william c dudley : opportunities for economic growth in puerto rico remarks by mr william c dudley, president and chief executive officer of the federal reserve bank of new york, to representatives of puerto rico's business and academic communities, san juan, puerto rico, 29 november 2016. * * * jason bram, tony davis, andrew haughwout and joseph tracy assisted in preparing these remarks. i am very pleased to be here and to have this opportunity to speak with representatives of puerto rico ’ s business and academic communities. in my remarks, i will discuss the lessons learned from municipalities in the united states that have faced crises over the years ― such as new york city ― and what those outcomes might imply for puerto rico as it seeks to restore and sustain economic growth. i will also touch briefly on the puerto rico small business survey, a new survey from the new york fed that focuses on the business performance, financing needs and borrowing experiences of firms across the island. as always, what i have to say reflects my own views and not those of the federal open market committee or the federal reserve system. my meeting with you today is part of the new york fed ’ s continuing efforts to understand what is going on at the grassroots level within our federal reserve district. we plan these trips so we can interact with a diverse group of stakeholders. these meetings help me get a more complete picture of economic conditions on the island and a fuller understanding of the major issues and concerns. this is the third time we have visited puerto rico in the past five years. yesterday, i met with governor - elect rossello to discuss the transition into his new role and the key challenges for his upcoming term. i also spent time with members of el colaboratorio, a shared workspace organized by the foundation for puerto rico. i attended a roundtable discussion with local businesses and spoke with former and current members of several of the new york fed ’ s advisory councils. earlier this morning, i met with the heads of a number of financial institutions and the university of puerto rico ’ s interim president, celeste freytes. following this visit, i will meet with the leadership from parallel18, an economic development initiative that attracts early - stage, highpotential startups to puerto rico. finally, i will join the leadership of the boys and girls clubs of puerto rico for a discussion on the organization ’ s initiatives and a site visit to one of the clubs to learn about workforce development programs and youth services. as we all know, the

economic transformations — essentially, changes in the industrial specialization that occurred in those particular places. in the case of new york city, the transformation was from manufacturing to services, and it took a generation to complete. the city ’ s management of that transition was far from perfect, and the fiscal crisis was the major manifestation of that failure. the institutions set up to respond to the crisis were crucial to ensuring that fiscal policy didn ’ t continue to amplify the problems associated with the economic transition. for a city to turn its circumstances around, it must navigate this economic transformation, identify what will define its comparative advantages going forward, and then build 2 / 4 bis central bankers'speeches anew around those sources of strength. the road to recovery a successful fiscal reform first requires a regime in which local officials recognize and accept the reality of the changing economic situation, and set spending budgets accordingly. this part is fairly straightforward, because it produces the simple policy dictum that borrowing — in all its forms — must be strictly limited. of course, knowing what to do and actually getting it done are different things, especially when politics are involved. as a result, the record suggests that it can be extremely helpful to have some kind of independent fiscal monitor in place on an ongoing basis. it ’ s important that this monitor be insulated from the direct influence of politics, giving it freedom to deliver objective analysis that may at times be very unpopular. in washington, d. c., this took the form of the office of the chief financial officer ; in new york city it is the independent budget office, which is modeled after the congressional budget office. these monitors have proven invaluable in keeping policymakers and the public informed on budgetary matters, and in providing apolitical expertise to assist in keeping budgets on a sustainable course. the second major component is a successful completion of the economic transformation, which is a critical factor for reversing ― rather than simply halting ― a city ’ s decline, establishing a virtuous cycle of rising growth and strengthening fiscal outcomes. new york city had the huge benefit of its comparative advantage in finance — an industry that was poised for sustained growth in the post - fiscal - crisis period of the 1980s through the 2000s. still, the city weathered a lot of shocks during that period, including the 9 / 11 terrorist attacks, the financial crisis and hurricane sandy. it ’ s also worth pointing out that new york city is still prospering, even though employment in its