Puerto Rico Economic Pulse ©

Nov 2016: Reality Check for Puerto Rico’s Fiscal Plan

Success will depend on the premises it makes
The government’s latest version of its fiscal and economic growth plan has come under close scrutiny since being submitted to the Financial Oversight & Management Control Board (FOMCB) for PR.  Some critics have pointed to its lack of policy specifics while others have scorned the fact that it does not contain a debt sustainability analysis while resting on additional federal funding. The PR fiscal plan (FP) has various technical points and assumptions that have also been singled out. The plan’s viability, regardless of the gaps, will ultimately depend on the validity of its assumptions. Policy makers must find a way to boost PR’s long-term potential output first but the appointed board may want to restructure public debt obligation first. Growing the economy will ensure that the future roadmap rests on credible future income flows. This edition of the Pulse takes a look at the fundamental assumptions behind the fiscal plan.

Puerto Rico Compass ©

Q3 2016 – Is Election 2016 Different for Puerto Rico?

Does the upcoming race change anything?
With elections just around the corner, do Puerto Ricans think the next Governor will have a profound impact on the economy? This issue of Compass analyzes the performance of HCCG’s six quarterly indices during the past non-election years compared with historical election years from 2000 thru 2012 and this year’s results. Find out if the consumer index tracks Puerto Ricans’ sense of financial security in their spending patterns. However, banking, construction, and manufacturing as well as the coincident index suggest the results of this election could prolong the lengthy economic recession of the past 11 years. Any election year brings uncertainty and many business owners could be hesitant to make long-term decisions. To complicate matters, the recently US Congress mandated Fiscal Control Board has absolute powers over the administration of the Island until fiscal discipline is restored, public debt is serviced, and there is access to financial markets. What is certain is that all of this will take years in the making.

Puerto Rico Economic Pulse ©

Oct 2016 – One More Time: Puerto Rico’s Agenda

Election 2016 – Analysis of Economic Platforms
On November 8th, 2016, Puerto Ricans will face a stark choice between six governor candidacies, consisting of 4 political parties and 2 independent candidates. According to recent polls, independent candidates are attracting 22% of voters. Still, Ricardo Rossello from the NPP and David Bernier from the PDP are leading the polls to be the next Governor of PR. However, with the recent approval of a US Congress mandated Fiscal Control Board for PR, most people consider the elected governor and the legislature will have limited powers and areas of influence. Under these circumstances, the next four years will be tough for the new government and the people of PR. Economic issues include recession, outmigration, debt payments, retirement and health time bombs, and a harsh relation with the Fiscal Control Board. Voters in PR will have to analyze carefully the various platforms of these candidates and determine if some of these measures are economically unfeasible, not fiscally prudent, unclear; or depict lack of organization and cohesion, among other flaws. Can you judge who might be the better candidate for PR?

Puerto Rico Economic Pulse ©

Aug 2016: Aging & Migration Watch

How the PR economy could perform with these trends
As PROMESA with its Fiscal Control Board prepares to fix the island’s fiscal and hopefully economic problems, it is wise to assess the effects of aging and migration on the PR economy. Several years ago, PR Pulse addressed the issue of migration and a few months ago, we analyzed the impact of aging and lower population in Puerto Rico. Today, we combine both trends to assess the magnitude of their potential effects on the labor market and the island economy. Europe as well as many US states are experiencing substantial growth in the size of their older population. PR has joined the aging movement. Population aging and current migration have detrimental effects on our economic growth. Much of the older population growth was predetermined by lower fertility rates but now migration plays a key role in this population shift. Find out how these trends strike a further blow to economic growth in PR.

Puerto Rico Economic Pulse ©

July 2016: Can PR’s Budget Adjust to the New Norm?

10 years after the government shutdown

Fiscal budgets everywhere seek to balance the basic needs of the population with the resources available to the government. In PR’s case, the fiscal challenges are even starker as meeting its current debt obligations—without any viable economic alternative to back it up—will continue to drive up migration, thus further contracting economic activity and the current tax base. In this sense, the Commonwealth is facing a dire chicken and egg problem.  Stopping the population drainage will require positive economic prospects, yet to materialize. Not meeting its debt obligations will feed more uncertainty to the business community and certainly continue to deny the island access to capital markets, necessary to promote economic growth and development. All this makes it difficult to further reduce outward migration. Meanwhile, the government will need to continue to adjust its spending pattern to the prevailing socio-demographic profile of the resident population, a task easier said than done.

