Economy of Puerto Rico

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United States rule

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In the early 20th century the greatest contributor to Puerto Rico's economy was agriculture and its main crop was sugar, displacing other cash crops such as tobacco, cocoa, and coffee. In 1935,

Economic conditions had improved since the

With the signing of the North American Free Trade Agreement and the Dominican Republic–Central America Free Trade Agreement, Puerto Rico lost a trade advantage over some Latin American countries as the right to duty-free imports to the U.S. market were expanded. Following the Fair Minimum Wage Act of 2007, Puerto Rico is also subject to the minimum wage laws of the United States, which gives lower-wage countries such as Mexico and the Dominican Republic an economic advantage in the Caribbean.^[29] Once the beneficiary of special tax treatment from the U.S. government, today local industries must compete with those in more economically depressed parts of the world where wages are not subject to U.S. minimum wage legislation. In recent years, some U.S. and foreign owned factories have moved to lower wage countries in Latin America and Asia. Puerto Rico is subject to U.S. trade laws and restrictions.

Also, starting around 1950, there was extensive migration from Puerto Rico to the

On 1 May 2006, the Puerto Rican government faced significant shortages in cash flows, which forced the closure of the local Department of Education and 42 other government agencies. All 1,536 public schools closed, and 95,762 people were furloughed in the first-ever partial shutdown of the government in the island's history.^[32] On 10 May 2006, the budget crisis was resolved with a new tax reform agreement so that all government employees could return to work. On 15 November 2006, a 5.5% sales tax was implemented. Municipalities are required by law to apply a municipal sales tax of 1.5% bringing the total sales tax to 7%.^[33]

The public debt of Puerto Rico has grown at a faster pace than the growth of its economy, reaching $46.7 billion in 2008.^[34] In January 2009, Luis Fortuño enacted several measures aimed at eliminating the government's $3.3 billion deficit,^[35] including laying off 12,505^[36] government employees. Puerto Rico's unemployment rate was 15.9 percent in January 2010.^[37] Some analysts said they expect the government's layoffs to propel that rate to 17 percent.^[38]

In November 2010, Gov. Fortuño proposed a tax reform plan that would be implemented in a six-year period, retroactive to 1 January 2010. The first phase, applicable to year 2010, reduces taxes to all individual taxpayers by 7–15%. By year 2016, average relief for individual taxpayers will represent a 50% tax cut and a 30% cut for corporate taxpayers, whose tax rate will be lowered from 41 to 30%.^[39]

At the same time, the latest report by the President Task Force on Puerto Rico Status recognizes that the status question and the economy are intimately linked. Many participants in the forums conducted by the Task Force argued that uncertainty about status is holding Puerto Rico back in economic areas. And although there are a number of economic actions that should be taken immediately or in the short term, regardless of the ultimate outcome of the status question, identifying the most effective means of assisting the Puerto Rican economy depends on resolving the ultimate question of status. In short, the long-term economic well-being of Puerto Rico would be dramatically improved by an early decision on the status question.^[40]

During

In June 2013, a $300 million US Medicaid payment to Puerto Rico was delayed because the Puerto Rican Government had changed their nationally sponsored insurance carrier without obtaining approval from the US Health and Human Services Department. This one of several troubling economic developments, including high debt to population ratios that have caused consternation in the US municipal bond market.^[citation needed]

Puerto Rico has been experiencing an

• 
  Puerto Rico's Economic Activity Index for FY 2005–2013 evidences its depression.
• 
  Puerto Rico's month-over-month Economic Activity Index for FY2013 evidences its sluggishness and decline.

By mid January 2017, the debt had reached $70 billion or $12,000 per capita in a territory with a 45 percent poverty rate and double digit unemployment that is more than twice the mainland U.S. average.^[20] It is essential for Puerto Rico to reach restructuring deals with creditors to avoid a bankruptcy-like process under PROMESA.^[22] In late January, the federal control board gave the Government of Puerto Rico until 28 February to present a fiscal plan (including negotiations with creditors) to solve the problems. A moratorium on lawsuits by debtors was extended to 31 May.^[21]

Governor

A review of the economic situation in May 2017 by the Official Monetary and Financial Institutions Forum, an independent think tank, led to a warning that the planned "draconian budget-tightening" would cut up to 6% of the island's GNP over the next four years, leading to continuing decline. "Puerto Rico urgently needs an International Monetary Fund-style programme involving debt relief in return for a commitment to far-reaching reforms ... that will facilitate growth", the group concluded.[47]

