Yesterday, the S&P downgraded the status of Puerto Rican debt to junk status. This further complicates the major fiscal problems the Puerto Rican government has been facing and could well lead to a death spiral resulting in a default. As it happens, I was in Puerto Rico just a few weeks ago, and while the looming debt problems were not obvious to a tourist, it was fairly easy to notice that the economy has been performing poorly in recent years.The signs that the economy was doing poorly, however, were not lots of people on the streets begging or other obvious signs of abject poverty. Instead, walking through popular tourist spots, there were lots of vacant storefronts and properties near the beach that were for sale and clearly had been for a while. I also cannot remember seeing a crane or other piece of equipment indicative of a major construction project. Compared with my visit to Bolivia in March, 2012, the contrast is rather striking. In Bolivia, everywhere one looked there was new construction, both in the posh neighborhoods in La Paz as well as in the much poorer El Alto suburb and the small Amazon city of Cobija in the Pando department.
While those are obviously anecdotal observations, it is not coincidental that Bolivia’s economy grew by 5.2 percent that year and in 2013 achieved its fastest year of growth in decades at 6.5 percent while Puerto Rico has not had a year of GDP growth above 1 percent since 2004. Growing economies typically will see lots of new construction as growing aggregate demand requires increasing the supply of productive capacity, sometimes in a nice virtuous circle sort of way (and sometimes not, as in the case of Spain) while stagnant or shrinking economies have the opposite issue.
That said, life is still much better for the average Puerto Rican than the average Bolivian. According to the World Bank, Bolivian per capita GDP at purchasing power parity in 2012 was $4,880 while in Puerto Rico it was over $12,222. So while abject poverty was not obvious in Puerto Rico (though it no doubt exists), it was inescapable in Bolivia even despite its torrid economic growth. Life may be getting harder for Puerto Ricans, while it improves rapidly for many Bolivians, but Puerto Ricans are still materially much better off than Bolivians and will remain so for a while.