While admitting that there isn’t much the Federal Reserve Bank of New York can do to spur economic growth for the island, William Dudley, the head of the regulatory agency, said Tuesday he is “confident that Puerto Rico has started on the road to recovery.”
During a public speech delivered at the Puerto Rico Convention Center in San Juan, Dudley said it behooves U.S. Congress to help the Commonwealth turn its 10-year economic depression around. He also said it is possible for the government to regain access to financial markets.
“You should not expect the Federal Reserve to supply resources to address [the problem] and it would not be appropriate for us to do so,” he said. “We can be neutral observers to provide what would be perceived as third-party analysis.”
Prompting the island’s economic transformation falls mostly on the Commonwealth’s government, through appropriate public policy, he said. Part of that will happen under the watch of the Financial Oversight and Management Board for Puerto Rico, he said.
“If the government comes up with a viable fiscal plan that the Legislature can adopt, Puerto Rico will regain access to markets,” he said. “You have to have a viable plan first and some credibility in executing the plan. But having a viable plan will not be easy because everybody has to put something into the pot, and the question is how much and how that burden will be shared across groups.”
“It’s difficult to solve, but once you do that and have a plan that’s sustainable going forward, the issue of Puerto Rico returning to market becomes doable,” he said.
Several steps needed to return to prosperity
“First, it is important to reduce the cost of doing business on the island as a way of encouraging business growth and increasing the demand for labor,” Dudley said.
“We have put forward many ideas to consider here, ranging from ones targeted at hiring — such as giving Puerto Rico more autonomy over setting its minimum wage policy — to more general ideas like streamlining regulation,” he said.
For Dudley, it should be a priority for the island to find efficiencies in the energy industry to bring down costs.
“Island residents and businesses, as you are well aware, are also burdened with exceptionally high water utility bills,” he said. “Getting the water and power companies to work in an efficient manner could be done by creating incentives for efficiencies, which will flow through houses and businesses.”
Keeping inefficiencies in the systems “might be good for employees in the short-run, but damaging to the island in the long-run,” Dudley said.
Dudley also said island authorities need to think about how to draw people into the labor market, with the necessary education and skillsets.
“Labor force participation is lower at all ages in Puerto Rico than on the mainland. This is a crucial impediment to growth, and addressing it requires innovative policy options,” he said, mentioning extending the Earned Income Tax Credit to Puerto Rico.
Other issues, such as the island’s burdensome tax system and the persistent out-migration, also need to be addressed through reforms and responses to quality-of-life concerns.
Dudley said determining why people are leaving and the drivers leading to that decision should be quantified to provide the New York Fed with tools to make better decisions for Puerto Rico.
“There’s a lack of info. Having that data would be useful to see the pain points that could be addressed easily to keep more people here,” Dudley said.
He also noted a need for data providing “more clarity on Puerto Rico’s budget process. Puerto Rico’s finances are very complex. You have government, publicly owned corporations and the Government Development Bank in there, so it’s useful to sort out how these financings work with each other and find out how it works going forward.”
“How finances fit together and how they would evolve in a trajectory over time, would be another area that could benefit from better data,” he said.
“I know that this list seems long, and none of issues I have raised are easy to address. Nonetheless, I am confident that Puerto Rico has started on the road to recovery,” he said. “In the current environment, it’s hard to see beyond the immediate crisis to a brighter future for Puerto Rico, but that has been said of other places that have come back stronger than ever.”
Getting the fiscal situation in order is an important first step, and the private sector will have to do its part, he said.
“The factors leading up to the crisis took many years to develop, and history shows that a successful recovery from a crisis also takes time. It is important to recognize that fact and to stay the course,” he said.
Meetings with cross-section of sectors
During his two-day visit, Dudley met with representatives from the public and private sector, collecting insight from a broad cross-section of economic sectors. Dudley met with Gov.-elect Ricardo Rosselló, members of El Colaboratorio, members of the Puerto Rico Chamber of Commerce, leadership from the University of Puerto Rico, as well as participants in Parallel18’s accelerator.
Dudley included Parallel18 in the schedule of his most recent visit to the Island, as he expressed interest in the vision of the accelerator to create, attract and retain high-impact startups that can scale from Puerto Rico to global markets.
The executive also discussed the challenges and opportunities of funding innovation driven enterprises in the island.
“We see as a very positive sign the Federal Reserve’s interest in the potential of entrepreneurship and innovation to help jumpstart Puerto Rico’s economy,” said Sebastián Vidal, Parallel18’s executive director.