December 2003: Uncertainties and Expectations in 2003

Year 2003 was tough, with challenging global trends shifting towards China and India; continuing US and worldwide economic slowdown, the war against Iraq, and some signs of recovery that are just now more obvious. Puerto Rico experienced stagnation in public construction, continuing high unemployment, efforts to initiate a tax reform and mixed signals in manufacturing. In this issue, find out what is at stake if Puerto Rico does not embrace a new vision of the future.

Globalization and continuous changes in world economic trends press policy makers to constantly assess development goals in order to enhance national competitiveness. Puerto Rico is no exception. Assessing its competitiveness and international standing is a critical component in the formulation of a long-term vision. In this issue we present a series of comparative measures that examine Puerto Rico against regional and global players. Specifically, we compiled comparative indicators that point to Puerto Rico`s position and need of a strategic vision in key areas within economic and social development and the environment.

Now is the time to introduce three additional coincident indices that target the “sweetest” but most controversial side of the economy. These coincident indices cover construction, consumption, and banking. They depict the external face of the economy, the face we see every day while we buy, drive, and make money transactions. They are the side of the economy that poses many challenges to economists and policymakers. Our challenge is to uncover the first layer of these sectors and address the real causes of their somewhat strange behavior. Come along and enjoy another fascinating trip to the heart of our economy.

The issue of monitoring the economy is as fascinating as complicated and uncertain. As in the case of natural disasters, the sooner the detection, the sooner and more accurate the corrective move. Finding the best way to explain what is going on the economy and anticipate the next turn of the economy have drawn the attention of economists for a long time. The task of tracking the economy becomes more difficult at the state level, due to the lack of appropriate indicators. In this issue, we briefly review our current kit of economic tools and also present two of five indices developed by HCCG and aimed to track the economy’s performance. So, buckle-up and travel with us inside the PR economy.

During the past few years tremendous technological advances in voice, video and data, digitally delivered across interconnecting networks to a variety of terminals, has sped-up communication and the transmission of information. Today, the cost of communicating ideas and data is now distance-free, thanks to the Internet cellular phones and lower telephone rates. The communications revolution has had a tremendous impact on the way knowledge and ideas are transported and how business is done. This on-going technological revolution in communications is what Frances Cairncross has described in her book as `the death of distance`. Find out how Puerto Rico fares in this revolution and how it has affected our lives.

Our town centers appear to be on the brink of disappearing. Urban sprawl, shopping centers and private vehicles have changed the way we shop and threaten to turn town centers into ghost towns. Economic activity can be revitalized if businesses in town centers were to adopt precisely those traits that have made shopping centers a success. In this issue, we share some of the most significant results of two surveys: one of small business and another of household across six town centers, located mostly in the center of the island. Find out what are some of the weaknesses and strengths of town centers and what key steps they can take to initiate the needed comeback.

The story repeats itself: the government’s projections of tax revenues for this fiscal year have not materialized. Recent increases in excise taxes were not enough. The woes of the PR budget seem endless and a question still remains: how can we revamp our battered fiscal system. Although our tax system encompasses several taxes, we will concentrate on maybe its most questionable component, the excise tax system. In this issue we address the flaws of the excise tax and explore a sales tax and a value added tax as options. Find out what are the pros and cons of their implementation in Puerto Rico, fully aware that the last word has not been said yet and further analysis will be needed.

Six months ago, the revenue shortfall in PR’s government budget was $41.2 million. Today, the potential fiscal deficit is $198.5 million for fiscal 2003. Is this because revenues were underestimated or because expenditures grew more than anticipated? The truth, as in most cases, lies somewhere in the middle. Find out the reasons and proposed measures to solve this challenging situation before fiscal 2003 ends. Increasing taxes may not be the right way, particularly taxes that affect the consumer who ends up paying them. Are there more creative ways than just raising taxes? REITs constitute a potential investment tool and a potential source of fiscal revenues.

Puerto Rico’s economy is experiencing a transformation. Our bonds with the mainland are now stronger, but the nature of this long relationship is radically changing. The former ties with the US are being replaced by new and more sophisticated links, especially in the finance field.  Common but wrong beliefs about some sectors blur the comprehension of the economy. Understanding these changes is a necessary condition to design a long run economic plan. In this issue, we unveil some of these new features of the PR economy. This sheds new light on some apparently irreconcilable conflicts facing our economy.

Fiscal year 2002 is gone but its awful saga is lasting more than expected and now, the war against Iraq is pounding further the world economy. September 11, a staggering stock market, and worldwide political unrest are the culprits of the slump. Puerto Rico posted negative GNP growth in 2002, the first since 1983. Find out which economic sectors were the winners and losers last year. What are the forecasts for fiscal 2003 to 2005? Will growth be positive or heading for negative territory? Will unemployment and inflation rise as the war drags on? Find out what crossroads the economy and you may be facing.