Puerto Rico Economic Pulse ©

April 2013: Survival of PR’s Public Retirement System

Analysis and lessons to be learned

In 2011, the Center for Retirement Research at Boston College concluded the average baby boomer was financially unprepared for retirement and, as a result, had to plan to work longer. The 2008 financial crisis wiped out $11 trillion of US household wealth, including both real estate and financial assets. The recent stock market recovery trimmed that loss to about $8 trillion. Since 2004, PR has lost $18 billion of wealth, as measured by the PR Stock Index. People close to retirement age still have an enormous savings gap if they aim to keep their current lifestyles. Since Government accounts for 26% of total employment in PR, public retirees will represent an important share of all retirees. In FY 2011, the unfunded liability of the Public Retirement Systems, Central Government plus Teachers, amounted to $35.6 billion. How did we get there? What can we learn from other jurisdictions? Is recent Law 3 a solution? Find out in this Pulse.

Puerto Rico Economic Pulse ©

March 2013: The Threat of an Incredible Labyrinth

An analysis PR’s performance in 2012 and forecast

The world is in a state of turmoil that ranges from the chaos after the financial crisis to the current crisis in the Eurozone, from the Arab uprisings to tensions between North Korea and Japan. There are protests everywhere, Cyprus, Athens, Barcelona, New York, and elsewhere. The US dollar faces a real risk of losing its standing among international currency markets. Many of the familiar frameworks are collapsing while the world undergoes rapid change. Political leaders in Puerto Rico need to address local issues and people’s specific demands, but without a clear vision, such a reaction is likely to be inadequate or insufficient to reactivate the PR economy. This Pulse presents a concise outlook of external and internal factors that will define economic policy and strategic planning. HCCG also presents its macroeconomic forecast for fiscal years 2013 thru 2015.

Puerto Rico Economic Pulse ©

February 2013: Can Education Make the Difference?

An analysis of the impact of education in PR

Education is a compelling investment to succeed in today’s global markets. It is critical to achieve productivity, competitiveness, economic growth, and overall wellbeing. The US is currently debating whether subsidized, quality pre-school pays off. Given the difficult fiscal situation both in PR as well as the US, we better not be short on evidence that our education dollars will be well spent if we are to boost economic and social growth. We can buy desks, improve, and build schools but that does not necessarily guarantee outstanding students. Similarly, we have teachers but we cannot legislate excellent teachers. Improving Puerto Rico’s education system is a complex and collaborative enterprise. Some countries have achieved exceptional education systems. Who are these countries? What do these successful education systems have in common? How can education impact growth and competitiveness? How does Puerto Rico compare against performance indicators for education? This issue is about education and what the island could learn from other successful countries.

Puerto Rico Economic Pulse ©

January 2013: Farewell to the Economy in 2012

Setting the stage for what lies ahead in Puerto Rico’s economy in 2013

Worldwide, year 2012 was dangerously tough, with a threatening break-up of the euro zone and economic recession in several countries; political gridlock in the US as the fiscal cliff approached and resulted in self-induced stagnation; and Puerto Rico deep in economic depression and divisive politics. The good news is that, contrary to popular belief in the Mayan prophecy, the world did not end in 2012. However, watch out for 2013 since the economy will continue to be a worry everywhere. Puerto Rico may have reasons to fear a year with the number 13 in it but it might not be so bad after all if the new Administration finally starts implementing a cohesive vision and multi-year economic plan for the island economy; convinces bond rating agencies and investors that Puerto Rico is still a great opportunity; and then executes the plan. This issue examines the most important economic highlights of the past year and sets the stage for the economy in 2013.

Puerto Rico Economic Pulse ©

December 2012: What if Puerto Rico Did Like Bilbao?

Lessons of an entrepreneurial planning process

In the past decades, the industrial decline of many western economies has forced them to turn towards the tertiary sector (services) in order to diversify their infrastructure and find new sources of income. The city of Bilbao, Spain has a history of both boom times with steel production and hard times with industrial decline starting in the 1970s. The city proceeded to reinvent itself through project-led regeneration programs, of which the Guggenheim Museum became iconic. Cultural policy was accompanied by a series of other urban regeneration strategies, dealing with economic and social aspects. Bilbao is a success story with this strategy. Despite the differences, Puerto Rico also had its manufacturing boom in the 80’s, followed by a decline in the 2000’s. Several strategies have been implemented to reboot the PR economy, but there is no success yet. PR can use entrepreneurial practices implemented in Bilbao. The question is: could a cultural-led approach be the recipe to restore growth in Puerto Rico?

