Crisis in Puerto Rico!
With Puerto Rico’s economy already experiencing mounting problems, the effect of Hurricane Maria striking the island last month proved catastrophic in influencing the lives of the population and eliminating rumours of a quick recovery.
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With a population of 3.411 million individuals and an area of 9,000km squared, Puerto Rico’s economic competitiveness has been questioned for numerous decades. The nation has almost continually been in a recession for over 10 years, partly due to the declining population in the country, where demographic statistics have fallen by more than 10% since a peak of 3.8 million people in 2004.
The economic problems were exacerbated by the net emigration of 64,000 individuals to the USA in 2015, limiting the potential to maximise output in the nation and being a process of recovery and significant growth. Puerto Rico is recognised as the poorest US-owned ‘state’; its median income is a mere 19,350 USD and unemployment has reached as high as 10%, both of which contribute to conservative views on expenditure and consumption in the economy, limiting possibilities of future growth.
The hurricane brought an already struggling Puerto Rico to its knees when it reached the island last month, complicating and prohibiting prospects of a potential economic recovery. Average wind speeds of 123 mph accelerated across the nation, leaving Puerto Rico without power for months until access to electricity could be restored. ½ of the population are estimated to be without an adequate supply of fresh water, having the effect off intensifying the poor GDP growth in the nation.
This is due to people physically being incapable to work (due to diseases obtained from contaminated water supplies) creating a negative multiplier effect across the already devastated country, where employment levels plummet and consumption reaches a standstill, partly due to a lack of income as well as shops and services capsizing under the strength of the storm.
Effects on the economy of Puerto Rico
It has been calculated that Hurricane Maria could lower Puerto Rican incomes (GDP per capita) by 21% over the next 15 years due to limited employment prospects from the devastation arisen from the hurricane. Puerto Rico’s debt will be worsened from its current state. With about $74 billion in bond debt and another $49 billion in unfunded pension obligations, the island filed for a form of bankruptcy in May of this year, the largest restructuring in history for a US state or owned territory.
The hurricane could potentially see government borrowing implode in order to compensate for the loss of homes and buildings as a result of the devastation caused. Insured losses in Puerto Rico are estimated at $40bn-$85bn, prompting the question as to whether the USA are willing to cover the full costs of damage, which seems unlikely through Trumps statement “much of the Island was destroyed, with billions of dollars… owed to Wall Street and the banks which sadly, must be dealt with”, bringing concerns as to whether Puerto Rico can recover from this devastating episode.
Future prospects for Puerto Rico look poor, but will they be able to rally together with other nations to revitalise society and recover from the economic crisis that Hurricane Maria has brought upon them? Perhaps focussing on bringing the country out of their decade-long recession before repaying their high levels of debt would enable the country to develop and to quickly improve the standard of living which the population has missed out on for several years.