Then Hurricane Maria struck the island on 20 September 2017, destroying infrastructure, causing great loss of life, and leading to a large exodus of residents. The 2020 census showed the population of Puerto Rico dropping by 11.8%.^[48]

In August 2023, Governor Pedro Pierluisi floats a proposed resolution that would extend many of the benefits of Act 22 to all Puerto Ricans, but it risks being rejected by the U.S. Congress as part of the bankruptcy of the Commonwealth of Puerto Rico. The only merit of this proposal is that it would correct a fundamental inequity in the tax code.^[49]

Sectors

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The economy of Puerto Rico is mainly driven by manufacturing, primarily pharmaceuticals, textiles, petrochemicals, and electronics; followed by the service industry, primarily finance, insurance, real estate, and tourism.

Primary sector

Agriculture

Agriculture constitutes about US$808 million or about 0.8% of the island's gross domestic product (GDP).^[50] However, Puerto Rico imports 85% of its food even though most of the land is fertile. Only a mere 6% is arable; a fact that poses a direct threat to Puerto Rico's food security.^[51][52] This perplexing situation has been caused due to a shift in priorities towards industrialization, bureaucratization, mismanagement of terrains, lack of alternative methods, and a deficient agricultural workforce. Puerto Rico's geographical location within the Caribbean exacerbates these issues, making the scarce existing crops vulnerable to the devastating effects of Atlantic hurricanes.

The following fruits are industrially cultivated and widely consumed:^[53]

Apples (manzanas), bananas (guineos), grapes (uvas), oranges (chinas), and watermelons (melones) are imported, as well as some of the aforementioned cultivated fruits.

Grains cultivated industrially and widely consumed include

Recent studies have suggested there is a lack of young farmers and that 65% of the island's agriculture force is over 55 years of age. The decrease in new farmers will have significant negative effects on the island.^[dubious – discuss]

Manufacturing is the largest

In terms of specialization, more than half of all manufacturing done in Puerto Rico is attributed to the pharmaceutical industry which generates more than 18,000 jobs, pays more than US$3 billion in taxes, comprise about half of total exports, and has generated more than 25% of the island's GDP for the past four decades.[63] Comparatively, Puerto Rico is the fifth largest area in the world for pharmaceutical manufacturing with more than 80 plants, including:

Puerto Rico is also the third-largest biotechnology manufacturer with more than two million square feet and the seventh-largest medical-device exporter with more than 50 plants. Pharmaceutical companies originally came to Puerto Rico in the late 1960s and 1970s to take advantage of the now-expired federal tax incentive known as Section 936. This incentive allowed U.S.-based manufacturers to send all profits from local plants to stateside parent plants without having to pay any federal taxes. However, expired patents, cheaper manufacturers (such as those in Brazil, China, India, and South Korea), the rise of generic drugs, and high production costs pose a challenge to the industry.^[63] As of 2014^[update], Puerto Rico produces 16 of the top 20-selling drugs in the mainland United States.^[64]

The aeronautical industry is relatively young on the island and concentrates mostly on the northwestern corridor composed by

The

Tourism is an important component of the Puerto Rican economy supplying an approximate US$1.8 billion per year. In 1999, an estimated five million tourists visited the island, most from the United States. Nearly a third of these were cruise ship passengers. An increase in hotel registrations, which has been observed since 1998, and the construction of new hotels and the Puerto Rico Convention Center are indicators of the current strength of the tourism industry. In 2009, tourism accounted for nearly 7% of the islands' gross national product.^[68]

The following includes some public and private projects aimed at increasing the tourism industry in Puerto Rico:

The gambling sector is also important to the economy (employing 3,409 people, 2017 ^[69]), and it encompasses 20 casinos all attached to hotels and resorts acting as tourist destinations. This is mandatory, according to Laws of Puerto Rico, casinos must be attached to hotels and resorts, and must be located within "zonas históricas, antiguas o de interés turístico" – historically important zones of tourism.^[70] There is a significant and growing Chinese presence in the Puerto Rico gambling sector, so far 10% of the casinos are owned by Chinese individuals or companies, and more are partially owned.^[71] In 2019, contribution of travel and tourism to GDP (% of GDP) for Puerto Rico was 6.9%.^[72] However, the exact contribution of the gambling sector within the tourism and travel sector is not measured separately by the government.

