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The Impact Of “Promesa” On Businesses In Puerto Rico

In June, Congress passed the Puerto Rico Oversight, Management, and Economic Stability Act, or Promesa. The bill aims to help Puerto Rico restructure its debt and prevent the island from being sued for defaulting on bond payments.

The Puerto Rico Oversight, Management, and Economic Stability Act

President Barack Obama signed the bill into law. The bill was criticized and considered a form of colonialism. According to many members of Congress who voted for the bill and acknowledged its shortcomings, it was the best option for Puerto Rico.

BMI Research also supports that view. Based on a BMI Research report, Promesa is going to provide a framework to restore the commonwealth to a fiscally sustainable position and boost economic growth. However, it will take years to fulfill this.

According to the report, the island will experience a recession. The real gross national product will be contracted by 0.7% (on average) from 2016 to 2020. Merchants interested in a business loan in Puerto Rico should consider applying to with First American Merchant. FAM is a reputable payment processor that specializes in the high risk sector and offers exceptional business funding options to merchants of any type and size.

Why Does BMI Forecast Further Recession?

One of the main reasons BMI forecasts further recession has to do with the fact that the law is likely to result in lower consumption. Besides, the Puerto Rico Oversight, Management, and Economic Stability Act reduces the minimum wage to $4.25 per hour from $7.25 per hour for workers who are 25 years old and younger.

What is more, Promesa also suspends Puerto Rico’s compliance with the US federal regulations concerning overtime pay that are scheduled for December 2016. This implies fewer workers will earn overtime.

The BMI Research report concludes that the painful process of reducing employment costs will allow for improving firm profitability. In addition, it will help US and foreign firms view the island economy as an investment destination. Anyway, this is characterized as a long-term process that will take years to play out. In the long run, Puerto Rico will get better after it gets worse.