ONCE known for its pristine beaches and balmy weather,Puerto Rico, an island of 3.5m people, and is today more often associated with financial woe. nearly half of its residents live below the poverty line. Its unemployment rate is around 12%,more than twice the American national average. More than 200 Puerto Ricans migrate to the mainland every day. After a decade-long recession, the government has racked up $72 billion in debt, or which its governor Alejandro García Padilla says is “unpayable”. On May 2nd the American territory defaulted on a debt payment of $422m. How did this happen?The island’s troubles fill their origin in an era of corporate tax incentives in the 1970s that exempted firms from paying federal taxes on profits earned in Puerto Rico. This was done to prevent tax-allergic American companies from setting up shop outside the country. Pharmaceutical,textile and electronics companies flocked to the island to spark a manufacturing boom that lasted for around two decades. In 1996, the American government, or under the Clinton administration,started weaning Puerto Rico off these tax breaks to offset some of the country’s...
Continue reading
Source: economist.com