It seems likely that any country in a similar debt situation to Puerto Rico would have faced difficulty in continuing to raise money in the bond market and would have faced questions about the sustainability of its debt level. Debt sustainability is generally defined as a condition where government debt is at a reasonable level – one with acceptable risks to market confidence and long-term economic growth – and is not on a path to increase indefinitely relative to some measure of national income. Stabilizing Puerto Rico’s debt as a share of the Island’s income and then reducing its debt to more sustainable levels should be a key goal of the Island’s fiscal and economic policy. While the precise path toward lower debt burden is uncertain, the trend is largely determined by the interaction of three factors: the government’s fiscal policy, the growth rate of the economy and the interest rate on the public debt. Regarding the buildup of new public debt, the Commonwealth government has stated its intention that the general fund budget will be balanced in fiscal year 2015. This intention, together with the stance of not using deficit financing to support public corporations, should greatly limit the issuance of new debt. The measures put in place during this year have already had some success in cutting the projected budget gap for the current fiscal year. But what other steps can be taken to move the Island toward fiscal health?
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.