(Reuters) - Puerto Rico, struggling through a drawn-out “depression,” has already begun an economic revival that could mirror past recoveries in U.S. cities like New York if the island continues to focus on its fiscal situation and labor force, an influential Federal Reserve official said on Tuesday.
New York Fed President William Dudley offered a range of suggestions to help the U.S. island territory leave behind a decade of economic contraction. He was addressing an audience in San Juan a day after meeting with Governor-elect Ricardo Rossello, who wants to make Puerto Rico the 51st U.S. state.
“Puerto Rico has been through a very rough 10 years. The economy has been in a long slump that could easily be called a depression,” said Dudley, whose central bank district includes the island.
“I am confident that Puerto Rico has started on the road to recovery,” he said in a speech in San Juan. “Getting the fiscal situation in order is an important first step. 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.”
Some 45 percent of the 3.5 million residents live in poverty in Puerto Rico, where unemployment is two-and-a-half times the U.S. average. Its population is shrinking as locals flock to the mainland, leaving fewer taxpayers to shoulder a $70-billion debt, and its public schools fall woefully short of federal standards.
Dudley, a close ally of Fed Chair Janet Yellen, did not mention monetary policy on Tuesday but stressed that Puerto Rico must address shortfalls in education and in workers’ skills.
“It is important to think hard about the supply of labor - the willingness of people to work, and the education and skills that they have to bring to the market,” he said, adding Puerto Rico’s low labor participation rate is a “crucial impediment” to economic growth that must be addressed.
The island’s finances are under the oversight of a federally appointed board tasked with approving budgets and facilitating debt restructuring talks with creditors in coming months. Its presence has sparked protests by Puerto Ricans who view it as an extension of U.S. imperial control.
“I think Puerto Rico will regain access to the markets,” Dudley said in response to a question from the audience. “I really wouldn’t worry much about that at this stage.”
He also drew some parallels to New York City’s fiscal crisis in the 1970s, in which it gave up tax and spending control and saw big cuts to services and municipal jobs, and a spike in crime. For Puerto Rico, he said, “it can be extremely helpful to have some kind of independent fiscal monitor in place on an ongoing basis.”
Reporting by Jonathan Spicer; Additional reporting by Nick Brown; Editing by Chizu Nomiyama