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Q42017: A Shattered Economy After Hurricane Maria

Shattered EconomyAnalysis of 4th Quarter 2017 economic indices

At the end of 2017, PR exhibits a shattered economy with a broken infrastructure due the devastation of hurricane Maria on September 20, 2017. As of January 2018, more than 400,000 clients or 30% of PREPA’s clients still had no electricity. As analyzed in our previous Q3 issue, a fast recovery of electricity is a key factor in the island’s economic recovery. Other basic infrastructure, such as, water, communications, and roads continue to have problems. The lack of a fully operational and reliable infrastructure is hitting businesses as well as households. With lower demand and rising operational costs, many businesses have reached the point of no return and have closed or filed for bankruptcy. Families have chosen the option of mass migration, particularly to the USA. HCCG’s six quarterly economic indices highlight the effects of the broken infrastructure and a weak economy in the post Maria era.

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01/2018: Out With the Old, In With the New – Part I

Elements of a much-needed economic plan
Out With The Old In With The NewOut with the old and in with the new is a two-part analysis of key strategic elements that Puerto Rico’s economic plan must outline and execute if we are to compete and regain our title of the “Shining Star of the Caribbean”. Infrastructure is a recurrent topic in economic growth and development strategies. Hurricane Maria devastated the Island’s electrical system, highways, ports, water facilities, and telecommunication systems. To this date, neither the Government nor the Supervisory Fiscal Board have communicated the outline of such a comprehensive Plan and instead, the Governor has announced the need to privatize the PR Electrical Power Authority and the Board has insisted on a revised Fiscal Plan. Meanwhile, government liquidity and credibility issues threaten the continuation of government services and timid recovery efforts. This Issue addresses what needs to change from the old to the new focus in strategy and execution if PR is to compete, worldwide.

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12/2017 The Perfect Storm in 2017

Irma, Maria, and the US Tax Reform
The Perfect StormOn Wednesday December 20th, 2017, the House of Representatives joined the Senate in passing the US Tax Cuts and Jobs Act. This is a major overhaul of the US tax code that will substantially cut corporate tax rates on a permanent basis and tax cuts to households that will expire over the next decade. It will also increase the Federal deficit by $1.5 trillion and adversely hits Puerto Rico as “collateral damage”. PR will remember 2017 as the year of the perfect storm with category 5 hurricanes Irma and Maria in September and the US tax reform. The latter threatens 50% of our GDP, 288,000 direct and indirect jobs, and 33% of the central government budget. The hurricanes destroyed PR’s electrical grid; uncovered the face of poverty; bankrupted many small and medium businesses; incentivized massive migration to the US, and further curtailed PR’s autonomy to govern itself as Congress mandated a Fiscal Supervisory Board. Will business and financiers gamble on PR?

 

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Nov 2017 The Other Side of Maria: Poverty Uncovered

A comparative analysis over time
Since 1970, official statistics corroborate that Puerto Rico made significant advances on the war on poverty. Economic growth and federal assistance in the Island were responsible for poverty reduction. On September 20th, hurricane Maria hit Puerto Rico leaving major economic damages and wiping out most of the vegetation in the Island. Besides its physical and economic impact, Maria also uncovered the poverty that exists in the Island and which makes us the poorest jurisdiction among the 50 States and PR. The face of poverty includes children, women, blacks, and the mountain area in PR. This issue addresses how poverty has changed in PR, what was the profile of poor people before Maria, what are the welfare programs to fight poverty, and what will it take to halt the increase in poverty levels caused after hurricane Maria.

Poverty Uncovered

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Q32017: PR’s Infrastructure: A House of Cards?

During 3Q 2017, two Category 5 hurricanes hit the Island causing unprecedented damages to the economy. Damages which could conservatively surpass $115 bn. The Island’s power grid was practically destroyed with massive damages, in roads, bridges, ports, airports, buildings, equipment, housing, and telecommunications, among others. All economic sectors depend on infrastructure to thrive; some sectors rely more than others but a good and consistent infrastructure is a must to be competitive in this global economy. Hurricanes Irma and Maria demonstrated that much of the PR alleged robust infrastructure was only a house of cards and when the winds blew out the electrical grid, all the house collapsed. This issue analyzes the repercussions of a broken infrastructure and how this impacts HCCG’s six quarterly economic indices in 3rd Q 2017.

