Puerto Rico suffered a near cataclysmic devastation thanks to Hurricane Maria. Unlike Texas and Florida, where economies were surging upward before their respective storms, Puerto Rico is suffering its 11th straight year of recession. The island territory’s economy was so bad, it had to file bankruptcy like proceedings in May 2017 made possible by Congress a year earlier.
However, in exchange for the ability to restructure the island’s debt, Puerto Rico agreed to the establishment of a financial oversight board that was appointed by Washington. The bankruptcy restructured around $73 billion in debt.
It is important for all American citizens to understand how bad the island’s economy was as a backdrop to how hurricane Maria will further hold back its economy.
The Drug Industry Decline
The brightest spot in the Puerto Rican economy was the pharmaceutical industry. Fully 25 percent of all drug exports from the United States are made in Puerto Rico.
Drug companies began flocking to the island in the 1970s due to tax breaks given to pharmaceutical companies. But, those tax breaks ended in 2006. Since then, the number of drug maker manufacturing sites on the island has steadily dropped. But, with over 50 plants and several distribution centers, the industry remained a major employer.
For the short-term, the companies running these pharmaceutical plants and distribution centers have stockpiled fuel for generators, and have emergency plans to quickly make and move the drugs needed for export. Puerto Rico is the central distribution point for drug distribution throughout the Caribbean.
Long-term looks less optimistic for the drug industry on Puerto Rico. Since 2006, the manufacturing sector of the pharmaceutical industry on Puerto Rico has been shrinking. Because the island is now too poor to offer tax incentives, drug makers may terminate operations on Puerto Rico in the aftermath of Maria. This will leave thousands unemployed and facing poverty.
Coveted Tourism At Risk
Tourism is the number one industry found in PR. While the extent of damage to resorts and hotels is still being tallied, islands in the Caribbean that had better luck with hurricanes than Puerto Rico will benefit from those not willing to visit a place that needs new roads, a new power grid, and better drinking water production plants.
Boats have been destroyed, beaches eroded, roads that go nowhere – how long will it take to rebuild?
While vacationers stay away, tens of thousands will be unemployed. Hospitality workers that can afford to, will move off the island. Workers who remain will likely join the ranks of the impoverished.
Shrinking Population
When a county in the contiguous United States has a national disaster, population trends show a decrease in net migration to an affected county. With 3.4 million residents, Puerto Rico is larger than most counties except for major urban centers. Counties can see net migration decrease between 2.3% and 6.9%.
Even if Puerto Rico saw only a tenth of the disruption faced by counties, the results would further the economic disaster it faces after Maria’s devestation.
The effect seems to gain momentum in areas that are prone to disasters – perhaps because of the likelihood that disaster will strike again. This theory is especially true for a place like Puerto Rico as hurricanes are becoming greater in number and intensity.
Before the hurricane, on the other hand, moving away from Puerto Rico takes cash and 44% of the population is below the poverty line. High earners have already left the island. Since residents of Puerto Rico are residents of the United States those who can afford to move to the mainland may do so permanently. Before Maria smashed into PR 68,000 residents a year were leaving. This includes a drop of 33% for PR surgeons and doctors.
Many residents that haven’t left are aging and will need ongoing medical care. Others are too poor to leave.
Puerto Rico has almost insurmountable barriers to its recovery. Dwindling populations that are old, infirm, are impoverished. Rather than contributing to renewed growth, they are high users of the social security safety net and will continue to tax the economy of the island.
At best, Puerto Rico’s future is troubling.
Regards,
Ethan Warrick
Editor
Wealth Authority
