to the sizeable buildup of public debt on the island and the key variables that will determine its future trend. in some ways, the data on puerto rico ’ s public debt clearly define the fiscal problems the island faces. but meeting with a variety of stakeholders, as i have on this visit, will help to inform our analysis and will provide us with concrete evidence of how these issues are playing out across the puerto rico economy. the clear challenge going forward will be for the commonwealth government to continue to make progress on its efforts to raise its economic growth rate while at the same time to take credible steps to constrain the buildup of debt. the demanding choices puerto rico makes today will affect its long - run economic prospects and the future livelihood of its residents. now i would like to review recent developments in the puerto rico economy and then outline for consideration and discussion several steps to help put the island on a path toward fiscal health. as always, what i have to say reflects my own views and not necessarily those of the federal open market committee ( fomc ) or the federal reserve system. economic conditions in puerto rico let me turn to economic conditions in puerto rico. as you are well aware, the news has not been good. puerto rico ’ s economy has been in a slump for nearly a decade. after declining for five straight years, real ( inflation - adjusted ) gross national product ( gnp ) rose 0. 9 percent in fiscal year 2012 and only 0. 3 percent in 2013, rates considerably below the respective u. s. mainland growth rates. a monthly index produced by the government development bank for puerto rico paints a similar picture of an economy that has stabilized but at a depressed level. we are finally beginning to see some signs of improvement in economic activity on the island, though there is little evidence to suggest that the strong recovery that we seek has yet taken hold. puerto rico ’ s labor market remains weak. overall payroll employment fell by about 10 percent between 2006 and 2010 and has leveled off since then. employment in the private sector has been increasing modestly, with some notable pockets of relatively brisk job creation in leisure and hospitality, professional and business services and private education and health services – employment in each of these sectors now far exceeds its prerecession levels. cutbacks in government employment, however, have largely offset the private - sector gains realized over the past few years. bis central bankers ’ speeches low labor force participation rates and high unemployment rates remain perhaps the biggest challenges

the petroleum sector to record - high levels. the level of investment in this sector in 2014 was as high as total investment in domestic non - oil industries. the positive spillovers to the oil service industry and other business sectors have been substantial, in particular through the past decade. norwegian employment has remained high and unemployment low, even when the financial crisis hit in 2008. it is estimated that 1 out of 9 jobs in norway are linked to the oil industry. bis central bankers ’ speeches fiscal rule it was established at an early stage that norway ’ s oil and gas resources belong to the norwegian people. the tax system for the petroleum industry was designed to make sure that the bulk of the large revenues, the economic rent from the petroleum sector, would accrue to the state. petroleum companies pay a surtax of 51 percent of profits, on top of the normal corporate tax rate of 27 percent. the government also has direct ownership shares in the most profitable oil fields. however, policymakers ’ handling of norway ’ s newly discovered petroleum wealth got off to a rather bumpy start. during the first 25 years of oil production, norway experienced two deep recessions. both downturns were rooted in hugely optimistic income expectations. in the 1970s, the public sector was the big spender, and the government had to tighten policy later on. in the 1980s, a credit - fuelled consumption boom in the private sector led to necessary cut - backs after the oil price plunge in 1986. these two episodes of turbulence made clear how vulnerable a small open economy is to terms of trade disturbances, as well as to short - termism and exuberant expectations. to prevent the same mistakes from being made again, fiscal institutions were set up in the 1990s. among the most important of these are the oil fund and the fiscal rule. chart : the fund mechanism the norwegian parliament passed the act relating to the oil fund in 1990. under the act, the net fiscal surplus, including oil revenues, is transferred to the fund, and invested in international markets. a main purpose of the fund mechanism is to make the actual spending of oil revenues transparent. towards the end of the 1990s, inflows to the oil fund increased, and there were expectations of considerable petroleum revenues in the future. there was increasing political pressure to spend more. in a climate of high inflows and even higher expectations, it was demanding to restrain fiscal spending. at the same time, it was clear that future pension obligations would be substantial