How Puerto Rico went from being an economic miracle to becoming the territory with the highest public debt in the history of the United States - Start Up Gazzete
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How Puerto Rico went from being an economic miracle to becoming the territory with the highest public debt in the history of the United States


At the age of 6, Helga Serrano left her wooden house, without a kitchen or refrigerator, to move to one of the first urbanizations built in San Juan.

The 1950s were just beginning and Puerto Rico was experiencing an economic upswing that was projected by some media at the time as an economic miracle.

At that time, the 77-year-old journalist lived “with the minimum” in a rural town in the southeast of the territory, right next to a river. His family cooked on a charcoal stove. Under the same roof his parents, grandparents and sister slept.

With the move, they looked for the new opportunities offered by the capital.

“My story and that of my sister is the story of Puerto Rico, of the people who came out of poverty, from little education and managed to study at the university,” he told BBC Mundo in a phone call.

Serrano moved into a new space that, although also humble, represented a “transformation” on a par with the rest of the island.

“Mami took a machinist course and worked as a clerk in the army, and daddy as a policeman in San Juan. They went to live in the first urbanization, Puerto Nuevo. It was about 4,000 houses, tiny, made of cement, one next to the another. Cheap. So many people moved there, even mom’s cousins ​​with their families, “he added.

Her story, as she herself said, is repeated in thousands of Puerto Ricans, who from the middle of the 20th century experienced an improvement in their living conditions .

Helga Serrano, Puerto Rican journalist
Helga Serrano, Puerto Rican journalist whose family emerged from poverty during the reforms implemented by the Puerto Rican government during the mid-20th century.

Contrary to what is happening today, when Puerto Rico is suffering an economic recession after a legal battle of almost five years that ended with the green light of justice for the restructuring of an immense public debt ($US73,000 million), in It was in full swing at the time.


The process of industrialization of Puerto Rico, which impacted people like Serrano, who after facing poverty managed to enter the university and achieved a better standard of living, began in the 1940s.

Rexford Tugwell, a governor appointed by President Franklin D. Roosevelt, pushed for the creation of local businesses, subsidized by the state.

The first industries established in Puerto Rico after the economic incentives were related to high-intensity jobs.
The first industries established in Puerto Rico after economic incentives were related to high-intensity jobs.

In a matter of a few years, factories for glass, cardboard, cement and other products were erected in the territory, which began to displace the agricultural economy.

After the Cold War, however, this approach was left behind, and the government began an “investment by invitation” strategy.

The new economic model consisted of granting tax incentives to US and foreign companies .

“They sought to replace that model of development and industrialization by the state and the strategy of substituting imports for one of opening up capital, opening up foreign capital,” explained Puerto Rican economist and lawyer Heriberto Martínez.

Rexford Tugwell (right) shakes hands with his predecessor Guy Jacob Swope.  In the middle Luis Muñoz Marín, who at that time was president of the island's Senate.
Rexford Tugwell (right) shakes hands with his predecessor Guy Jacob Swope. In the middle, Luis Muñoz Marín, who at that time was president of the island’s Senate.

It was then that most of the public factories were sold and foreign companies arrived in search of cheap labor and tax exemptions .

At first it was about textile companies and other heavy work such as food processing, later pharmaceuticals.

“Direct jobs were created, industrial jobs, a middle class developed and a lot of people were lifted out of poverty,” he said.

A group of women work in an electric watch factory in San Juan, Puerto Rico, in 1970.
A group of women work in an electric watch factory in San Juan, Puerto Rico, in 1970.

“Social objectives were also established to improve education, health, housing and, in addition, economic objectives to improve the infrastructure of roads, bridges, ports, electricity, drinking water and communication,” said the economist Martha Quiñones, professor at the University of Puerto Rico.

In this period (late 1940s and early 1950s), the integration of women in the labor force grew and households had two incomes, added Serrano.

“I remember the first women I saw working. It was a tobacco operation, they made cigars. My uncle’s wife worked in a factory as a stripper, they were large rooms with women preparing cigars for sale,” he said.

The numbers

For the next decades, economic indicators supported the reforms established by the government. From 1950 to 1980 the GNP per capita on the island grew from US$342 to US$3,479 , second only to Venezuela (US$3,630), an oil-rich nation.

By 1980, precisely, the images of previous years seemed like a distant past.

The rows of wooden houses without basic services that occupied both the towns of the mountainous interior and the coastal urban areas were replaced by sprawling concrete developments.

New highways supplanted dirt roads and cars replaced horses and mules.

Image of a cane field in Vega Baja, Puerto Rico, in 1950.
Before the 1940s, Puerto Rico’s economy was based on the cultivation of coffee, cane, or tobacco.

Workers left the scorching sun of the cane fields for offices and assembly lines. They learned to read, sent their children to university, and left the markets for the malls.

Poverty was reduced from 62.8% in 1970 to 44.6% in 2000, according to a presentation by the Center for the New Economy of Puerto Rico.

Puerto Rico had an economic growth of 6% per year between 1948 and 1974 , according to the Economic Commission for Latin America and the Caribbean (ECLAC).

These changes were even reviewed by Time magazine in 1958. On its cover, the publication stated that the island had become a “Laboratory of Democracy”, after years of being considered -as some history books affirm- “the house of poverty in the Caribbean”.

