Puerto Rico Economic Pulse ©

May 2014: Lessons Puerto Rico Has Not Learned

Analysis of Puerto Rico and New York City’s fiscal crises

Forty years ago, on March 1974, the price of oil rose from US$3 per barrel to nearly $12. Due to the island’s strong dependency on oil for its energy needs, this oil crisis caused a deep economic recession in Puerto Rico with real GNP growth decelerating from 5.1% in FY1973 to 1.3% in FY 74 and finally –1.9% in FY1975. General Fund revenues, particularly corporate income taxes and other revenue sources, dropped significantly. In March 1974, Governor Rafael Hernández Colón retained the services of renowned economist James Tobin to provide recommendations on how to exit the then economic, fiscal, and financial crisis. With the US Municipal bond market closed in 1975, the Government Development Bank (GDB) negotiated the first Bank Note Purchase Agreement to provide financing to the Government. Simultaneously, New York almost defaulted on its public debt in 1975 and had to implement tough measures. In 2014, PR is immersed in its yet deepest economic recession. Did we learn anything from these crises?

Puerto Rico Economic Pulse ©

April 2014: Two Blades to the Budget Scissors

A review of the PR economy in fiscal 2013 and forecasts for 2014 to 2016

Has the Puerto Rico economy recovered from its protracted economic recession? This is a hot-button issue and the answer is: Not yet. So far, Fiscal 2014 has been another tough year. General Obligation bonds were downgraded to below investment grade. Many Puerto Ricans have experienced a significant loss of wealth since 2005. Unemployment and fiscal revenues have been disappointing. Hence, we conclude the PR Planning Board’s mild recovery of real economic growth in FY 2012 and 2013 is simply a mirage. No good news is coming from the mainland. Oil prices remain stuck at high levels and an endless political infighting has taken the PR economy as hostage. Without external windfalls and short-term relief, such as ARRA funds in 2009-12, Puerto Rico will have to go through a necessary economic adjustment. The proposed balanced budget of the government is needed but the budget scissors will also cut investment needed for growth. This issue analyzes some ideas to start a long awaited take off.

Puerto Rico Economic Pulse ©

March 2014: Time to Realize ICT’s Potential

Some suggestions to make it happen in PR

For too long, PR has ignored the limitless possibilities that can come from the Information Communication Technology (ICT). This has resulted in lackluster growth and productivity when compared to the leaders of the industry. It is time to take matters into our own hands and learn from our competitors while using our own distinct advantages to become competitive and attractive for foreign investment. PR has a relatively untapped broadband market that can lead to massive amounts of growth in GDP and jobs. Educational institutions in the island need to adopt this technological platform if they are to provide the world with some of the most capable engineers, doctors, and other professionals for a fraction of the cost incurred in the US. By improving the information infrastructure; creating competition; and harnessing our workforce with Computer Science, and fostering an entrepreneurial spirit, PR can also experience the same kind of growth that leaders in ICT in other countries are experiencing.

Puerto Rico Economic Pulse ©

February 2014: An Inconvenient Truth

Analysis of Puerto Rico’s public debt affair

On February 28, 2014, the PR Senate approved a bill enabling the island to issue $3.5 billion in General Obligation bonds of the Commonwealth of PR and on March 3, 2014, the House of Representatives finally stamped its approval to this bill, which Governor Alejandro García Padilla has already signed into law 34-2014. Rating agencies gave it a preliminary below investment grade. The proceeds of this new bond issue will be used to pay and/or refinance Commonwealth debt in the estimated amount of $2.9 billion. Meanwhile, the island economy continues mired in deep recession. How did PR get to this point? This issue of Pulse highlights how the $71 billion public debt affair of Puerto Rico evolved; why were bonds downgraded to below investment grade; what does this mean for the island; how will this impact PR bonds; is it likely that PR could default on its debt; will the Federal Government assist; how does PR regain investment grade rating and how soon? We will look at some of these questions.

Puerto Rico Economic Pulse ©

January 2014: The PR New Harvest of Development Efforts

Analysis of the agricultural sector in Puerto Rico

Food drives the world and access to adequate food is the primary concern for most people on earth. This makes agriculture one of the most significant industries in the world. Agricultural productivity is important, not only for a country’s balance of trade, but for the security and health of its population, as well. Over the past seven fiscal years, the once growing PR economy has been immersed in deep recession. Now, we need to focus more on economic growth than on the “fiscal cliff” the island has been facing. Puerto Rico’s insular status makes the island especially vulnerable to external shocks in food and oil prices. This issue analyzes the importance of agriculture for Puerto Rico’s efforts at restarting its economy out of the current recession; how this sector has evolved or declined since Operation Bootstrap in the late 1960s; what lessons can we learn from other countries that excel in agriculture; and what the government, in alliance with the private sector, needs to make agriculture once again a strategic, export-oriented sector.

