More than a decade after Puerto Rico’s worst economic crisis began, high taxes, recurring fiscal deficits, and a challenging business climate continue to affect the island’s freedom potential and economic growth. Centro para Renovación Económica, Crecimiento y Excelencia (CRECE) recently released Puerto Rico Economic Freedom Index, a report on economic freedom in the commonwealth. Upon completion of the study, CRECE determined that Puerto Rico has a moderate level of economic freedom, but still lags behind the mainland U.S. and other Caribbean countries.
“Jurisdictions with a higher level of economic freedom have a better quality of life and higher per capita income,” says CRECE’s founder Gov. Luis Fortuño. “This is what we all want for our children. This index is a valuable and practical tool to measure the strengths and weaknesses of our economy. It provides us with a clear picture to determine the areas of opportunity to achieve sustainable economic growth.”
CRECE’s Index assigned a score of 61/100 to Puerto Rico, which is lower than the regional average but close to the global average. The index measures the capability for a country to generate economic activity, and this particular score signals that the economy is currently in a state of transition. CRECE notes that the limited size of the private sector, government and pension deficits, low labor participation rates, population decline, the high cost of energy, and the collapse of the mortgage market all serve to restrict Puerto Rico’s economy.
While the island’s rating is on par with the global average of 61, it still lags behind most Caribbean countries. According to the report, structural reforms in the areas of tax, fiscal, welfare, and labor are potential areas that could yield meaningful improvements in Puerto Rico’s economy.
“The report can lead to meaningful policy change because it provides a roadmap with specific areas for improvement,” said CRECE director Teresita Nolla. “For example, implementing reform to cut red tape and to optimize the use of technology in government could positively and rapidly impact Puerto Rico’s score, increasing its economic freedom.”
Economic freedom is linked with a healthy economy, and CRECE’s report highlights areas where Puerto Rico is still struggling and provides valuable insight into the shortcomings of this often-overlooked U.S. territory.
For CRECE, the Index highlights the first step in achieving economic liberalization. The organization intends to conduct an additional in-depth analysis of those areas that need urgent attention to provide additional perspectives and solutions. “This report is an important step to provide a useful context of Puerto Rico’s current economic environment, says Nolla. “We are eager to work with think tanks in the US and around the world to study Puerto Rico’s case and to develop pro-market solutions that foster economic growth.”
Read the full report here