Puerto Rico Economic Pulse ©

May 2010: What is Wrong with Inflation in PR?

Finding out the reasons for the PR/US inflation gap

Since 1899, the US dollar is the official currency of Puerto Rico. In economic terms, the island acts as an official dollarized country. In theory, PR should then benefit from the relatively low inflation experienced by the US economy during the past few years. However, this advantage has disappeared in PR over the past decade. According to official numbers, the difference between the PR and US inflations over the past 5 years was 11.2% higher in PR than in the US. This gap indicates something is wrong with the way the Consumer Price Index (CPI) is computed in Puerto Rico. Even more disturbing is the fact that since December 2009 or five months into 2010, the PR Department of Labor has not issued any new data on inflation. What then is wrong with the new CPI index, which was published in August 2007? This issue reviews some of the causes, effects, and possible solutions for this serious problem that affects all in Puerto Rico.  

Puerto Rico Economic Pulse ©

April 2010: Rebalancing Banking in Puerto Rico

Finding out the reasons for bank consolidation

Since 2006 to the present, Puerto Rico’s economy has shifted away from real economic growth. This particular cycle has been reinforced by a global financial crisis that damaged the financial system’s ability to channel savings to productive investment. All economic sectors, including households and businesses are struggling with surplus housing, buildings, equipment, and accumulated debt. Virtually every industry has shed jobs in the past two years. Bank share prices have fallen dramatically and households’ wealth has shrunk by $19 billion or 89% since 2004. And if consumers feel less rich, they are less inclined to spend. With a push from regulators, banks are less willing to lend: they have tightened loan standards. Recovery in this environment is often slow and weak but not impossible. Rebalancing PR’s banking is at the forefront. This issue examines some of the reasons for the recent bank mergers.  

Puerto Rico Compass ©

Q1 2010: Curb your Enthusiasm

An analysis of 1st Quarter 2010 economic indices in PR

At the start of 2010, many were hoping to leave behind the longest recession in recent history in Puerto Rico. During the 1st Q of 2010, there are some signs of improvement in consumption, but we hasten to add that there are many structural problems that still worry us. Some of these bewildering trends include: the situation of the banking industry, the island’s huge public debt, a troubled PR Retirement System, and a low labor participation rate, among others. Consumer and producer sentiments do impact economic activity so perceptions are just as important as hard-core economic data. In this context, clear and credible economic policies adopted by the public sector can play a leading role in economic recovery in PR. This issue examines how recent developments both in and outside Puerto Rico have impacted the HCCG indices and how upcoming events could influence the economy in the near future.

Puerto Rico Economic Pulse ©

March 2010: Many Headwinds Still Ahead

Performance of the PR and US economies in fiscal 2009 and forecasts to 2012

Fiscal 2009 marked a milestone with the harshest worldwide economic crisis since the Great Depression. The crumble of several financial giants at the end of 2008 sparked a crisis that ripped through the entire world with unknown strength.  Recovery has already started in the US mainland, but jitter and fear have not disappeared. Puerto Rico has also felt the heat and is immersed in a protracted slump that threatens to extend to five consecutive years.  The truth is that the PR economy remains off the path of sustainable growth and desperately needs to restore growth.  Some meager gains, mostly as a result of temporary inflows from the mainland, could mislead the public regarding the dismal situation of our economy. This issue of Pulse analyzes what really lies beneath the recent glimmer of hopes. It evaluates economic events in fiscal 2009 and presents our forecasts thru fiscal 2012.

Puerto Rico Economic Pulse ©

February 2010: From Machu Picchu to Puerto Rico

An analysis of some of Peru’s economic policies

In the decades following World War II, Puerto Rico was hailed as a success story in Latin America (LA). The island sustained impressive rates of real economic growth and raised its domestic living standards. The transformation and modernization of this economy thru manufacturing, attracted the attention of its Southern neighbors. PR played a role model. Nowadays, it is different. PR is immersed in a deep recession with no apparent immediate light at the end of the tunnel. Two thousand miles South, Peru’s economy shines because of its strong macroeconomic performance, low inflation, and fiscal surpluses (7.3% real growth, 3.1% inflation, and $1.4b fiscal surplus). This was not always the case. Twenty years ago, Peru faced -13% growth, 7,482% hyperinflation, and huge fiscal deficits approaching 10% of GDP. Find out if Puerto Rico can learn some valuable lessons from Peru’s economic policies.

Puerto Rico Economic Pulse ©

January 2010: Mastering Survival in 2009, a Tough Year

A review of economic events in Puerto Rico

As we start the New Year, it is wise to review the economic events of the past year. In 2009, the PR economy continued into its 3-year old recession and survival seems to be the name of the game. The labor market lost 40,000 jobs in different sectors and unemployment increased. The government adopted painful policies, which included the announced reduction of almost 15,000 public jobs by January 2010 and imposed new taxes during 2009. With less income and jobs, consumers made fewer purchases, including cars, compared with 2008. The financial system posted record loan losses and felt the wave of the global financial crisis. A new President in the US addressed one of the largest fiscal rescues in US history. A new Governor in PR took office with the promise of change. The island expects to benefit from the American Recovery and Reinvestment Act (ARRA) and the local or “Criollo” Plan (PEC). Despite poor results in 2009, there is the hope of a new year when we can start all over again.