Trade

As an unincorporated territory of the United States, travel and trade between Puerto Rico and either the U.S. mainland or other U.S. territories are not subject to international border controls. However, all goods moving from Puerto Rico to the U.S. mainland are subject to agricultural inspection controls by the

Mail bound for the mainland from Puerto Rico and Hawaii is subject to USDA inspection for quarantined plant matter.[74]

Puerto Rico may collect import duties only to the same degree it taxes the same goods produced domestically.^[75]

Puerto Rico receives cross-over subsidies, which generated approximately $371 million in 2008.^[76]

Puerto Rico's Imports and Exports from 2005 to 2013 (in millions)^[77]

Year	Imports	Change	Exports	Change	Balance	Ratio	Total	Change
2005	$41,911	9.5%	$56,995	3.5%	$15,084	15.25%	$ 98,905	6.0%
2006	$43,858	4.6%	$59,404	4.2%	$15,546	15.05%	$103,262	4.4%
2007	$44,917	2.4%	$62,558	5.3%	$17,641	16.41%	$107,474	4.1%
2008	$43,422	-3.3%	$63,800	2.0%	$20,378	19.01%	$107,223	-0.2%
2009	$40,113	-7.6%	$59,726	-6.4%	$19,613	19.64%	$ 99,840	-6.9%
2010	$41,429	3.3%	$68,555	14.8%	$27,126	24.66%	$109,984	10.2%
2011	$47,031	13.5%	$57,616	-16.0%	$10,585	10.12%	$104,647	-4.9%
2012	$46,067	-2.1%	$58,805	2.1%	$12,738	12.15%	$104,871	0.2%
2013	$43,805	-4.9%	$61,920	5.3%	$18,115	17.13%	$105,726	0.8%

Similar to other states of the union, Puerto Rico is subject to trade agreements signed by the United States. As an unincorporated territory, the commonwealth is restricted from joining

Organizations to which Puerto Rico belongs under consent by the United States

Name	Abbreviation	Category	Status
Caribbean Community	CARICOM	regional	observer
Caribbean Tourism Organization	CTO	tourism	observer
Organization of American States	OAS	continental	observer
United Nations Economic Commission for Latin America and the Caribbean	ECLAC	regional	associate member[k]

Countries with whom Puerto Rico can freely engage in trade without diplomatic restrictions

Country	Region	Agreement	Established trade promotion office in foreign country[79]
Australia	Oceania	AUSFTA	No
Bahrain	Western Asia	USBFTA	No
Canada	North America	NAFTA	No
Chile	South America	ChFTA	No
Colombia	South America	CFTA	Yes
Costa Rica	Central America	CAFTA	No
Dominican Republic	Caribbean	CAFTA	Yes
El Salvador	Central America	CAFTA	No
Guatemala	Central America	CAFTA	No
Honduras	Central America	CAFTA	No
Israel	Western Asia	USIFTA	No
Jordan	Western Asia	USJFTA	No
Mexico	North America	NAFTA	No
Morocco	North Africa	USMFTA	No
Nicaragua	Central America	CAFTA	No
Oman	Western Asia	OFTA	No
Panama	Central America	PTPA	Yes
Peru	South America	USPTPA	Yes
Singapore	Southeast Asia	USSFTA	No
South Korea	East Asia	KFTA	No
United States	North America	NAFTA	Yes

Quaternary sector

The following table shows the main economic indicators in 1980–2021 (with IMF staff estimtates in 2022–2027). Inflation below 5% is in green.[82]

