The Lash of Inflation on a Developing Economy: Puerto Rico, A Case Study

Abstract

This article discusses the social effects of inflation in a developing economy, based primarily on the Puerto Rican experience. The first part covers some pertinent general notions concerning inflation and economic development. The relationships among Puerto Rico's unique socio-political conditions, the economic achievements attained, and the social changes experienced throughout the years of relative economic stability from World War II to 1973 are then presented. As a sequel in the discussion, it shall examine the 1974 inflationary period and the recession that followed, from which the Island is not still fully recovered, as well as the inflationary trend that has prevailed since 1978, and the difficulties that the economy is now experiencing. The article delves into factors that have accounted for the reversal in the Island's development trend and emphasizes its increasing dependence on external capital, United States' markets, and federal transfers payments. Finally, the social effects that have been observed and/or are anticipated as a result of the level of inflation that has prevailed in the economy in the last four years and the measures that are being proposed as a part of President Reagan's economic plan to curb inflation are pondered.