Puerto Rico Economic Pulse ©

November 1998: The Economics of Status

Tools to assess the political options for PR

On December 13, 1998, Puerto Ricans held a plebiscite to decide on the political options of statehood, commonwealth, associate republic, and independence.  The majority voted for “none of the above.”  Thus, the issue remains unresolved.  Since politics is intertwined with economics, informed decisions on status must start by asking how each option affects federal aid programs, taxes, investment, employment, and the size of the local government.  Find out what the convergence theory means and how other factors, besides status, allowed PR to grow faster than the US for a while.  Finally, the article challenges the reader to decide on the best option.

Puerto Rico Economic Pulse ©

October 1998: Construction Mania

Where will it lead us?

There is an extraordinary amount of energy in construction today, some of it optimistic, some bewildering. During 1997, the construction boom in PR accounted for almost half the 3.2% real growth of the economy. Is this sustainable? Public construction concentrated on infrastructure projects, instead of public housing. Private construction concentrated on housing, instead of industrial and commercial building.  In the SJ metro area, industrial construction shrank 47%. Paradox: the commercial space grew a hefty 26%, while retail sales increased by 8%. Sounds like shopping space overbuilding?  As consumer debt and the number of bankruptcies continue climbing, retail activity will lack luster. Manufacturing downsizing will not spur an increase in the demand for industrial space. This article addresses the issue of whether a continuation of this mix will increase productive capacity, which means future growth.

Puerto Rico Economic Pulse ©

September 1998: What Georges Left Us

A candid assessment of Hurricane Georges Economic Consequences

On September 21, 1998, Hurricane Georges hard hit Puerto Rico. The imprint of this natural disaster is visible, not only on the transformation of our landscape but also on the thousands of families and businesses, who lost property and revenues.  What is the extent of the damage and how should it be assessed? For instance, the loss of capital is an important damage but GNP figures do not register this loss. What are the economic consequences for the rest of the year? Will the emergency aid, insurance payments, loans, and increased construction activity boost the economy during fiscal years 1999 and 2000? Is Georges our only risk or is the Asian crisis a worst disaster still to hit the island? This article addresses all these questions and provides revised forecasts for real GNP growth for 1999 and 2000 respectively.  Inflation and unemployment will increase further as we break into the millennium.

Puerto Rico Economic Pulse ©

August 1998: Manufacturing Meltdown in PR:

Is there Life beyond 936?

Puerto Rico was given ten years to restructure its economy. With the phase out of Section 936 by year 2006, Puerto Rico worries that manufacturing, currently 41% of GDP, could pass into the hands of other, lower cost, emerging markets in Latin America, Europe, and Asia. Though this may be true, major breakthroughs in biotechnology, MEMs, nanotechnology will begin to create entire new industries over the next ten years!  Europe and the US are poised for further growth and sources of investment for PR and other countries. This issue addresses how PR could avoid a manufacturing meltdown and what instruments it must add to its development toolkit.

Puerto Rico Economic Pulse ©

July 1998: Next Recession to Hit Puerto Rico will come from China

The devaluation of Asian currencies has made Asian products, excluding China, more inexpensive for foreigners.  China, who has avoided devaluating the yuan, is losing some ground in the export battlefield.  The stability of China’s currency has kept the US stock market afloat and the US dollar not too costly.  This issue explores why China desperately needs to stimulate its economy and how some of its policies may affect Puerto Rico’s exports, leading us into the next recession.

Puerto Rico Economic Pulse ©

June 1998: Human Resources at a Crossroad:

Are we ready for the 21st Century?

For most modern, fast growing economies, human resources have become the engine driving its present and future development.  During the past decades, Puerto Rico’s workforce has been either unemployed or plainly discouraged. Historically, the island’s participation rate has been below 50% and unemployment rates have hovered around the 14% to 16% levels. Trends in human resources indicate a shift away from manufacturing and into services. What types of jobs will be required and how will our education meet the challenges? This issue looks at some of the factors explaining the survival of the working age population without a job and how education will shape the outlook for the future.
(See Special Edition on 9/00.)

Puerto Rico Economic Pulse ©

May 1998: All you wanted to know about Puerto Rico’s Public Debt

Privatization is the trend.  Still, 22% of the $32 billion GNP in 1997 was bought by the government, excluding the public corporations. It hires 23% of the 1.1 million employees and invests heavily on construction.  The average government sector worldwide consumes 15% of GNP.  Does this pose a problem for the island? This issue looks at the size of Puerto Rico’s public debt, which amounted to $20.7 billion as of February 1998.  It analyzes the fiscal moderation mechanisms imposed by our constitution and how it appears to be by-passed with the growth of extra-constitutional debt. Contents of this issue provide answers as to the size, growth, and sectors this debt is financing.

Puerto Rico Economic Pulse ©

April 1998: Should we worry when Bankruptcies Skyrocket?

The 45% increase in bankruptcy filings in 1997 and the continuation of this pattern appears to indicate our level of indebtedness is beyond reasonable limits.  This phenomenon has raised concerns regarding the health of our economy.  However, this trend is not unique to Puerto Rico and in fact, there are more bankruptcies per capita in the US than in PR.  Explanation of this surge in bankruptcies is not as simple as over-consumption.  Contents of this issue explore consumer confidence and baby boom demographics among the main factors behind this trend.

Puerto Rico Economic Pulse ©

March 1998: What will the Future Bring?

As fiscal 1998 unfolds, alarming events in the PR economy have taken place, threatening lower economic growth in 1998 and 1999.  Forty-nine manufacturing companies have either announced or closed operations on the island, a reduction of almost 7,000 jobs.  American Airlines announced its decision to move its hub to Miami.  Chase Manhattan Bank sold its loan portfolio to Banco Bilbao Vizcaya and will thereby close its operations in Puerto Rico.  Contents of this issue assesses the behavior of the economy in fiscal 1997 and the impact of these events on the future growth rates of real GNP, exports, investment, consumption, government expenditures, unemployment, and inflation, among others.

Puerto Rico Economic Pulse ©

February 1998: Inflation:

What is your Wallet Really Worth?

Every day your dollar is worth less. According to the consumer price index (CPI), Puerto Rico faces an inflation rate of almost 5.5% in 1998. This contrasts with the low 2% inflation in the US. If we cannot blame the US for our price increases, where does our inflation come from? This issue looks at the components and statistical measures of the CPI for answers.  Comparisons with the US and other countries will highlight big differences in the housing, education, and food categories.  Consumption patterns of 1977 indicate 41% was spent on food in PR. The US spends 16.3% while Greece spends 36.7%.  As a result, alternative measures of inflation have been suggested.  This issue evaluates and concludes which is the better way to measure inflation.