(By Mani) The Puerto Rican economy has come a long way since it started to industrialize and modernize in the mid-1900s. The development model used to industrialize the island, which was extremely successful in the beginning has mutated into a system that has the state, the Puerto Rican government, as the lifeline for almost everything that goes on in the economy.
This increased intervention in the economy is strangling the Puerto Rican economy and jeopardizing future growth. Authorities on the island have not been able to integrate the whole of the economy, as a large percentage of economic activity still happens underground in the informal sector
By some estimates, the Puerto Rican underground economy is as large as 30 percent of all economic activity on the island.
The inability to eliminate this underground economy has had serious consequences for the economy at all levels and for the island's government, with its inability to collect taxes due to the limited tax base from "legal" tax payers.
Facing serious issues on its fiscal accounts and potentially more credit risk downgrades by the major rating agencies, the government of Puerto Rico embarked on a tax reform in 2010 that is still struggling to attain the results it pursued.
"According to the government, the tax reform should "save" $1.2 billion from taxpayers' pockets during the period of 2010-2016. However, little of those objectives have been met as reflected by labor and consumer market indicators," Wells Fargo economist Eugenio Alemán wrote in a note to clients.
An objective and impartial analysis of the current situation of the island would indicate that Puerto Rico should have only two alternatives: either it becomes a state of the United States or it becomes independent.
Among the political parties, the Popular Democratic Party (PDP) is red, the New Progressive Party (NPP) is blue, and the Puerto Rican Independency Party (PIP) is green.
However, the current "no-status" of the Commonwealth is unsustainable. As long as this alternative is available, there is no solution to the status of the island.
"This causes the current environment to persist over time and affect the ability of Puerto Rico to finally move forward and decide whether it wants to become a state of the United States or become independent," Alemán noted.
Meanwhile, all eyes will be on Aug. 12, 2012, when the Fortuño administration will conduct a "yes or no" vote to ask Puerto Ricans if they agree with the need for change or for the need to have a referendum. The election would be conducted on Nov. 6.