Puerto Rico Economic Pulse ©

November 2012: Can PPP`s Spearhead the Recovery?

On the role of public private partnerships in the PR economy

Public private partnerships (PPPs) have become a worldwide modality of cooperation between the private and public sectors.  In a world full of economic superpowers afflicted by fiscal shortages, PPPs have provided a practical and efficient way to energize their battered economies.  A formula pioneered by the United Kingdom in the 80`s has spread across Europe and many other countries.  In Puerto Rico, PPPs have been considered the current administration to undertake and maintain badly needed investments in infrastructure. Puerto Rico is now a leader in the development of PPP`s in the United States, a country that has not quite embraced this formula yet. In this issue, we examine the development of PPP`s in Puerto Rico with emphasis on the controversial agreement involving the Luis Muñoz Marín international airport.

Puerto Rico Economic Pulse ©

October 2012: Time for a Rethink of the PR Economy

An analysis of the 2012 election platforms

The Puerto Rican economy is at a standstill. Recovery in the US economy is sub-par at best and a rebound in the global economy is looking less and less likely. After five years of negative growth, the PR Government estimates the real rate of growth of the island’s GNP barely grew 0.9% in FY 2012. The island faces a challenging environment as never seen before. The economic situation and its social implications represent a tough challenge for whoever wins next month’s election. The incumbent Luis Fortuño for the New Progressive Party (NPP) and challenger Alejandro García Padilla for the Popular Democratic Party (PDP) are the principal contenders whereas the Puerto Rican Independence Party (PIP) and the other three new parties are far behind. The incumbent claims for continuity in his reforms while the challenger suggests other proposals. This issue analyzes the highlights of the two principal political parties’ economic platforms. It is up to you to judge whether these plans are economically feasible?

Puerto Rico Economic Pulse ©

September 2012: Beyond Economic Challenges

Getting back to fundamentals

“We the people” in Puerto Rico face daunting economic challenges now and in coming years. These challenges include a stagnant economy; a declining manufacturing sector, once the main driver of economic growth; ever higher dependence on federal funds; unhealthy level of public debt; a labor market that feeds on unemployment and few job opportunities; an ageing population that is insatiable in its health demands; an oil dependence that generates imbalances in all sectors; and mounting government deficits that threaten the use of scarce government revenues. Yes, there is always plenty to do, and now is no exception. It is important to maintain a perspective about this, particularly in light of upcoming elections in the Island. The key question is whether the economy is well poised for positive and innovative growth or if Puerto Rico doesn`t soon get its act together a long decline looms ahead.

Puerto Rico Economic Pulse ©

August 2012: Health, a Big Problem in PR

Will Obamacare help?

Health in Puerto Rico faces several challenges. These come from social and economic factors, such as, an ageing population, a growing number of uninsured persons, soaring health expenses, high healthcare inflation, dependence on federal transfers, a growing shortage of health practitioners exiting the Island, and alarming health indicators and high behavioral risk factors. To complicate matters, the Island’s economy is just not growing and not generating the badly needed jobs to pay for health and other expenses. Programs such as Medicare and Medicaid that started in 1965 have experienced rising growth of spending to the point of threatening their sustainability. Despite billions, health in PR needs improvement. Will benefits have to be curtailed or Medicare providers will have to innovate to reduce costs. This is the question that Obamacare attempts to address.

Puerto Rico Economic Pulse ©

July 2012: A Zero Sum Game in the Retail Sector

Analysis of trends in consumer shopping in PR

We are seeing a secular change in consumption patterns in Puerto Rico.  This will have grave implications for a retail sector used to having overly indebted consumers. Real retail sales in PR have fallen 19% since peaking in FY 2005, just before the economic downturn started. Could it be that the declining trend in retail sales is a longer-term change and not just a cyclical one? We know recession lowers asset prices (think houses and shares) while the debt used to buy those assets remains. High debt and prospects of higher inflation mean lower consumption growth. Commercial real estate will feel the pain too and the new normal may be lower growth locally and globally. Consumers have grown weary in regard to their own near-term employment and income prospects. Yet, even during this recessionary period, we have seen the entrance of new restaurant franchises and stores. Find out what are some of the factors behind these trends.