Puerto Rico Economic Pulse ©

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
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Puerto Rico Economic Pulse ©

Aug 2017: Time to Right a Wrong – Part I

Time to Right a Wrong – Part I Risks to the Puerto Rico health care system http://www.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.

Puerto Rico Economic Pulse ©

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!”

Puerto Rico Compass ©

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.

Puerto Rico Economic Pulse ©

Jun 2017: So, what’s the Plan for Puerto Rico?

Assessment of Fiscal Plan’s questionable elements
Tensions seem to be flaring between the Fiscal Oversight Supervisory Board (Board), designated per PROMESA law, and the Government of PR as the reality of a steep decline in nominal GNP growth in the Island begins to materialize through the new budget’s fiscal discipline measures. The Fiscal Plan, submitted by the Governor of PR and approved by the Board, charts the route ahead. As more details became available, different groups have become more vocal in criticizing the approved Fiscal Plan (FP). Underlying these concerns are several questions, such as: Will the Fiscal Plan spur investment and economic growth? Are the measures included in the FP enough to restore fiscal discipline and return to a growth path? Are the FP’s assumptions correct? Does the FP adequately asses economic impact? This issue attempts to answer some of these questions from the standpoint of bondholders, renowned economists, government officials, and HCCG.

Puerto Rico Economic Pulse ©

May 2017: Entrepreneurship as a Way out for PR

The Legacy of Dr. William Baumol to US

This Pulse is a tribute to a great economist and a great man, as well as a friend, who recently passed away. For many years, Dr. William Baumol and his wife enjoyed spending time at their Luquillo beach apartment from December thru March. Most of all, I remember his common-sense explanations and the clarity with which he could explain a complex theory and write in impeccable style for all of us followers to learn. His insights, particularly those on innovative entrepreneurship, are at the heart of the solution to PR’s ongoing economic woes. William was also a man of action, being instrumental in obtaining a Mellon grant to fund “The Economics of Status in Puerto Rico” together with a group of local economists. To this day, this research is one of the best empirical and comprehensive works on the subject. Filling his void will be difficult and, yes, I will miss the conversations and enthusiasm that he never hesitated to share. Let this Pulse stand as testimony of one of his many great ideas, one that could definitely help shape a way out for PR. Hasta siempre.

Puerto Rico Economic Pulse ©

Apr 2017: An Open Letter to a Nobel Prize

On Joseph Stiglitz’s reading of the Puerto Rico Economy

Puerto Rico recently welcomed Joseph Stiglitz, Nobel Prize in economics in 2001 and a renowned expert on the US and world economies. During a conference in Puerto Rico on April 6 of this year, Stiglitz addressed and lectured a large audience on the long-lasting fiscal and economic crisis of the Island. His presentation included the most recent episodes of worldwide fiscal crisis and debt restructuring. He also underscored the urgent need to get Puerto Rico back on the path of economic growth, something with which we all agree. However, as useful as this analysis might appear, Stiglitz failed to gauge whether his general recommendations were applicable in the very particular and complex economic context of Puerto Rico. This issue of Pulse analyzes some of Stiglitz’s conclusions and provides alternative explanations.

Economic Forecast

Mar 2017: Sink or Swim Puerto Rico

Analysis of PR’s performance in 2016 & forecast for 2017 – 2019
Today, after 11 years of economic recession, external and internal events pose further challenges to the Puerto Rico economy. China’s deceleration, the exit of UK from the European Community, Trumps’ election in the US, and terrorist attacks in 2016 do not augur strong external demand for PR’s exports in coming years. The establishment of the Financial Oversight and Management Board (FOMB), a euphemism for a control board, in PR was the most important event in 2016, together with the election of Governor Rossello. In a time of uncertainty, peering 3 years into the future may seem a daunting task. It is, but, ignoring trends—demographic, economic, corporate—is not an option. Understanding the immediate future in PR is vital in ensuring that business and hopefully, government strategies are sustainable, that opportunities are identified, and that challenges are addressed to exit stagnation. This Pulse explores recent economic events in 2016 and forecasts 2017 thru 2019.

Puerto Rico Compass ©

1Q-2017 Leading Us into a Disaster?

Analysis of Puerto Rico’s Q1-2017 Economic Indices

The PR Oversight Board started to put pressure on the PR government. It is in search of results related to savings, cuts, and efficiencies in the PR government. The Administration has both hands full dealing with budget, reports, and measures with deadlines imposed by the Board. Perhaps for this reason, it seems the PR government has not engaged in a proactive role to restore growth. Instead, it appears Governor Rosselló and all the heads of agencies and public corporations are reacting to the Board’s increasing requirements. Whatever the magnitude of the measures, i.e. $120 mn or more than $500 mn cuts to the UPR budget, it is clear those are recessionary fiscal policies. The external sector, specially oil prices and interest rates, is changing rapidly, heading to a more challenging environment. This issue analyzes some risks in the future and why the Board and the PR government should take bold actions to spur growth instead of following an accountant approach to reach the Fiscal Plan targets.

Puerto Rico Economic Pulse ©

Feb 2017: Greek Lessons on the Impact of Austerity

What can happen when austerity is the only remedy in place
The Greek economic crisis, just like PR’s, was a long time in the making. What began as a credit crisis in 2008 became a social and economic chaos in two years, with austerity measures fueling a negative feedback loop that is still ongoing. The crisis was amplified by prior conditions on the ground, such as, widespread tax evasion, tampering of official statistics, and relentless political pressure from all sides. By 2014, the economic consequences of the process were becoming irreversible with widespread questioning of the need for austerity measures. Since then, many lessons have been drawn, most importantly, that the need for austerity must not override the need for future growth and development. Otherwise, the fiscal policy risks becoming self-defeating as fiscal accounts may never regain sustainability. Puerto Rico must do everything to avoid this trap.