Year	GDP (in Bil. US$PPP)	GDP per capita (in US$ PPP)	GDP (in Bil. US$nominal)	GDP per capita (in US$ nominal)	GDP growth (real)	Inflation rate (in Percent)	Unemployment (in Percent)	Government debt (in % of GDP)
1980	22.2	6,926.1	14.4	4,507.2	n/a	n/a	17.1%	n/a
1981	24.5	7,599.8	16.0	4,940.8	1.1%	9.5%	19.8%	n/a
1982	25.3	7,756.6	16.8	5,146.9	-3.0%	3.2%	22.8%	n/a
1983	26.4	8,026.3	17.3	5,257.2	0.5%	0.3%	23.4%	n/a
1984	29.3	8,842.5	19.2	5,777.4	7.3%	1.7%	20.7%	n/a
1985	30.9	9,221.0	20.3	6,058.6	2.1%	0.2%	21.8%	n/a
1986	34.1	10,074.0	22.0	6,495.5	8.2%	-0.2%	18.9%	n/a
1987	36.6	10,719.7	23.9	6,987.4	4.9%	2.1%	16.8%	n/a
1988	40.4	11,694.6	26.2	7,579.3	6.5%	2.6%	15.0%	n/a
1989	44.1	12,613.9	28.3	8,094.3	4.9%	2.8%	14.6%	n/a
1990	47.4	13,444.4	30.6	8,675.6	3.8%	4.4%	14.2%	n/a
1991	50.2	14,127.4	32.3	9,093.5	2.3%	2.2%	16.0%	n/a
1992	53.6	15,006.5	34.6	9,687.4	4.6%	1.5%	16.7%	n/a
1993	57.5	15,961.9	36.9	10,255.5	4.6%	1.0%	17.0%	n/a
1994	61.2	16,859.8	39.7	10,942.9	4.2%	1.4%	14.6%	n/a
1995	65.3	17,857.8	42.6	11,667.6	4.5%	1.9%	13.7%	n/a
1996	68.0	18,456.3	45.3	12,305.0	2.3%	3.3%	13.4%	n/a
1997	72.6	19,526.6	48.2	12,968.4	4.9%	1.9%	13.5%	n/a
1998	78.2	20,851.5	54.1	14,430.2	6.5%	0.1%	13.3%	n/a
1999	82.8	21,879.9	57.8	15,293.2	4.4%	0.7%	11.7%	n/a
2000	87.4	22,935.2	61.7	16,192.1	3.3%	3.1%	10.1%	n/a
2001	97.8	25,617.3	69.7	18,243.7	9.5%	0.6%	11.4%	n/a
2002	101.5	26,547.0	72.5	18,972.8	2.2%	0.2%	12.3%	n/a
2003	105.9	27,687.4	75.8	19,820.2	2.3%	1.4%	12.0%	n/a
2004	110.9	28,989.6	80.3	20,989.0	2.0%	2.5%	10.6%	n/a
2005	112.1	29,346.9	83.9	21,959.3	-2.0%	5.6%	11.3%	n/a
2006	114.0	29,952.6	87.3	22,936.0	-1.4%	5.2%	10.5%	33.4%
2007	115.7	30,583.1	89.5	23,664.9	-1.2%	4.2%	11.2%	36.9%
2008	115.7	30,774.7	93.6	24,898.3	-1.8%	5.2%	11.8%	40.8%
2009	114.2	30,533.3	96.4	25,768.7	-2.0%	0.3%	15.3%	46.5%
2010	115.1	30,928.8	98.4	26,435.7	-0.4%	2.5%	16.4%	48.3%
2011	117.1	31,824.1	100.4	27,278.9	-0.4%	2.9%	15.9%	50.0%
2012	118.4	32,582.6	101.6	27,944.7	0.0%	1.3%	14.5%	53.7%
2013	119.2	33,172.7	102.5	28,513.2	-0.3%	1.1%	14.3%	52.3%
2014	119.1	33,682.7	102.4	28,981.3	-1.2%	0.6%	13.9%	54.5%
2015	118.1	34,006.7	103.4	29,755.4	-1.0%	-0.8%	12.0%	52.7%
2016	117.0	34,300.2	104.3	30,585.6	-1.3%	-0.3%	11.8%	49.9%
2017	114.3	34,627.2	103.4	31,347.3	-2.9%	1.8%	10.8%	51.2%
2018	112.1	35,044.5	104.9	32,789.1	-4.2%	1.3%	9.2%	50.4%
2019	115.8	36,201.4	104.9	32,785.9	1.5%	0.1%	8.3%	48.9%
2020	112.7	35,660.3	103.1	32,645.4	-3.9%	-0.5%	8.9%	50.2%
2021	120.5	38,608.2	108.5	34,751.9	2.7%	2.4%	7.9%	47.9%
2022	135.3	43,820.1	118.7	38,442.9	4.8%	4.4%	6.0%	16.0%
2023	140.7	46,023.1	123.4	40,360.2	0.4%	3.5%	7.9%	14.8%
2024	141.3	46,704.0	124.3	41,074.4	-1.6%	2.4%	8.8%	14.2%
2025	142.5	47,572.0	126.0	42,075.9	-1.0%	2.4%	8.9%	13.5%
2026	144.5	48,722.5	128.5	43,316.9	-0.5%	2.4%	9.0%	12.8%
2027	147.3	50,167.0	131.4	44,769.6	0.0%	2.3%	9.0%	12.0%

Infrastructure

Puerto Rico has a modern infrastructure and an institutional framework guided by the regulations of U.S. federal agencies, most of which have an active and continued presence in the island. For most intents and purposes, Puerto Rico is treated as if it were a state of the United States, despite not being one. Virtually all federal laws apply on the island, save a few exceptions, including a strong and robust protection for intellectual property and contracts.

