The excessive spending of public institutions in Puerto Rico, combined with a crushing regulatory system, have left the territory with a struggling economy and an ongoing government debt crisis. Atlas Network partner Centro para Renovación Económica, Crecimiento y Excelencia (CRECE) is at the forefront of a new reform movement in Puerto Rico, advancing the principles of economic freedom and personal responsibility that are the key to building a new, prosperous future.
“The current economic crisis in Puerto Rico presents an opportunity to implement reforms that will help improve public services, reduce the size of government, and regenerate the local economy,” said Tere Nolla of CRECE. “With the development of economic growth policies that are based on individual freedom and prosperity and the discipline to stand by these as both short- and long term investments, Puerto Rico can emerge from a stagnant economy to a buoyant one. CRECE has been working towards educating the public about the value of free-markets and developing policies that are consistent with these principles.”
Puerto Rico’s unique status as a U.S. territory — not a full state, but not an independent country either — means that economic freedom indexes compiled by organizations like the Heritage Foundation, the Fraser Institute, and the Mercatus Center at George Mason University don’t include Puerto Rico in their rankings. The World Bank Group’s “Doing Business” report paints a stark portrait of Puerto Rico’s regulatory problems.
“For this year, the Doing Business report gave Puerto Rico a ranking of 57, one step down from its 2015 ranking,” Nolla said. “While that ranking may seem respectable when compared to the 189 economies included by the World Bank, we should underline that Puerto Rico ranks 135th in the category of ‘Dealing with Construction Permits.’ It is ranked 164th in the category of ‘Registering a Property,’ going down five points from its 2015 ranking. Further, it is ranked 134th for ‘Paying Taxes.’ These rankings are of utmost concern, as they greatly impact freedom in the Puerto Rican economy. According to the Tax Foundation, Puerto Rico has the third highest general top marginal corporate income tax rate in the world (39 percent), equal to the United States and exceeded only by Chad and the United Arab Emirates.”
In order to quantify Puerto Rico’s economic position and measure its progress over time, CRECE has developed its own Economic Freedom Index, with a methodology modeled after the annual Heritage Foundation report. The CRECE index has been widely covered by the media, including stories by El Nuevo Dia, Metro International, News Is My Business, WAPA TV, Primera Hora, Sin Comillas, and Caribbean Business.
“We view our economic freedom index as an indispensable qualitative and quantitative tool for decision makers in the public and private sectors on the island to promote economic freedom as an engine for growth,” Nolla said. “Last March, CRECE unveiled the findings of its economic freedom index in a public forum where local economists had the opportunity to react and discuss its findings before an audience composed of university students and general public. The investigation is now being shared with policymakers and private-sector leaders so that they may use it in the development of sound economic policy. It is CRECE’s goal to share its findings with the Heritage Foundation so that they may incorporate Puerto Rico in its annual index and expand the availability of credible and reliable comparative data for Puerto Rico through reputable think tanks like Heritage, the Fraser Institute, the Mercatus Center, and others.”
Focusing on quantitative measurements like these allows CRECE to identify the primary obstacles that are holding back Puerto Rico’s economy, and propose politically practical policy reforms that can be achieved without passing new legislation — and that would have an immediate impact in economic growth. CRECE’s proposals along those lines include:
- Promotion of a comprehensive tax reform that includes a revision of the tax brackets for individuals and corporations and improves the systems for collecting existing taxes.
- Revision of permit processes through executive orders. The administration can review and consolidate the application and expedition processes of permit approvals, particularly for those that apply to critical infrastructure projects such as roads, energy, and water, among others. CRECE estimates that this reform would generate between $1 to $2 billion in new investments.
- Creation of public private partnerships. These projects offer multiple benefits, including: the provision of financing for government assets, the transfer of high operation and maintenance costs to private entities, and optimized infrastructure for improved economic development.
- Reduction of the size of government. The reduction of the public sector also entails reducing government expenses, redundancies, and ongoing debt. By increasing efficiencies from approximately 10 percent to 20 percent, CRECE estimates savings of $1.3 to $2.6 billion.
CRECE was able to achieve a tremendous amount of credibility in a short time because its founder, Luis G. Fortuño, is both a former member of Congress and former governor of Puerto Rico, well known for his advocacy of free-market principles both in Puerto Rico and throughout the United States. That connection to the practical world of public policy is an invaluable component of CRECE’s strategy to achieve real, immediate, and ongoing change that can drive new economic activity and pull Puerto Rico away from its ongoing storm of fiscal crisis.
“Puerto Rico has been immersed in a decade long recession where the government has failed to adapt to the profound international changes and geopolitical realities that have transformed worldwide economies,” Nolla said. “As a society, the U.S. territory has continued to operate under paradigms that no longer work. Big government, populism, and excessive government intervention, among others, have had an adverse effect leading to the collapse of the economy. In order for Puerto Rico to compete with leading economies, it has to create the conditions so that the private sector can invest freely and generate productive economic activity. Individuals and businesses alike must be free to establish, maintain and grow successfully if Puerto Rico wants to jump-start its economy.”