These surveys provide significant transparency into the finances of those entities, which is invaluable for policymakers and citizens wishing to understand, monitor and exert control and discipline over the fiscal policies of their governments. They may also serve the purpose of increasing investor understanding of how the Commonwealth’s finances compare to other governments. New York City’s experience in the 1970s shows the value of better financial reporting. Prior to the City’s fiscal crisis in 1975 through 1977, New York had relatively poor financial reporting practices. As part of its recovery from that crisis, and a condition of accessing credit, the City’s reporting improved dramatically and has since won several awards. Along with those improvements, the City’s access to credit markets steadily improved. Economic research indicates that more transparent budgets are associated with lower public sector funding costs. A fourth step would be to look for ways to strengthen the performance of public corporations. A major difference between Puerto Rico’s balance sheet and those of the states is the presence of large, heavily indebted, corporate-like entities that continue to lose money and increase borrowing. For any financial reform agenda to be successful, it must confront this issue head on. Key elements of a successful reform strategy might include strengthening the public corporations’ financial standing and controlling the future flow of liabilities. BIS central bankers’ speeches  5  Puerto Rico could also seek out the opportunity to benefit from outside management expertise, including the wide experiences of U.S. mainland states.
Employment in the private sector has been increasing modestly, with some notable pockets of relatively brisk job creation in leisure and hospitality, professional and business services and private education and health services – employment in each of these sectors now far exceeds its prerecession levels. Cutbacks in government employment, however, have largely offset the private-sector gains realized over the past few years. 2  BIS central bankers’ speeches  Low labor force participation rates and high unemployment rates remain perhaps the biggest challenges to the Puerto Rico economy. Our earlier report cited low labor force participation among younger and less educated workers as one important factor limiting the Island’s competitiveness. Since that report, overall labor force participation has continued to decline. The unemployment rate on the Island has consistently exceeded the rate on the mainland by several percentage points. Although the rate has fallen by more than a full percentage point year to date, the gap with the mainland remains wide. Moreover, poor labor market opportunities for many workers have contributed to a significant increase in the rate of outmigration of Puerto Rico’s residents, accelerating the Island’s population decline. The prolonged period of weak economic growth has compounded Puerto Rico’s fiscal problems: Puerto Rico’s public sector debt has been on an upward trend for a decade. The stagnation of the economy and persistent fiscal deficits underlie this debt buildup.