Education

Preschool education, care, and services (including

There is a plethora of junior colleges on the island, the most prominent being the Huertas College, the ICPR Junior College, the Instituto de Banca y Comercio, and the National University College (NUC). There is only one state-run system, the Puerto Rico Technological Institute, which possesses several prestigious programs at the local level and whose costs are significantly below market prices. Thanks to this abundance of junior colleges—and the presence of other institutions of higher education— the percentage of Puerto Ricans with bachelor's degrees, at 18.3% according to the 2000 Census, is roughly comparable to the lower tier of American states.

Not a single

The University of Puerto Rico is considered one of the most elite secondary schools on the island, and within the Caribbean:^[citation needed]

The system, however, is highly politicized with its

Almost all junior colleges, colleges, universities, and schools are accredited by the Middle States Association of Colleges and Schools. Specific programs tend to possess their respective accreditation as well (such as ABET, AACSB, LCME, and so on) although it is not uncommon for programs to not possess its expected accreditation—for example, only two business schools are accredited by AACSB.

Energy, water, and public utilities

Puerto Rico does not have any coal, natural gas, nor oil reserves^[85] so it must import all its fuel in order to produce energy. The Puerto Rico Electric Power Authority (PREPA), a government-owned corporation, produces 70% of all energy in Puerto Rico through several power plants dependent on fossil fuels. 58% of PREPA's budget goes directly to these costs. Additional indirect costs of imported fossil fuels are paid through power purchase agreements for the 30% of the country's energy produced through private companies dependent on fossil fuels. To meet energy demands, Puerto Rico must import oil at a rate of 8.0 billion kWh and about 1,499,196 km3 of natural gas per year as well as a very large amount of coal.

Perplexingly, less than 3% of all energy is produced through renewable energy even though Puerto Rico enjoys more than 65% sunny hours per day in average and 19-knot (22 mph; 35 km/h) winds year round. The island could also generate all its energy through hydroelectric dams thanks to its local geography which features many rivers but it has opted to leave that industry behind. Public policy has also opted not to pursue nuclear power either. Biofuel, biomass, geothermal energy, wave power and tidal power are still in its infant stages although there are some microbusinesses providing energy from those sources or performing research on the subject. The Puerto Rican government has made plans to reduce dependency on costly imported fossil fuels,^[85] but lacks funds to make more than modest progress.

As a result, Puerto Ricans pay 26¢ per kilowatt per hour of electricity, compared to an average of 11 to 12 cents or less across the United States.^[l] This places Puerto Rico at an enormous disadvantage when compared to other states that produce electric power at less than half of Puerto Rico's price.^[l][87] Electric utility costs ultimately create a ripple effect on the economy as it adds to the cost of living and the cost of doing business.^[m] For example, 20% of Bacardi's expenses on the island come from electricity, while the company that owns all Wendy's, Applebee's, and LongHorn Steakhouse on the island has simply opted to keep the lights and air conditioning off in certain areas when employees arrive.^[n][o]

The

In 2023, the Washington Post reported on elevated death rates in Puerto Rico as a result of its "crumbling healthcare system".[89]

The system meets the regulations of the

Shipping cargo is expensive,^[citation needed] as Puerto Rico is restricted to using the United States Merchant Marine when shipping from and to the United States, as per the Merchant Marine Act of 1920 (the Jones Act).

Security

Local security is overseen by the

Telecommunications meet the regulations of the

Submarine communications cables landing in Puerto Rico include ARCOS-1, Americas II, and ANTILLAS I.

