Alexandria, Va. —As Puerto Rico and its Oversight Board recently reached an agreement on a fiscal plan, ABI’s latest podcast features ABI Executive Director Sam Gerdano talking with Prof. Andrew Wolfe of American University's School of International Service about the commonwealth’s ongoing fiscal challenges and strategies for moving forward. “The way to get [economic growth] on a sustainable basis is to actually try to get the investment environment correct on the island,” said Wolfe, who has been an advisor to the government of Puerto Rico since retiring in June 2014 from the International Monetary Fund after 27 years. Along with Anne O. Krueger and Ranjit Teja, Wolfe is a co-author of the 2015 report, “Puerto Rico – A Way Forward,” which contained many suggestions that the Puerto Rico Oversight Board included in its recent fiscal plan.

As for the inflows of federal money after Hurricanes Irma and Maria, Wolfe said that the funds are creating “a false optic” that the island’s economy is improving. “Structural reforms that are desperately needed have not been implemented, and until they're implemented, we're not going to see an upturn in growth on a permanent basis,” he said.

Saying that a government bailout of Puerto Rico’s $72 billion debt load is highly unlikely, Wolfe is also not convinced that resurrecting business-friendly tax cuts would stabilize the Puerto Rican economy. “I'm very reluctant from the economics of it to say that you should go back to Congress and get some of those tax breaks again because who knows, in 20 years somebody will take those breaks away again,” he said.

Two areas that Wolfe said could help the Puerto Rican economy move forward are labor reforms and expanding its tourism industry. Wolfe estimated that Puerto Rico would get a full point of economic growth with proper labor market reforms. As for the tourism industry in Puerto Rico, Wolfe said that it is very low (currently at 6 percent of GNP) and that there is “definitely room for that sector to expand if the environment is right.”

Click here to listen to the full podcast.

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