Boom and Bust in Puerto Rico

According to both peer-reviewed academic sources and nonacademic sources, there are several factors involved in Puerto Rico's unsustainable indebtedness.A.W. Maldonado's Boom and Bust in Puerto Rico: How Politics Destroyed an Economic Miracle belongs largely to the second strand of literature because most of the sources it engages are non-peer-reviewed documents.The book is easy to read for a general audience and is useful for the historical narrative of local political dynamics in Puerto Rico during the last 100 years.Maldonado is correct that there was a "boom and bust" in economic growth; from 1955 to 1980, the heyday of the industrialization program, Puerto Rico was among the top 14 high-growth economies, while in the last 20 years it has been among the top 14 slow-growth economies.Maldonado rightly points out that the Puerto Rican debt crisis was triggered when U.S. authorities removed the industrial incentives provided to Puerto Rico under Section 936 of the federal tax code without any substitutable economic strategy.This deindustrialization reduced the government revenues, increasing Puerto Rico's dependence on external funding.In 1995 manufacturing represented 42 percent of Puerto Rico's Gross Domestic Product, creating more than 30 percent of the local bank deposits, and generating 17 percent of the total direct employment (that is, without accounting for the large indirect employment resulting from local firms providing services to these factories and from the consumption of these high-wage workers).It is far from a coincidence that when the transition period of Section 936 ended in 2006, Puerto Rico entered the largest economic depression in more than 100 years.Juan Lara and I have recently verified the relationship between this deindustrialization and indebtedness with advanced statistical methods in "Deindustrialization and Unsustainable Debt in Middle-income Countries: The Case of Puerto Rico" ( Journal of Globalization and Development, 2018).However, an excessive emphasis on local dynamics has led Maldonado to hyperbolize the role of political forces in Puerto Rico in determining federal debates on tax incentives.This notion that the crisis was self-inflicted by Puerto Rico is common in the Puerto Rican media, unlike the media in the United States, where the Puerto Rican diaspora placed the responsibility on U.S. actors.Maldonado writes that "In the end, the economic, fiscal, and political crises are the result of the breakdown of Puerto Rican self-government" (p.11).In my view, the local political dynamics were one of many exacerbating factors that fueled indebtedness in Puerto Rico, along with fiscal mismanage

Boom · Bust · Debt · Deindustrialization · Development economics · Economic history · Economic miracle · Economics · Economy · Political science · Politics · Revenue · Tourism · Economic Theory and Policy