Transportation

Cities and towns in Puerto Rico are interconnected by a system of roads,

Puerto Rico does not have any comparative advantages in international markets but has a few at the U.S. national level.[p] Its high costs of doing business are the primary factor, amongst many, that hinder the island from competing against foreign markets. These costs are typically offset by a combination of incentives or subsidies where the government either does not collect taxes against the foreign firm, assumes capital expenditures, subsidizes workers salaries and trainings, or, more often than not, offers a combination thereof. This is the case for Lufthansa's operations in Aguadilla where the local government invested US$46 million against $20 million invested by the company, aiming at recouping the investment in the long run.^[q][r][s]

Domestically, however, several comparative advantages emerge when comparing Puerto Rico to other U.S. jurisdictions. These advantages base themselves on lower wages and beneficial legal loopholes that exist as a result of

The public debt of Puerto Rico has grown at a faster pace than the growth of its economy, reaching $46.7 billion in 2008.^[96] In January 2009, Governor Luis Fortuño enacted several measures aimed at eliminating the government's $3.3 billion deficit.^[97]

Since 2000, the government of Puerto Rico has experienced 24 consecutive

On 4 February 2014, Standard & Poor's

In early 2017, the Puerto Rican government-debt crisis posed serious problems for the government which was saddled with outstanding debt of $70 billion or $12,000 per capita^[19] at a time with a 45 percent poverty rate and 14.2% unemployment that is more than twice the mainland U.S. average.^[20][19]

The Commonwealth had been defaulting on many debts, including bonds, since 2015. Newly elected governor Ricardo Rosselló discussed the situation in an interview with the international Financial Times in mid January and indicated that he would seek an amicable resolution with creditors and also make fiscal reforms. "There will be real fiscal oversight and we are willing to sit down. We are taking steps to make bold reforms. ... What we are asking for is runway to establish these reforms and have Washington recognise that they have a role to play." He had instructed Puerto Rican government agencies to cut operating expenses by 10 percent and reduce political appointees by 20 percent.^[99] To ensure that funds would be available to pay for "essential" government services, Rosselló signed a fiscal emergency law on 28 January 2017, that would allow for setting aside funds that might otherwise be required for debt payments.^[100]

In mid January, the cash strapped government was having difficulty maintaining health care funding. "Without action before April, Puerto Rico's ability to execute contracts for Fiscal Year 2018 with its managed care organizations will be threatened, thereby putting at risk beginning July 1, 2017 the health care of up to 900,000 poor U.S. citizens living in Puerto Rico", according to a letter sent to Congress by the Secretary of the Treasury and the Secretary of Health and Human Services. They also said that "Congress must enact measures recommended by both Republicans and Democrats that fix Puerto Rico's inequitable health care financing structure and promote sustained economic growth."^[101] In late January, the federal control board created under PROMESA gave the government until 28 February to present a fiscal plan (including negotiations with creditors) to solve the problems. It is essential for Puerto Rico to reach restructuring deals to avoid a bankruptcy-like process under PROMESA.^[22] A moratorium on lawsuits by debtors was extended to 31 May.^[21]

Governor Rosselló hired investment expert Rothschild & Co in January 2017 to assist in convincing creditors to take deeper losses than they had expected on Puerto Rico's debts. The company was also exploring the possibility of convincing insurers that had guaranteed some of the bonds against default, to contribute more to the restructuring, according to reliable sources. The governor also planned to negotiate restructuring of about $9 billion of electric utility debt, a plan that could result "in a showdown with insurers". Political observers suggest that his negotiation of the electrical utility debt indicated Rosselló's intention to take a harder line with creditors. Puerto Rico has received authority from the federal government to reduce its debt with legal action and this may make creditors more willing to negotiate instead of becoming embroiled in a long and costly legal battle.^[102]

Taxation

Taxation is highly complex due to a lack of uniformity in the local internal revenue code and a disparate amount of incentives, subsidies, tax exemptions, tax breaks, and tax deductions. For example, an ordinary retail sale might have to pay: import taxes, sales taxes, property taxes, corporate net income taxes, national taxes, excise taxes, and sin taxes depending on the item being sold. Regardless of all this, American citizens that reside in Puerto Rico do not pay federal income taxes unless they work for the federal government, do business with the federal government, or send funds to the mainland United States. This peculiarity has been taken as an advantage by the local government which now offers a plethora of tax exemptions and tax benefits for high-net-worth individuals that relocate to the island. These benefits have been ratified into law through Act 20 of 2012, Act 22 of 2012, and Act 273 of 2012.^[103] Thanks to these acts, business owners residing on the island might be completely exempt from paying any local and federal taxes at all, depending on their line of business.

