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5 Causes of Poverty in Puerto Rico

Causes of Poverty in Puerto RicoWith more than $70 billion in debt and three defaulted bond payments, Puerto Rico is in a debt crisis. Almost half of the population of Puerto Rico is in poverty, according to the U.S.Census. There are five main causes of poverty in Puerto Rico.

  1. Puerto Rico’s population has fallen by 400,000 since 2004
    When Puerto Rico’s economy initially began to decline, many islanders left for the mainland U.S. as a way to make a better life for them and their families. Employment has reached 11.8 percent, which is more than twice the unemployment rate in the U.S., so many skilled workers do not see the use of staying on the island.At least one doctor leaves the island per day. The loss of skilled workers negatively affects the economy and is one of the contributing causes of poverty in Puerto Rico.
  2. Government Overspending
    The Puerto Rican government has been continuously spending more money than it collects in taxes, in part because it is not required to create a budget like the states do since it is a territory, and also due to a translating error.The error was in the 1952 constitution with a phrase that said “recursos totales” that could be translated into total revenue or total resources, and it was interpreted as total resources. This allowed the territory to have a huge range of options when it came to issuing debt to fund activities, putting it into deeper debt. National debt has increased from $43.5 billion in 2006 to more than $70 billion presently.
  3. Congress changing laws
    Although Puerto Rico is a territory, it is still under the control of the U.S. Congress, so when the Congress changes laws it can contribute to the reasons that Puerto Rico is in poverty. At one point in time, Puerto Rico was a place where many businesses wanted to because there were huge tax breaks on the island, as Puerto Rico was not required to pay federal tax. The government started phasing out the tax breaks in the late 1990s, and by 2006 the breaks were nonexistent, causing businesses to go elsewhere.
  4. No Bankruptcy rights
    Congress also took away Puerto Rico’s bankruptcy rights in the 1980s, which means that the country is not entitled to Chapter 9 bankruptcy rights like the states are. It can only declare bankruptcy with the approval of Congress, and Congress has yet to give that approval.
  5. Credit vultures
    A vulture fund is a hedge fund that buys the debt of a struggling company, or in this case, an entire country, to make a profit. The companies buy the debt for a fraction of the cost and then make sure that they get paid back the original value of the debt plus interest. There are at least 14 hedge funds in the United States holding about $3 billion of Puerto Rico’s debt.

Puerto Rico continues to be in need of help, with unemployment and debt at an all time high. The government’s overspending and congressional unwillingness to change laws to benefit the island are the main causes of poverty in Puerto Rico.

To solve this problem, Puerto Rico filed for bankruptcy in federal court, making it the first U.S. state or territory to do so. It has also been seeking assistance from the government in front of congressional committees. Puerto Rico has a lot of unprecedented in-court fighting to do, but if it is able to get its debt cleared from the federal government, many Puerto Ricans believe that it will give the territory the fresh start that it so desperately needs.

Téa Franco