Puerto Rico Compass ©

Q2 2016: It is Still a Long Bumpy Ride

Analysis of Puerto Rico’s 2nd Q 2016 economic indices

The goal of Compass is to provide insights on drivers of PR’s overall economy and key economic sectors with the latest financial and economic data on a quarterly basis. The 2nd Quarter of 2016 depicts an economy still in the doldrums with a negative short-term outlook. Banking, Manufacturing, and construction seem stuck in negative territory. Manufacturing keeps losing jobs, which are often middle paying, largely because of technology and worldwide weakness in China. This year’s presidential race in the US and the gubernatorial race in PR raise more issues than solutions. Start with minimum wages. US candidate Hilary Clinton supports raising the federal minimum wage to $12 an hour, up from today’s $7.25 and candidate Trump recently endorsed a rise to $10 an hour. A higher minimum wage would help some workers in the low-paying food services and accommodation industries, so long as the higher minimum did not destroy their jobs by making it unprofitable to employ them. On the local front, the expected US fiscal control board has done little to halt the island’s mood of uncertainty.

Puerto Rico Economic Pulse ©

June 2016: Brexit and the Emergence of Discontent

Implications of newly found political and economic aversion

The results of the recent referendum on whether the UK wished to withdraw from the European Union (EU)—Brexit—sent world public opinion on a tail spin as the Leave option unexpectedly won by a margin of 52% to 48%. The following morning, David Cameron’s—the UK’s prime minister and the number one advocate to Remain in the EU—resigned and this further fueled speculations regarding the future of one of the world’s most influential nations. Since then, not only is everyone trying to make sense of the, until very recently, unthinkable but has also taken situational analysis to the next level.  That long forgotten “what-if” scenario is now a palpable reality. Going forward, several developments must take place for Brexit to materialize as a permanent fixture of the UK’s relationship with the EU—and the rest of the world. None of them are straight forward but in the end, there will be lessons for everyone, including us in Puerto Rico.

Puerto Rico Economic Pulse ©

May 2015: Sharing the Pain with Debtors

Analysis of recommended PR fiscal budget in FY 2017

With total public debt of around 101% of GNP in FY2016, an extremely high figure for Puerto Rico, the question is not whether the government should cut its budget deficit but by how much and how to cut wisely. To bond markets’ consternation, Governor Alejandro García Padilla announced to the world last year the island could not pay its public debt and would likely default on its debt service payments. Fiscal policy must be driven by reason, responsible policymaking, and cost-benefit-based analysis of government’s spending priorities. After 10 years, PR’s economic growth is still negative; private and public investment is at its nadir; retired public workers expect full pensions and reliable health coverage; and US Congress threatens to impose a unilateral Fiscal Control Board to regain fiscal discipline and ensure public debt is paid. Will the recommended budget protect Puerto Ricans from various risks: unemployment, destitution, illness, and lack of education? What will it take to recover a growth path in the island?

Puerto Rico Economic Pulse ©

April 2016: PR Stretched to the Limit

Review of Global, US & PR economies in FY 2015 plus forecasts from 2016 to 2018

The past few weeks have seen an unprecedented spike in uncertainty over the Island’s long-term prospects. The combination of a pending default on public debt, political wrangling both in Washington and San Juan, and continuous negative news about the economy has opened the door to short-term politics and the prospects of a full-blown crisis. Ultimately, the economy will adjust to the existing reality on the ground however unpleasant this may be with the real test only just beginning. The policy and institutional framework will have to be rebuilt pretty much from scratch as constrained budgets, lower economic activity, lower population, and impoverished consumers are here to stay, at least for a while. Striking the right balance will require a significant amount of creativity and courage but the alternative is definitely more daunting. Coming to grips with the hard facts that public debt is a debt we all must pay is only the beginning. What will it take to chart a path to solvency and growth in PR?