On 15 November 2006, the government implemented a 5.5% sales tax.^[104]

Comparatives

Business sizes

More than 99% of all businesses in Puerto Rico are considered small businesses (less than 250 employees) with more than 75% being micro-enterprises (less than 10 employees).^[105] However, in terms of payroll, small businesses constitute about 63% of all payroll on the island with about 14% of all payroll coming from medium businesses (between 250–499 employees) and about 23% coming from large enterprises (more than 500 employees).^[105]

Only 7.5% of the corporations registered in the Department of State of Puerto Rico—or about 6,000 out of 80,000—exceed $3M in revenue.^[106] Of these 6,000, a mere six compose more than 30% of all of Puerto Rico's corporate income tax collections; all six being multinationals.

Cost of living

The cost of living in Puerto Rico, specifically San Juan, is quite high compared to most major cities in the United States.^[t] One factor is housing prices which are comparable to Miami and Los Angeles, although property taxes are considerably lower than most places in the United States.^[u] Statistics used for cost of living sometimes do not take into account certain costs, such as increased travel costs for longer flights, additional shipping fees, and the loss of promotional participation opportunities for customers "outside the continental United States". While some online stores do offer free shipping on orders to Puerto Rico, many merchants exclude Hawaii, Alaska, Puerto Rico and other United States territories.

The median home value in Puerto Rico ranges from US$100,000 to $214,000, while the national median home value sits at $119,600.^[v]

Ease of doing business

Puerto Rico is considered the 40th economy out of 189 in rank of

Income

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Puerto Ricans had

In 2010 the median income in Puerto Rico was $19,370, which is just over half that of the poorest state (Mississippi, $37,838) and 37% of the nationwide average ($51,144).[115] According to the Bureau of Labor Statistics of the Department of Labor of the United States,^[116] the mean annual salary of residents of Puerto Rico is $27,190, the lowest among U.S. territories continuously surveyed periodically by the institution. Guam has the second lowest mean salary to $31,840, closely followed Mississippi, a state, with $34,770. This spread in mean wages could be explained by a minimum wage law for certain industries that are capped to 70% of the federal minimum wage of $7.25 per hour.^{[117][118][119]}

In 2017, the median income in Puerto Rico was $25,332.^[120]

Workforce

Puerto Rico's most competitive advantage lies on its labor force: a highly competitive, educated, and skilled labor force that enjoys

One of the most significant contributors to the high cost of living in Puerto Rico is the

The costs of doing business in Puerto Rico are further increased by complex labor laws that force employers to pay for several employee benefits from their own pockets.^{[128][129][130][131]} Puerto Rico also lacks at-will employment which puts significant restraints on employers when they want to dismiss an employee.

Residents of Puerto Rico are also subject to a highly complex tax system with many different exemptions and disparities between taxes.^[ae]

Inefficient government

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The political class has proven to be highly stubborn when examining existent public policies.

In terms of food production, Puerto Rico imports 85% of its food even though most of the land is fertile with only a mere 6% being arable.[51]^[52] This perplexing situation has been caused due to a shift in priorities towards industrialization, bureaucratization, mismanagement of land, lack of alternative methods, and a deficiency in the number of agricultural workforce.

Similarly, when looking at forestry, even though a study conducted more than two decades ago by the

Higher education suffers the same fate: Puerto Rico spends almost $800M per year on its state university even though none of its programs and schools appear in any prestigious ranking whatsoever^{[according to whom?]}. In addition, the system graduates about 50,000 students per year even though the labor market generates only about 6,000 jobs per year of which 25% of them require a college education.^[ah] This effectively means that the Puerto Rican labor market has no demand for 97% of those who graduate with an undergraduate or graduate degree in Puerto Rico.

The same occurs in primary education and secondary education: Puerto Rico spends almost $4 billion per year in

Similarly, salaries for government employees tend to be quite disparate when compared to the private sector and other positions within the government itself. For example, a public teacher's base salary starts at $24,000 while a legislative advisor starts at $74,000. The government has also been unable to set up a system based on meritocracy, with many employees, particularly executives and administrators, simply lacking the competencies required to perform their jobs.^[an][ao]

There was a similar situation at the municipal level with 36 out of

budget deficit, putting 46% of the municipalities in financial stress.^[148] Just like the central government, the municipalities would issue debt through the Puerto Rico Municipal Financing Agency to stabilize its finances rather than make adjustments. In total, the combined debt carried by the municipalities of Puerto Rico account for US$3.8 billion or about 5.5% of Puerto Rico's outstanding debt.^[ap][aq]

