Today, August 3, 2015, Puerto Rico failed to make a $58 million dollar payment on its debt. See here. The defaulting commonwealth is some $70 BILLION in debt.
But just a few years ago, Puerto Rico was on a path to economic growth and dynamism. Puerto Rican voters elected Luiz Fortuno as their governor in 2008. According to the Wall Street Journal, Fortuno “slashed 38,000 government jobs, helping shrink the government by 20%. Then he cut income-tax rates by half and corporate-tax rates by nearly a third.”
The economy improved rapidly, and Puerto Rico came close to retiring its debt. According to the WSJ in 2012:
In many respects, the governor’s plan appears to be working in Puerto Rico. He lowered the deficit to $660 million from $3.3 billion, avoiding a fiscal meltdown. He reduced government employment on the island where one in three people worked in the public sector. New corporate-tax rates are leading to a minor boom for investment in some sectors like pharmaceutical manufacturing and export services. All told, three decades of economic stagnation on the island could be ending, with Puerto Rico’s economy set to grow 2% this year—its first gain in years.
But the forces of government power rebelled against Fortuno. There were demonstrations outside his office. Fortuno lost the next election in 2012.
Fortuno’s successor, Governor Alejandro Garcia Padilla, increased spending and raised taxes. Entrepreneurs and hard workers stopped working so many hours, or fled. Now Puerto Rico can’t pay its $70 billion debt.