Puerto Rico Economic Pulse ©

December 2013: In Search of a Business Advantage

Impact of knowledge services industry in the PR economy

At a time of slow growth and continued volatility, many countries are looking for policies that will stimulate growth and create new jobs. Information communications technology (ICT) is not only one of the fastest growing industries – directly creating millions of jobs – but it is also an important enabler of innovation and development. The European Union’s 10-year plan aimed to make Europe “the most competitive and dynamic knowledge-based economy in the world.” It failed. Find out why. PR badly needs both economic growth and job creation. In the past, several government sponsored strategic economic plans pointed the important role of the ICT sector for the Island’s economic development and competitiveness. However, PR continued lagging in key technological and connectivity indicators, trailing behind other formidable, direct competitors, such as Singapore, Ireland, and Denmark. This issue analyzes the real impact of technological readiness and the ICT industry on the PR economy. In our opinion, this industry constitutes one of the strategic sectors that can jumpstart this economy.

Puerto Rico Economic Pulse ©

November 2013: Unleashing PR’s Tourism Potential

A market in search of a new strategy

Puerto Rico is not alone in trying to lure tourists to its shores and help reduce the island’s reliance on other industries. Despite economic and financial turmoil in different countries, the world still travels. This issue presents key figures and trends in Puerto Rico’s tourism. Can it grow faster than manufacturing, retail or construction? As measured by jobs in leisure and hotel accommodations, tourism has been generating jobs at approximately 1% since 2003, faster than the reduction of -4.2% in manufacturing, -7.0% in construction, and -0.4% in retail. How much do international visitors spend in PR? Along these lines, PR has launched a millionaire advertising campaign to attract more visitors to the island and increase the economic impact of tourism. Travelling for health and sun is gaining momentum in other countries. Millennials have different travelling habits from traditional tourists. Finally, we highlight the future of travel in PR. What will it take to succeed? The task may prove more difficult than suggested by Boston Consulting Group’s recent economic plan.

Puerto Rico Economic Pulse ©

October 2013: Health Has Lots of Moving Parts – Part II

Economic impact of Obamacare in Puerto Rico

Will Obamacare increase or decrease the average cost of an insurance policy on the individual market? Ending discrimination against sick people raises premiums for the healthy but lowers them for the sick. Reducing discrimination against old people raises premiums for the young but reduces them for the old. Regulating insurance products raises prices at the low-end of the insurance market but cuts costs for people who actually get sick and need insurance that actually covers illnesses. Unlike the US, Puerto Rico does not have a trillion dollars in subsidies to cut costs for the poor. Unlike the US, Puerto Rico does not have an Exchange to encourage competition between insurers and hence, reduce costs. Unlike the US, Puerto Rico does not have either an individual mandate nor an employer mandate to help reduce average premiums by bringing younger, healthier applicants into the market yet PR’s Insurance Code mandates essential benefits in health care plans. Find out some of the sobering implications of the Affordable Care Act of 2010 for MiSalud, Medicare Advantage, individuals, and employers in Puerto Rico.

Puerto Rico Economic Pulse ©

September 2013: Health Has Lots of Moving Parts – Part I

Setting the stage for Obamacare in Puerto Rico

The Affordable Care Act of 2010, better known as Obamacare, consists of a set of rules, which represent the biggest change in US health public policy since 1965 when Medicare was created. The main goal of this law is to provide affordable health insurance for all US citizens, including Puerto Rico, and to halt the growth of health care spending for increasing numbers of older Americans in need of health care. Not all the provisions of this law will apply in PR and some analysts forecast it could increase insurance premiums by 15% to 20%, which is clearly against Obamacare goals. Will this law help with health conditions in PR? The island faces several health challenges, such as: an ageing population, outward migration of the younger age groups, high health costs and inflation, a fiscal crisis, high prevalence of chronic conditions, poor personal health behavior, and increasing need of health care professionals. All these issues are challenging PR’s population, policy makers, and health. This issue sets the context for the implementation of Obamacare in PR and to some extent enables readers to pass judgment on the effectiveness of health care expenditures in Puerto Rico.

Puerto Rico Economic Pulse ©

August 2013: The Truth About Jobs in PR

Inside the labor market now and in the future

The winds of change have swept through Puerto Rico during the first half of 2013 and not surprisingly some have found some of this change to be rather unsettling. Critical press coverage about the recently completed legislative session has raised concerns in some corners that future economic development might suffer. Not unexpected, the legislature enacted major changes to PR’s tax policy, which increased corporate tax rates as well as imposed new taxes to curtail an estimated billionaire budget deficit for fiscal 2013 and 2014. Meanwhile, the Secretary of Economic Development and its subsidiary, the PR Trade Company, keep harping on the topic of a job creation target of 50,000 jobs within the first 18 months of this Administration. Well, 8 of those 18 months have already elapsed. It is time to review what is really happening in the Island’s labor market.