1958 Time magazine cover showing former Governor of Puerto Rico, Luis Muñoz Marín
Cover of Time magazine from 1958 showing former Governor of Puerto Rico, Luis Muñoz Marín.

Puerto Rico, according to Time, was a “message of hope” for “underdeveloped” nations.

The problem

However, Puerto Rico was in trouble at the end of the 1960s. During this time, it opted to move its economy to the petrochemical sector, with the idea of ​​producing refined products of this product and exporting them to the United States.

But the sector fell in the face of the international oil crisis , which occurred in 1973 after OPEC decided to raise fuel prices, in the context of the Yom Kippur War. A situation that impacted the world economy.

The United States’ response to this crisis was to approve new tax exemptions in 1976, with the intention of attracting more pharmaceutical and high-tech companies.

The legislation allowed US companies in Puerto Rico to deposit their profits in the territory’s banks and then send them to their parent companies tax-free, explained economist Quiñones.

Images of the valves of a factory in Puerto Rico
Puerto Rico was greatly affected by the oil crisis in 1973.

However, in 1996 the US government decided to withdraw the tax benefits. By 2006, when the transition period granted by Congress ended, the investment of foreign companies was considerably reduced.

From 1997 to 2012, the island lost nearly 80,000 jobs in the manufacturing sector alone.

And Puerto Rico, during its boom times, after those local state-owned companies that it had established, did not make great efforts to promote local production. “We concentrate on creating the brains to work for foreigners,” said economist Martínez.

“Puerto Rico was the archetype of what later became Latin America’s maquiladora-based industrialization, the assembly industry,” said sociologist Emilio Pantojas. “But it was an urban country of dependent industrialization,” he said.


Given the departure of these companies, the territory began to borrow to support social spending and its government apparatus.

As the economy contracted, the debt grew exponentially .

For 2006, Puerto Rico’s debt was about US$48,000, compared to a GNP of US$68,000 million, which represented 60%, said Martínez. Some 10 years later, the debt had increased by 103% .

Now the island was far from being an example to follow. The poverty rate stagnated at 45%, unemployment increased and there was a massive emigration of Puerto Ricans to the United States.

Meanwhile, some local politicians claimed that the debt could be paid, despite warnings from experts. The newspapers of the territory published again and again on the front page how the crediting houses of Wall Street degraded their bonds.

Alejandro García Padilla, former Governor of Puerto Rico, with his wife Wilma Pastrana.
In 2015, Alejandro García Padilla was the first governor to affirm that Puerto Rico’s debt could not be paid. In 2016, under Ricardo Rosselló, the bankruptcy was made official.

In 2015, former Governor Alejandro García Padilla accepted the omen: “The debt is unpayable… there is no other option. This is not a matter of politics, but of mathematics.”

A year later, the United States passed legislation that allowed Puerto Rico to restructure its debt in court, but at the same time imposed a Fiscal Oversight Board .

The body, made up of seven people appointed by the president and Congress, has been responsible for representing Puerto Ricans in court since 2017, when the restructuring process began.

In addition, it has the power to approve its budget, above the local government.

The “Junta”, as it is called in Puerto Rico, promoted austerity measures since its arrival with the justification that they were necessary to be able to comply with creditors.

Natalie Jaresko, executive director of the Puerto Rico Fiscal Oversight Board.
Natalie Jaresko is the executive director of the Puerto Rico Fiscal Oversight Board.

Among the policies that faced the greatest opposition was a cut of almost half the budget of the University of Puerto Rico and the intention to cut public pensions.


This Tuesday a United States bankruptcy court approved a plan to restructure the debt of the central government of Puerto Rico.

The so-called Debt Adjustment Plan, which was in the hands of Judge Laura Taylor Swain of the Southern District of New York, incorporates agreements between a series of creditors, reducing US$33 billion in bond debt to US$7 billion. Annual debt payments would be reduced by 80%.

“There has never been a public restructuring like this in the entire United States or in the world,” David Skeel, Chairman of the Board, told The Washington Post.

A man walks down a street in San Juan, Puerto Rico, in 2017. The wall is painted with graffiti

The process was marked by intense clashes between the politicians of the territory, the Board and the creditors, who on both sides sued each other on multiple occasions due to various disagreements.

The bankruptcy cost more than $1 billion , paid for by taxpayers.

In those years, Puerto Rico also experienced two major hurricanes and an earthquake. Also the resignation of a governor.

“We are facing a transcendental moment in which the government of Puerto Rico is heading to end the bankruptcy process and thus concentrate on achieving a return to the progress that our people expect and deserve,” the current governor, Pedro Pierluisi, wrote on Twitter. once the restructuring plan was announced.

The agreement signed by Swain does not contemplate the proposal to cut pensions for retirees, although it does stop defined benefit programs that cover teachers and judges.

The debt adjustment plan would take effect on March 15, but before that it could be challenged in court.

Image of Forteleza Street in San Juan, Puerto Rico.
Image of Forteleza Street in San Juan, Puerto Rico.

According to the judge, Puerto Rico has the economic resources to meet the payment of the debt until 2034. During the next few years, it must continue with the implementation of “structural reforms” so as not to fall into bankruptcy again.

Author avatar
Joshua Smith

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