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Puerto Rico’s Bad-Governance Limbo

From Hurricane Maria in 2017 to Fiona in 2022, natural disasters have compounded the effects of gross economic mismanagement in Puerto Rico. Behind these failures is the unique and problematic relationship between US federal policies and Puerto Rico’s own economic decision-making.

WASHINGTON, DC – Puerto Rico is part of the United States, but it is not a state. It is a territory (and a commonwealth) with its own constitution, approved by the US Congress. The island is subject to federal law, the US dollar is its currency, and Puerto Ricans are US citizens, though they cannot vote in federal elections and do not have a voting representative in Congress. There are also differences between the mainland and the island when it comes to federal benefit entitlements, income-tax treatment, business regulations, and other measures.

Puerto Rico’s links with the mainland are important. US citizenship enables free movement of people to and from the mainland, and the dollar and US law clearly have value. In 2020, Puerto Rico’s per capita income was $31,430 – well below the US average of $69,300 but far above most Latin American countries.

Puerto Rico’s economy has, however, done poorly over the past two decades, and its per capita income is estimated to have fallen by about 12% in real (inflation-adjusted) terms between 2004 and 2020. Its population has shrunk as many have migrated to the mainland. The commonwealth was already bankrupt in 2015, before Hurricanes Maria (2017) and Fiona (2022) devastated the island. These natural disasters compounded the effects of gross economic mismanagement, which largely reflects the interaction between US federal policies and Puerto Rico’s own policies.