Puerto Rico is in serious trouble. And although both Gov. Carlos Romero Barcelo and the Reagan administration have been trying to minimize the seriousness of the situation, ignoring it can only aggravate the difficulties ahead.
During the last fiscal year, the Puerto Rican economy registered a growth rate of a mere 0.8 percent. Unemployment in June reached 20.1 percent. Is this just an aberration caused by the same high interest rates and the double-digit inflation affecting the United States? Not really. The growth rates of productive investment have been declining for several years now, reaching a low of.05 percent in 1980, foreboding little or no economic growth in the years to come.
And the situation promises to get worse. Puerto Rico will be affected by the Reagan economic program like no other region under the U.S. flag. The cornerstone of supply-side economics is that generous tax incentives will lead individuals and firms to invest more, create more jobs and raise incomes for everybody. Yet Puerto Rico has offered for a long time the ultimate tax incentive: 100 percent tax exemption from federal and state taxes. Reductions in federal taxes will only decrease the attractiveness of investing in Puerto Rico.
In addition, Jamaica and other countries have been pressing Washington for a oneway free trade agreement, whereby goods produced in the Caribbean would be allowed to enter the U.S. market freely. This would wipe out another of the important incentives for investing in Puerto Rico over, say, the Dominican Republic or Haiti: the unrestricted access to the U.S. market.
For too long the solution to Puerto Rico's economic problems has been to integrate the island more and more to the U.S. economy. The results are there for all to see: 57 percent of the population on food stamps and a 20 percent unemployment rate. Moreover, this economic dependence makes a solution to the status question impossible now: statehood for Puerto Rico will not be approved by Congress as long as Puerto Rico continues to be seen as "Welfare Island, U.S.A." In Puerto Rico, independence will not be deemed feasible if Puerto Rico cannot stand on its own economic feet.
The answer, then, lies in a cooperative effort between the Puerto Rican and U.S. governments to change the direction of the island's economic development. In some areas, it will mean trying to achieve a high measure of economic self-sufficiency; agriculture is the best example. In others, it will mean expanding Puerto Rico's economic horizons to its "natural" environment: the Caribean and Latin American nations that surround it. But in all cases, it will imply moving away from the singleminded economic integration with the United States that has been pursued until now.
The advantages of such an approach are straight-forward: it makes sense as we enter a decade in which economic growth in the United States is going to be slow and in which federal spending for social programs will be sharply curtailed. Politically, it has the potential for creating a consensus where it has been impossible to develop one until now. To Washington, it might mean putting a cap on the significant drain on U.S. taxpayers' money that Puerto Rico has become. In Puerto Rico, Commonwealthers and independentistas would find it difficult to oppose enhanced economic autonomy for the island; many of them have been clamoring for it for decades. And Romero could reap the benefits of trying to turn around an economy in critical condition.
Only when Puerto Rico has gained a modicum of economic self-sufficiency and has diversified its trade will it be possible to address the question of the ultimate status of the island in a meaningful and responsible manner.
The island will also be affected by drastic cuts in federal transfer payments to individuals, which constituted 32 percent of net personal income of Puerto Ricans in 1980. Preliminary estimates for FY 1982 show budgetary cuts for Puerto Rico from 8 to 18 percent of federal expenditures -- a much higher proportion than anticipated cuts for other regions.
Politically, the situation isn't much better. Romero, re-elected last November by the thinnest of margins, finds himself in the uncomfortable position of having to work with a legislature in which both houses are controlled by the opposition, as are an overwhelming majority of the townships. Major government initiatives to deal with the present economic and social situation are, therefore, unlikely to be approved by the legislature.
So, the striking students at the University of Puerto Rico may be giving us only a preview of the social conflicts to come. In fact, the U.N. General Assembly may find itself in 1982 discussing the case of Puerto Rico (as was recommended last August by the U.N.'s Decolonization Committee) precisely at a time when massive social unrest and island recriminations against the United States for discriminatory treatment are reaching a high point.
In short, we are at the beginning of what could become a severe crisis in U.S.-Puerto Rican relations. However, the moment also offers a remarkable opportunity to lay the foundations for a durable solution.