Wells Fargo analyst outlines P.R.'s 'economic ... - News is my Business

Many argue that Puerto Rico?s problems started when the U.S. government ended the tax benefits for U.S. firms doing business on the island, Alem?n said, referring to the end of Section 936.

While saying Puerto Rico is not ?America?s Greece,? a senior analyst with Wells Fargo Securities said the time has come for the island to implement drastic change or risk facing an even bigger economic collapse.

In a lengthy document titled ?Puerto Rico: Failure of the State,? Wells Fargo Senior Analyst Eugenio Alem?n said Puerto Rico?s fiscal union with the United States has lessened the effect of the crisis it has been navigating since 2006, but time is running out.

?Today, what used to be the U.S. fiscal largesse with Puerto Rico is fading fast and this will not change anytime soon. Puerto Rico has to recreate itself within the United States, perhaps as a state, or get its independence from the United States,? he said.

Among other things, Alem?n ripped the government?s inability to eliminate the underground economy, currently estimated at 30 percent of the island?s total economic activity.

?The inability to eliminate this underground economy has had serious consequences for the economy at all levels and for the island?s government, with its inability to collect taxes due to the limited tax base from ?legal? tax payers,? he said, noting that the burden of the informal sector has driven the government to over-regulate and increase taxes on those who report their income.

He also analyzed Gov. Luis Fortu?o?s tax reform put into force in 2010, which is ?still struggling to give the results it pursued,? and questioned the his decision to cut some 30,000 public workers to reduce the public sector?s burgeoning budget deficit.

?The measure to cut approximately 30,000 government employees to reduce the government?s immense budget deficit has worsened the state of the economy considerably, irrespectively if the decision was correct or not,? he said, calling that move, as well as former Gov. An?bal Acevedo Vila?s decision to close down the government for two weeks in 2006 ?grandstanding efforts.?

?Puerto Rico is going through a structural period that requires bold measures that can retool the economy for the new-world economic environment. If one adds the mismanagement of public monies to the current structural fiscal imbalances, then it creates a ?perfect storm,? which is what Puerto Rico is facing today,? he said.

Acknowledging Puerto Rico?s problems are not new, Alem?n said ?there is no easy way out for the island and any solution is going to have to be approached as a long-term solution.?

However, standing in the middle is the fact that the Puerto Rican political system has been built along the lines of its status versus the United States, he said.

?It is clear that Puerto Rico needs to solve its status problem, but the Popular Democratic Party, or more specifically the Commonwealth, is in the middle,? Alem?n said. ?An objective and impartial analysis of the current situation of the island would indicate that Puerto Rico should have only two alternatives: either it becomes a state of the United States or it becomes independent.?

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