Puerto Rico Economic Pulse ©

August 2014: Has PR’s Recession Changed Consumption?

Understanding consumption patterns during this recession

A serious particular effect of severe downturns is that declining consumer spending, itself a reaction to the economy’s contraction, also undermines the prospects for recovery. In worst cases, a prolonged and deep plunge in consumption reinforces production driven recessions entering in a negative spiral. This takes place in closed economies, such as the US, where a significant number of consumer goods are produced in the mainland. Consumption is, in other words, a fundamental determinant of business cycles. Consumption is also a measure of the set of socioeconomic conditions that underlie consumer behavior, such as job opportunities, migration, price fluctuations, access to credit, and financial stability. The level of uncertainty in the PR economy and society is currently high. There is nothing to indicate that the current crisis will change quickly. How does the PR consumer behave in times of recession? This issue analyzes the impact of the ongoing recession on household consumption, effects, and threats for the future.

Puerto Rico Economic Pulse ©

July 2014: The World’s New Energy Order

Can Puerto Rico take advantage of it?

Politics overseas coupled with new technologies and rising economic needs in Asia have been reshaping the fundamentals of world energy markets for some time already. Social and economic upheaval in the Middle East, including the possibility of lifting Iran’s long-standing sanctions, has created new vested interests. Long dormant, yet unresolved, issues in South East Asia have resurfaced as China’s economic and military assertiveness remains in place. On the other side of the globe, the US is edging ever closer to effective energy independence thanks, in small amount, to the development of induced hydraulic fracturing. All these shifts will lead to more competition in energy markets, which, in principle, augurs well for PR. However, that may not necessarily translate into improvements on the ground if conditions on the Island do not change. There is still time but the window of opportunity at home is closing by the hour. PREPA, the electric power authority, is currently the island’s biggest challenge and opportunity for change.

Puerto Rico Compass ©

Q2 2014: PR’s Demographic Crisis

Impact of population shrinkage on economic indices

Compared with other states in the US mainland, Puerto Rico ranks 38th in terms of GDP. This economy is facing yet another crisis, a demographic time bomb. In 2013 official statistics indicated that the population declined by a record 40,000 people—roughly the population of the Municipality of Vega Alta. PR’s population started falling in fiscal 2005 and is now ageing even faster. More than 17% of Puerto Ricans are already 65 or older. According to projections by the PR Planning Board, the number of PR residents will fall from 3.6m to about 3.3m by 2020. Besides an ageing population, the major cause for population shrinkage is migration. About 97% of PR emigrants go to the US. This demographic outlook presents great challenges for various economic sectors, such as, labor, real estate, retail, banking, pension retirement systems, tax revenues, and the whole economy. Find out how a declining population in Puerto Rico impacts the island’s key economic indicators.

Puerto Rico Economic Pulse ©

June 2014: On Why Millennials Matter

Generation Y plays a key role in the workforce

There is a generation gap in the workforce. Baby boomers, born between 1946 to mid 1960s, resent Generation Y or the Millennials, born since the early 1980s to late 1990s. And Generation X, those born between mid 1960s to early 1980s, is fed up being “stuck in the middle between older workers who refuse to retire and younger ones who are treated far better than they ever were.” Puerto Rico needs to manage these three age groups with such differing attitudes. There is a widespread consensus among educators, marketers, and policymakers that digital technologies have given rise to a new generation of students, consumers, and citizens who see the world in a different way. Growing up with the Internet transformed their approach to work. Puerto Rico’s difficult economic and fiscal situation needs to regain competitive advantage in what it can produce and sell. Innovation plays center stage in this transformation. Can Millennials help?

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 Compass ©

Q1 2014: PR Still Moving Sideways

Analysis of 1st Quarter 2014 economic indices

During the first quarter of 2014, the government remained in the eye of the fiscal storm. Despite the adverse impact of junk status of PR GO’s and other public corporations’ bonds, the PR Treasury Department and the Government Development Bank successfully sold a $3.5 billion GO bond issue. Of course, the interest paid was high but necessary, in order to fund the daily government operations and debt obligations. The current administration has also worked hard on several initiatives geared to restore growth and create jobs. Among these initiatives is the “Star Isle” tourism campaign, the Jobs Now Act, a new aeronautic cluster, and the proposed energy reform, among others. However, these valuable efforts appear to have been diluted due to a lack of coordination and difficulties to deliver a clear message. Individuals have been hard hit by utility prices and businesses face uncertainty regarding tax reform. In short, Puerto Rico still moves sideways with expansionary and recessionary policies, which cause a near zero net effect.

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.