Hurricane María over Puerto Rico
Source: NOAA
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Sep/Oct 2017: Puerto Rico – Submerged and in Darkness

Highlights of Economic Impact of Hurricane Maria

More than a month has passed since hurricane Maria ravaged the island of PR. The recovery efforts have been slow and insufficient. As of today, 25% of households have no water service; 75% remain in darkness without electricity; 35% of Puerto Ricans do not have telecommunications services. Sensing this lack of progress, many Puerto Ricans have opted to leave the island in search of greener pastures in the mainland. Florida alone has received upwards of 67,000 “refugees” since the storm hit the island on September 20th. The situation is dire to say the least. With a destroyed infrastructure, lack of water and power, and an accelerated pace of emigration, businesses and government desperately need to perform a comprehensive assessment of economic damages, identify risks and opportunities, measure, manage, and minimize risks now and in next few years. This Pulse is a teaser of a comprehensive study HCCG is preparing regarding the impact of hurricane Maria and how it forges Puerto Rico’s economic future.

How Hurricane María forges PR's Economic Future
Click on the image to order the Full How Hurricane María forges Puerto Rico’s Economic Future Economic Impact Study
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Aug 2017: Time to Right a Wrong – Part I

Time to Right a Wrong – Part I Risks to the Puerto Rico health care system https://hcalero.com/aug-2017-time-to-right-a-wrong-part-i/Risks to the Puerto Rico health care system
Health is one of the essential services that the PR government provides to its resident population. Currently, the Puerto Rico health care system is facing a perfect storm. As if domestic headwinds were not enough, the political mess in Washington, DC is fueling more trouble for PR. All attempts to repeal and replace the Affordable Care Act (Obamacare) have failed and a bipartisan compromise to fix the US healthcare system may be in the works but it will take time. Failing repeal, President Trump has tweeted he prefers to implode Obamacare by eliminating the subsidies provided to health insurance companies in the exchanges. Puerto Rico did not participate in the insurance exchanges but will likely suffer anyway. Fiscal shortfalls, trimmed payments to health insurers, and growing uncertainty have inflicted damage to health providers and Mi Salud (the Puerto Rican version of Medicaid) is on the verge of collapse. This seems unfair to us, since the Island has managed its health needs with fewer funds than Mainland states. This issue highlights many health challenges ahead.

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Jul 2017: They Still Don’t Get It

An Analysis of PR’s Fiscal Plan & Budget
On June 30, 2016, President Obama signed into law the federal Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA). Section 1010 of PROMESA created the Financial Oversight and Management Board (FOMB) for Puerto Rico, a seven-member board appointed by the US President for terms of 3 years. The Board has omnipotent powers and neither the Governor nor the Legislature in PR may control the Board. Their charter is to enact fiscal plans and budgets so the Island can return to the financial markets. The question is how will this be achieved. A balanced fiscal budget alone will not rescue the PR economy from its long-term economic recession nor will it stop the outward migration of its residents. Bondholders of PR’s public debt want to be paid but without a growing and vibrant economy, there will not be enough revenues to service this debt and continue providing “essential” government services. This issue addresses the key question of economic policy to restore growth, something which appears “Many, Still Don’t Get It!”

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2Q-2017 Will Manufacturing Save Puerto Rico?

An analysis of 2nd Quarter 2017 economic indices

Historically, manufacturing was a growth engine in Puerto Rico. Manufacturing’s relevance started with operation Bootstrap and the implementation of Section 931 of the US Internal Revenue Code in the 50s and continued with the implementation of Section 936 in the 70s. Thus, the contribution of manufacturing to the nominal GDP growth grew from 25% in the 50s to 61% in the ‘00s. However, due to the end of Section 936 in 2006, international competition, the end of several drug patents, and the PR fiscal and debt crises, the contribution of manufacturing to the Island’s economic growth fell from 61% in the ‘00s to 46% this decade (2010-2016). Is this sustainable? Worldwide, manufacturing paints a gloomy picture. Although responsible for 8% of total jobs, manufacturing was responsible for 47% of PR’s GDP in 2016. This issue examines the performance of 2Q-2017 indices with emphasis on manufacturing.