The N.Y. Fed has a diagnosis for what’s ailing Puerto Rico

From The Washington Post:

One of the oddities about Puerto Rico is that it falls under the jurisdiction of the New York Federal Reserve. And this week, the New York Fed, which flagged some of Puerto Rico’s debt problems back in 2012, has begun publishing a series of blog posts about what’s ailing the debt-laden commonwealth — and what the island needs to do to get its economy back on its feet.

The New York Fed kicked off its Liberty Street Economics blogs by declaring that “ultimately, achieving fiscal sustainability depends greatly on reinvigorating economic growth, which has been unsatisfactory in Puerto Rico in the past decade.” It said that stronger growth would boost tax revenues, providing more room to reduce the deficit while maintaining essential public services, and gradually bend the debt-to-GDP trajectory in a more favorable direction.”

Still to come: How to do that. For now, members of Congress and many creditors of Puerto Rico are calling for curbs on government spending and other austerity measures that could make it difficult to boost wealth in the U.S. territory. That tension is one of the many problems facing Greece. Even if Puerto Rico’s government manages to create a budget surplus, it may not be enough to service the debt is is taking on.

Second, the Fed says that Puerto Rico must find a way to hang onto young working people. One of the starkest issues in Puerto Rico is the extremely low — 40 percent — rate of labor force participation, a level far lower than states on the mainland, where the average is somewhat over 60 percent. Many analysts explain that by pointing to the prevalence of the black market economy there, or people’s dependence on generous social benefits. Others say lowering Puerto Rico’s minimum wage, as allowed under the rescue legislation President Obama signed a few …

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