Isle of Indebtedness | City Journal:
Washington provided Puerto Rico with all the wrong incentives; disaster ensued.
"Last week, Puerto Rico took another step in its long, mostly futile attempt to stabilize its economy and budget when it filed for a modified version of municipal bankruptcy.
It was the latest chapter in a 20-year struggle that began when an odd coalition of budget hawks, statehood advocates, and critics of corporate giveaways convinced Congress to phase out tax benefits that businesses could garner by locating operations in Puerto Rico.
Since then, efforts to make Puerto Rico’s economy more independent and sustainable have come to little, in part because the 1996 reforms were incomplete, leaving in place tax advantages that encouraged the territory to borrow its way to fiscal oblivion, while requiring local employers to adhere to burdensome U.S. labor market requirements.
The result is a floundering economy and a mountain of debt.
...It’s accurate to say that Puerto Rico’s government is the ultimate creator of this disaster.
But Washington contributed, by offering all the wrong incentives.
We shouldn’t be surprised that Puerto Rico took them."