Government

Highlights

The gravity of the fiscal situation could result in the dismissal of over 30,000 public employees.

The gravity of the fiscal situation could result in the dismissal of over 30,000 public employees.

Overview

The Constitution of the Commonwealth of Puerto Rico approved in July 25, 1952 established the government Puerto Rico based on the separation of powers, with a constitutional system of check and balances, between the three main bodies of power; namely the Legislature, Executive and Judiciary bodies.

The Legislature is divided in two chambers, the Senate and the House of Representatives. They have the constitutional responsibility of presenting and approving legislation, including: general appropriation bills, joints resolutions, and other legislation related to public policy issues. Meanwhile, the Executive branch can adopt or veto the legislation submitted by the Legislature and also contribute to the legislative process by presenting its own bills. The Executive is also in charge of administering the overall function of the government via its cabinet and other government agencies. The third government branch is that of the Judiciary which is in charge of interpreting the laws and resolving disputes between citizens. The Supreme Court constitutes this branch with six Associate Judges and one Chief Justice nominated by the governor and confirmed by the Senate. Decisions by the Puerto Rico Supreme Court can be appealed to the Boston Circuit Court.

Puerto Rico also has local administrations, known as municipalities, with representatives elected every four years at the same time of the general elections. The island is divided into 78 municipalities, each administered by a Mayor and a Municipal Assembly.

Puerto Rico also has a unique relationship with the United States, defined in The Federal Relations Statute of 1917, as amended or Jones Act as its commonly known. Under its terms, the federal government handles foreign relations, defense, and the postal and customs services. In addition, Puerto Rico trades in U.S. currency and participates in the U.S. common market. Under the Jones Act of 1917, U.S. citizenship was extended to all inhabitants of the Island, and Puerto Ricans obtained the right to one representative-known as Resident Commissioner-in the U.S. Congress. This representative sits on the House of Representatives where he has a voice, can vote in committee, but not in the floor.

New members in the Supreme Court

After the election, Gov. Fortuno nominated three (3) candidates to the Puerto Rico Supreme Court, The three nominees, Rafael L. Martínez Torres; Mildred G. Pabón Charneco and Erick V. Kolthoff Caraballo joined Hon. Federico Hernández Denton, the Chief Justice of the court and the remaining associate judges to constitute the Supreme Court. All three nominees were approved by the Senate.

Importance of the public sector

The role of the public sector in the economy of Puerto Rico is important. The public sector accounts for 17.0% of nominal GNP, According to the Puerto Rico Planning Board, Government Expenditures reached $10.3 billion in FY2008. Meanwhile, about 29.1% of the total non-farm employed labor force in fiscal 2008 was employed by the government sector, a clear signal of its importance to the overall state of the economy. However, as the government has incremented its spending, it has registered significant increases in overall debt levels. As of FY2008, total public debt was hovering around $46,682 million or almost $4.0 billion more than in the previous year.

Policy Initiatives

One of the main reasons behind the sustained increase in debt is the inability of the government to sustain a balanced budget. Reversing that trend is one of the new biggest challenges faced by the new administration. For that purpose it recently introduced its Fiscal and Economic Restructuring Plan. Its objective is to restore financial health to public finances, eliminating by 2013 the persistent structural deficit, to be achieved through significant cost-cutting measures, improve the debt situation of the central government, and protect the credit-rating of the government.

Outlook

In the economic front, the recently enacted economic stimulus (the American recovery and reinvestment Act) should benefit Puerto Rico. These funds would provide a much-needed stimulus to the local economy, which has been in recession since 2007. Still, the benefits of the stimulus package could be offset by the effects of the deep budget cuts that are being implement, as these will constraint aggregate demand, thus, postponing any possibility of growth until 2010 or 2011.

i The public sector includes the central government, its public corporations and the municipalities