current developments in financial markets relates to the role of monetary authorities in the context of such a crisis. this issue is of concern to all of us in central banking. over the last decade or two, it would appear that the focus of central banks has been narrowing relative to the more complex responsibilities that they have traditionally shouldered. a great deal has been written on this issue, a great deal has changed in terms of practices and, in some countries, the regulatory structure itself has been altered to move central banks to being relatively pure monetary authorities. according to this view, central banks should focus largely on keeping inflation low and stable, and in doing this also contribute to financial stability. to quote harvard economist kenneth rogoff : “ indeed many economists believe that central bankers could perfectly well be replaced with a computer programmed to implement a simple rule that adjusts interest rates in response to output and inflation. but while [ this ] view is theoretically rigorous, reality is not ” ( businessworld, september 17, 2007 ) although some central banks, such as the us federal reserve, have an explicit mandate to also promote growth, a good deal of thinking in recent times tends to argue that inflation control by itself would promote growth and that central banks would be better off to concentrate on this objective alone. it is instructive to examine what central banks have done in the current context. the responses of the central banks to the recent events in financial markets have shown that concerns for financial stability can assume overriding importance, irrespective of the legislative mandate handed down to central banks as part of ongoing reforms. this is evident in the fact that central banks initially reacted by the injection of liquidity, including through special facilities and the expansion of eligible securities for collateral, rather than through interest rate cuts. discussions involving central bankers in various fora indicate their willingness to consider other courses of action in favour of protecting growth. as we all know, the us federal reserve has gone further this week in cutting interest rates to promote both growth and in the interest of financial stability. and the u. k. authorities have had to provide liquidity to a specific institution, while giving a blanket guarantee to depositors on the safety of their deposits. accordingly, it is becoming evident that central banks do have a role beyond inflation targeting. evidently, both growth and financial stability matter for central banks. when it comes to the crunch, in their roles as lenders of last resort ( lolr ), and in discharging their responsibilities as the

to the puerto rico economy. our earlier report cited low labor force participation among younger and less educated workers as one important factor limiting the island ’ s competitiveness. since that report, overall labor force participation has continued to decline. the unemployment rate on the island has consistently exceeded the rate on the mainland by several percentage points. although the rate has fallen by more than a full percentage point year to date, the gap with the mainland remains wide. moreover, poor labor market opportunities for many workers have contributed to a significant increase in the rate of outmigration of puerto rico ’ s residents, accelerating the island ’ s population decline. the prolonged period of weak economic growth has compounded puerto rico ’ s fiscal problems : puerto rico ’ s public sector debt has been on an upward trend for a decade. the stagnation of the economy and persistent fiscal deficits underlie this debt buildup. the level of outstanding debt as a percentage of the island ’ s annual gnp, a ratio used by many fiscal analysts, rose from about 60 percent in 2000 to more than 100 percent in 2013. debt ratios in this range can inhibit economic growth in that they generally lead to higher financing costs, which in turn, can lead to constraints on access to further financing. the recent downgrading of puerto rico ’ s public debt to non - investment grade was a clear signal that the current fiscal situation poses serious risks to the island ’ s economic future. steps toward fiscal sustainability next, i will discuss the buildup of puerto rico ’ s public debt and then provide some thoughts on ways to improve the island ’ s fiscal health. to open this discussion, it is worth noting some key features of puerto rico ’ s fiscal institutional environment. the commonwealth has a close relationship with the u. s. government which, in many ways, is analogous to that of a mainland state. puerto rico shares a common market and a common currency with the u. s. mainland leading to strong economic interdependencies. federal aid is a major source of revenue for the commonwealth and puerto rican residents participate in large u. s. social insurance programs such as social security and medicare. in addition, puerto rican debt trades as a municipal security in the u. s. capital markets, and much of the interest earned on this debt is exempt from local, state and federal income taxes, regardless of where in the u. s. the investor lives. and like all but one state, vermont, puerto rico has a self - imposed