Population decline

Main article: Demographics of Puerto Rico

From 2000 to 2010, the population of Puerto Rico decreased, the first such decrease in census history for Puerto Rico; it went from 3,808,610 residents registered in 2000 to 3,725,789 in 2010 (a −2.2% decrease);^[151] it peaked at 3.91 million in 2005.^[152] A declining and aging population presents additional problems for any society as its labor force decreases and, consequently, so does its economic output.^[ar] Two years later, another estimate noted that the population of Puerto Rico decreased further to 3,667,084 residents from 1 April 2010, to 1 July 2012; a −1.6% decrease.^[153]

waves of Puerto Ricans to move to the mainland United States. This trend continued even as Puerto Rico's economy improved and its birth rate declined. In recent years, the population has declined markedly, falling nearly 1% in 2012 and an additional 1% (36,000 people) in 2013 due to a falling birthrate and emigration.^[154]

The US Census Bureau's estimate for 1 July 2016, was 3,411,307 people, down substantially from the 2010 data which had indicated 3,725,789 people.[155] As fewer people reside in Puerto Rico, the government collects less revenue from its residents. As revenues were declining in the past, the government opted to issue more outstanding debt (such as bonds) to maintain its operations rather than making adjustments. Hence, the declining - and aging - population continues to present problems for the commonwealth.

Suzerainty to the United States

Main article: Foreign and intergovernmental relations of Puerto Rico

Puerto Rico is subject to the

Territorial Clause of the Constitution of the United States

and, therefore, is restricted on how it can engage with other nations, sharing most of the opportunities and limitations that state governments have, albeit not being one. Puerto Rico is also subject to the different treaties and trade agreements ratified by the United States, as well as all other laws enacted at the federal level.

Unemployment

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Unemployment is a significant issue in Puerto Rico with the unemployment rate being as high as 11.7% in 2006. By November 2009, it stood at 12% and had increased to 15.7% by October 2010.[156] Currently the unemployment rate is at 13.7%^[157] The U.S. state with the highest unemployment in October 2007 was Michigan, at 7.7%,^[158] and the U.S. average was 4.4%.^[159]

In mid January 2017, unemployment remained in the double digits and the poverty rate was at 45 percent. By that time, the Commonwealth's debt had increased to $70 billion or $12,000 per capita.^[20][19] The debt had been increasing during a decade long recession.^[21] It is essential for Puerto Rico to reach restructuring deals to avoid a bankruptcy-like process under PROMESA.^[22]

• 
  Puerto Rico's labor force from 2005 to 2014 evidences a decline.^[160]
• 
  Puerto Rico's unemployment rate (seasonally adjusted) is significantly higher than the U.S. national average.^[160][161]
• 
  Percent population living below poverty level in Puerto Rico by census tract in 2015.

Facts & figures

• Debt - External: $70 billion (23 January 2017, 2010 est.)^[162]
• GDP
  • Purchasing power parity: $64.84 billion (2010 est.)^[11]
  • Official exchange rate: $93.52 billion (2010 est.)^[11]
  • Real growth rate: -5.8% (2010 est.)^[11]
  • Per capita: $16,300 (2010 est.)^[11]
• Inflation rate (consumer prices): 2.9% (2011 est.)^[11]
• Industrial production growth rate: NA%
• Median household income (2016 est.):^[163]
  • $19,350
• Persons living in poverty (2016 est.):^[163]
  • 46.1%
• Budget:
  • revenues: $8.1 billion Central Government, $25 billion with public corporations
  • expenditures: $9.6 billion Central Government
• Electricity
  • production: 23,720 GWh
  • consumption: 22,600 GWh
  • exports: 0 kWh
  • imports: 0 kWh (2007 est.)
• Electricity – production by source (2020):^[164]
  • Petroleum 49.5%
  • Natural gas: 29%
  • Coal: 19%
  • Renewable: 2.5%
• Agriculture – products: sugarcane, coffee,
  plantains, bananas; livestock products, chickens ^[11]
• Exports – commodities: chemicals, electronics, apparel, canned tuna, rum, beverage concentrates, medical equipment ^[11]
• Exports: $64.88 billion (2011 est.) ^[11]
• Imports – commodities: chemicals, machinery and equipment, clothing, food, fish, petroleum products^[11]
• Imports: $44.67 billion (2011 est.) ^[11]
• Sales Tax: 11.5%^[165]
  • 7% (only for prepared food)^[166]
• Labor Force: 1.286 million (March 2012)^[11]

See also

• Economy of the United States
• List of companies of Puerto Rico
• Welfare in Puerto Rico
• Public debt of Puerto Rico

Notes