aside Description Of Puerto Rico’s Debt Crisis Continued

In the prior blog, I describe how Puerto Rico’s debt crisis has been building for over 10 years. I reported on the many factors which have conspired to where Puerto Rico now owes over $70 billion dollars to where they cannot pay their bills. Late in the day, the U.S. congress has stepped in to salvage this dire situation with the PROMESA Bill in June, 2016. (See link below for more information on the PROMESA BILL.) Most Puerto Ricans believe that this bill with its austerity measures and the control board’s focus on the island’s ability to make U.S. investors whole, will be at the expense of the well being of its peoples. It is my concern that the recent tax increase to 11.5% will only further depress the recession type economy.

There are other important circumstances which have been contributing to Puerto Rico’s financial woes beyond what I detailed in the previous blog. (My Policy Wish List For USA, Part XIV (Fix Puerto Rico’s Debt Crisis).


The unraveling of the island’s finances started in 2004, with the closing of the Roosevelt Roads Navy base. Many of the locals believe that the closing was due to their opposition to the bombing range in Vieque because of concerns that the bombings were harming the environment and was the source of ill health among the residents.  

Another part of the puzzle has to do with the expiration of Section 936, which provided U.S. companies with tax incentives for doing business in Puerto Rico. When it expired in 2005, many U.S. organizations left the island. The Puerto Rican economy started unraveling in 2006, just after  Section 936 ended at the end of 2005.)


A source for what happened with Section 936 is from the 8/29/16 Puerto Rico Report:

“Section 936 provided a tax credit equal to the tax liability of certain kinds of businesses in Puerto Rico. That means that income generated in Puerto Rico could be essentially tax free. In 1992, a report from the Congressional Budget Office calculated that the federal government would lose $15 billion between 1993 and 1997 if the exemptions continued.”

clinton-pr-protest-download“The pharmaceuticals industry in particular took advantage of Section 936 in ways that were far from the initial intention of the law, and which didn’t benefit Puerto Rico. The U.S. General Accounting Office (GAO) explained how this could happen in a1992 report on the pharma industry in Puerto Rico:”

“A pharmaceutical company would develop a drug in its U.S. research facilities and transfer the drug patent to its wholly owned subsidiary operating in Puerto Rico. The subsidiary would produce the patented drug and claim the income obtained from the drug sales as tax-free income.”

clinton-great-photo-old_san_juan_pastels“In the 1970s and 1980s, growth in income and property for people living in Puerto Rico increased by 2.3 percent per year. In most recent years, Puerto Rico’s economy has contracted. But in the same 20th century expansion years, the amount of Puerto Rico-based income and property grew for nonresidents by 7.7 percent each year.  So the benefits of Section 936, to the extent that they helped grow Puerto Rico’s economy, were primarily felt by the investors, not by the residents of the Island.”

“These tax credits were repealed in 1995 and expired at the end of 2005.  A GAO report in 1997 concluded that things were going well for Puerto Rico overall, and found no evidence that the end of Section 936 had been harmful to Puerto Rico’s economy. (NOTE: The Puerto Rican economy started unraveling in 2006, just after  Section 936 ended.)


The CDC has identified Puerto Rico as an affected area of the Zika outbreak. Pregnant women are advised to be cautious as the virus can lead to birth defects. Adults affected by the virus experience fever, rash, joint pain, and conjunctivitis (red eyes) typically lasting a week. You can learn more by visiting the official CDC website

 El Yunque Rain Forest
El Yunque Rain Forest


Since 2013, there has been a 449% increase in the island’s power outages. One recent widespread outage lasted for about 2 days. The power outages are attributed due to lack of maintenance and no funds to update its power grid. 


In my prior blog, I made the suggestion that the 1917 Jones Act which limits trade outside the U’S., should be repealed as our legislators did for the Virgin Islands. The 4/17/16 Harvard Economics Review writers proffered the concept of converting Puerto Rico into an enterprise zone (A modified version of the repealed 936 Section). They tell how the idea of an enterprise zone roughly translates to lower corporate tax rates, lower personal tax rates, and zero capital gains taxes in specific, delineated regions. This could be linked to Hillary Clinton’s plan to partner with regions to do research and produce products that rely on clean energy. With Puerto Rico’s easy access to ample sunshine and breezes, it would be the perfect model.

My Thoughts

Puerto Ricans are taxpaying U.S. citizens who deserve more consideration than they have been receiving from our U.S. legislators. I want both the presidential candidates, the democrat nominee, Hillary Clinton and the republican nominee, Donald Trump to be asked about what ideas they have for revitalizing the Puerto Rican economy beyond the austerity measures offered by the recently passed PROMESA Bill. I would like to know what their stances are on repealing the 1917 Jones Act.

As per Wikipedia, “Though the Commonwealth government has its own tax laws, Puerto Ricans are required to pay most US federal taxes, with the major exception being that most residents do not have to pay the federal personal income tax. In 2009, Puerto Rico paid $3.742 billion into the US Treasury.


Here’s How PROMESA Aims to Tackle Puerto Rico’s Debt – NBC News Jun 30, 2016 – President Barack Obama signed into law …PROMESA, to help Puerto Rico restructure its crushing debt…

Everything You Wanted to Know About the Puerto Rican Debt Crisis ……/puertoricos-debt-crisis-what-you-need-to-know….New York Magazine /May 3, 2016 –


  1. Gronda, thanks for the very useful summation. It is not unusual for measures to have unintended consequences. Our Puerto Rican citizens defer more than we have given them. Keith

    Liked by 1 person

    • Dear Keith,

      It is surprising that this major story has not received the media coverage, it deserves. Austerity measures are not helpful when in this instance, the unemployment rate is in the double digits and Housing prices are diving. Over 440,000 have moved to the mainland.(About 400.000 have moved to Florida.)

      According to latest census data:Puerto Rico has become a poor country, that is more dependent, with more disabled people. The working age population is now the minority, their participation in the labor market is minimal and they are less educated. About 46% of the population lives in poverty.

      It is my opinion that more than what is in the RROMESA Bill needs to be done to turn PR around for the better, financially.

      Ciao, Gronda


      • Gronda, our Congress’ having to be shamed into acting is inexcusable. We let our PR citizens suffer in more ways than one. People despise Congress, yet we keep voting them back in. Keith

        Liked by 1 person

        • Dear Keith.

          Too many in the US congress are placing political expediency before doing what is right for American citizens. This includes their refusal to proceed in the confirmation process for the ninth supreme court justice; doing a better job to help Puerto Rico’s struggling economy; or the VA omnibus bill which has been languishing in the congress since May, 2016, after it was voted out of the Senate Veterans’ Committee on a bipartisan basis.

          Ciao, Gronda


  2. Good information … much of which I was not aware. The lack of media coverage is probably due to the election which seems to gobble all the media attention these days, but this is definitely an important concern. Thanks for the info!


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