The economic crisis in the U.S. territory of Puerto Rico was dealt another blow today when the island’s governor said they would not pay most of its $470 million in debt payments due Monday.
To cover budget shortfalls, the government borrowed heavily from mutual funds and hedge funds, and its debt levels ballooned to $72 billion. The debt is so large that the government is unable to pay while also providing basic government services. Roughly a third of Puerto Rican tax revenue now goes to cover its debt.
The island has been in an economic recession for a decade with the loss of manufacturing jobs and 2006 expiration of tax credits, known as Section 936, that exempted income from U.S. firms located in U.S. territories. Here are five charts that show the extent of the crisis on the island.
With roughly 3.5 million people in Puerto Rico, according to 2015 estimates, compared to Latin American countries of a similar populations (Panama: 3.6 million, Costa Rica: 4.8 million, El Salvador: 6.1 million), the per capita GDP in Puerto Rico is actually relatively high — Even when factoring in Mexico (population 122 million).
Source: World Bank
However compared to the United States, Puerto Rico ranks as one of the lowest per capita GDP locations, behind the lowest performing state of Mississippi which had a per capita GDP of $35,717 in 2015.
Impact of tax policy shift:
The impact of the expiration of Section 936 is stark when looking at percent GDP growth in Puerto Rico. Prior to the expiration of the policy, Puerto Rico had seen a positive GDP growth ever since 1984. After 2006, when the policy expired, it’s been negative.
Source: U.S. Economic Research Service using World Bank, IMF, IHS Global Insight and Oxford Economic Forecasting data. (excel document)
The latest unemployment rate in Puerto Rico is 12.2 percent, more than twice the 5 percent unemployment rate in the United States.
Source: U.S. Bureau of Labor Statistics via Statista.
One of the starkest data points is the percent of Puerto Ricans that fall below the poverty line. Nearly half of the island now lives below the poverty line. That’s more than twice the rate in the District of Columbia, with a poverty rate of 20.7 percent, which is the lowest in the United States. The second lowest location is Mississippi at 20.1 percent.
Source: U.S. Dept. of Agriculture Economic Research Service.
Story compiled with information from the Associated Press.