Puerto Rico Economic Pulse ©

September 2002: How Can the US Economy Recover?

An analysis of US business fixed investment during the 1990’s

For the US economy, the booming 1990`s have gone and the ensuing short recession is now almost over. On the whole, analysts are persuaded that there is a strong causal link between business investment on information technology and labor productivity. The thinking is that cheaper computer capital replaced more relatively expensive non-computer capital to the extent that the production process allowed. Is that so? Have computers been the whole story of the 90`s investment expansion? And to what extent has business investment activity been quantitatively and qualitatively different from past cycles? Will investment drive the US recovery? Let`s examine these questions.

Puerto Rico Economic Pulse ©

August 2002: Carmania in Puerto Rico

Trends in the Puerto Rican Car Market

As of 2001, there were over two million motor vehicles registered in Puerto Rico, equivalent to 1.7 persons per vehicle. According to industry experts, Puerto Rico is a perfect place to introduce new products. Although sales of new vehicles have grown at an annual rate of 1% between 1995 and 2001, the levels of the last two years exceeded those of 1995. Despite an economic slowdown, local consumers bought 123,000 new units, similar to the level of 2000. Find out why the love affair of Puerto Ricans with cars. How is the car market distributed among car makes? Will this trend be sustainable in light of the new car excise taxes, effective July 2002?

Puerto Rico Economic Pulse ©

July 2002: A Tough and Kind Rival

The Evolution of Euro and its Consequences for Puerto Rico

Euro has completed its first stage. Three years after being launched, the European currency seems to leave behind a stormy start and its second stage is under way. National currencies of the member countries have been withdrawn and notes and Euro coins have come into circulation. Undoubtedly, the U.S dollar has found a tough rival which poses a serious challenge as the predominant worldwide currency. This issue of Economic Pulse briefly reviews the evolution of Euro since its birth, the dimensions of its market, and the consequences for financial markets. Find out how this process will affect Puerto Rico. It is time to demonstrate that the positive effects of this new giant far outweigh its potentially negative consequences.

Puerto Rico Economic Pulse ©

June 2002: The Bitter Side of Development

Macroeconomic and Fiscal Impact of Population Trends

As the 2000 population census has confirmed, Puerto Rico is undergoing a demographic transformation. Following the pattern of developed countries, the Puerto Rican population is aging. In this article we will address this interesting phenomenon, which is a clear proof that development is not just about prosperity and also has its bitter side. Let`s briefly review the evolution of the island`s population over the last half century and analyze its economic and social consequences in the short as well as the long run. Find out how an aging population can exhaust fiscal revenues; how health and other related services will be more demanding on already finite resources.

Puerto Rico Economic Pulse ©

May 2002: The Challenging Budget Picture

Economic Impact of the Budget – Part II

Revenues are key to a budget. Without them there can be no budget, and how to obtain them particularly in times of economic constraints such as now, presents a challenge. The previous issue analyzed how the Government of Puerto Rico got into a structural imbalance. Combined with the economic slowdown, this situation has generated a shortfall of revenues. Both the Executive and Legislative branches have been proposing new sources of revenues. A key issue in the proposed budget for fiscal 2002-03 is how to obtain $596 million in additional revenues. The bulk of the discussion focused on proposed significant increases in excise taxes on alcoholic beverages, cigarettes, and selected types of autos. Find out how increases on alcoholic beverages will impact the economy and how the government refused a better alternative.

Puerto Rico Economic Pulse ©

April 2002: The Moving Target, Part I

An Analysis of the PR Government Budget for fiscal year 2003

Last February, Governor Calderón unveiled her Consolidated Budget for Fiscal Year 2003. It calls for significant increases on excise taxes on vehicles, alcoholic beverages, and cigarettes. All these measures will impact economic activity, you and I as taxpayers and consumers. Puerto Rico is not the only jurisdiction fighting budget deficits. According to a March report by the Association of State Budget Officers, 40 of the 50 states are facing shortfalls in their revenues. Thus, healthy fiscal budgets, here or in the states, will lag a year or more behind economic recovery. Find out how the budget is spent, where the money comes from, what are the priorities, and how the problem of debt financing has affected it.

Puerto Rico Economic Pulse ©

March 2002: The Road Back to Recovery

An Analysis of the Puerto Rico Economy and Outlook for 2002 and 2003

Fiscal year 2001 marked the beginning of an economic slowdown in Puerto Rico. After a decade of high growth rates, the economy cast clear signs of decelerating. The performance of the Puerto Rico economy was not divorced from the US economic cycle. The Island posted the lowest real growth since 1992. But the worst was still to come. The tragic events of September 11 put both economies on the verge of recession, thereby backing the belief that the Island economy is tied to the US. Find out what happened in 2001 and whether the economy is in a recession in 2002? And, after all, is recovery ahead for 2003?

Puerto Rico Economic Pulse ©

February 2002: The Health Care Reform: Towards a Reality Check

An Analysis and Evaluation of the Challenges it Faces

High quality health care is an important element of international competitiveness and economic well being. Dissatisfaction with existing health care systems has led to a worldwide movement for reform, and Puerto Rico has been no exception. However, managed care is no panacea. It is an experiment in progress, whose results must be judged carefully. Like other economies, Puerto Rico has been facing the urgent need to control costs of its health care system at a time when demand for health care services is rising. The answer to such a challenge has been the Health Care Reform Plan, established by the Government of Puerto Rico in 1993. Today, the Reform Plan faces a critical financial situation. Find out what the situation is, what are its perspectives, and what changes are needed to make it more feasible long-term.

Puerto Rico Economic Pulse ©

January 2002: The Disappearance of the 30-year Treasury Bond

A Review of Economic Events that Made Headlines in 2001

On October 31, 2001 the U.S. Treasury gave traders in the fixed-income markets a Halloween surprise. It announced, without much warning that it would no longer auction 30-year bonds. Traders reacted with an historic buying binge of existing 30-year treasuries. In some ways the long bond`s demise was inevitable. It had been losing market influence throughout the latter part of the 1990s. While it is too early to gauge the ultimate impact of this seemingly dramatic change in the Treasury`s financing tool kit, many issues and questions arise for both the financial markets and the economy. Find out what led to the downfall of the king of the fixed-income markets and what the issues and implications might be for the economy.

Puerto Rico Economic Pulse ©

December 2001: 2001: Legacy of a Year of Uncertainty and Challenges

A Review of Economic Events that Made Headlines in 2001

For Puerto Rico, the year 2001 started with its first female governor, Sila M. Calderón. Her election focused on two key issues: government corruption and a new economic plan. The year ended as it started, with a legacy of economic problems ranging from economic slowdown, fiscal deficits, increasing unemployment, increasing costs of the Health Care Reform Plan, fewer jobs, and many plans and measures attempting to crank the economy. During the year, the terrorist attacks of September 11 struck a sour note throughout the world. The U.S. economy accelerated the cyclical slowdown that started back in March with a recession, moving to an outright contraction. Find out how top economic events shaped the PR economy in 2001. Can the PR economy resume growth? Will the Government be able to at least alleviate some of the key economic challenges the economy faces? These are some of the issues we face in the coming year.