in january 2017 assist in convincing creditors take deeper losses had expected on puerto rico s debts. company exploring possibility of convincing insurers had guaranteed of bonds against default, contribute more restructuring, according reliable sources. governor planned negotiate restructuring of $9 billion of electric utility debt, plan result in showdown insurers . political observers suggest negotiation of electrical utility debt indicated rosselló s intention take harder line creditors. puerto rico has received authority federal government reduce debt legal action , may make creditors more willing negotiate instead of becoming embroiled in long , costly legal battle.

taxation

taxation highly complex due lack of uniformity in local internal revenue code , disparate amount of incentives, subsidies, tax exemptions, tax breaks, , tax deductions.. example, ordinary retail sale might have pay: import taxes, sales taxes, property taxes, corporate net income taxes, national taxes, excise taxes, , sin taxes depending on item being sold. regardless of this, american citizens reside in puerto rico not pay federal income taxes unless work federal government, business federal government, or send funds united states. peculiarity has been taken advantage local government offers plethora of tax exemptions , tax benefits high-net-worth individuals relocate island. these benefits have been ratified law through act 20 of 2012, act 22 of 2012, , act 273 of 2012. these acts, business owners residing on island might exempt paying local , federal taxes @ all, depending on line of business.

on november 15, 2006, government implemented 5.5% sales tax. optional 1-1.5% municipal tax had been in effect since may 2006. on july 1, 2015, government raised sales tax 7% 11.5%.