Puerto Rico Economic Pulse ©

November 2013: Unleashing PR’s Tourism Potential

A market in search of a new strategy

Puerto Rico is not alone in trying to lure tourists to its shores and help reduce the island’s reliance on other industries. Despite economic and financial turmoil in different countries, the world still travels. This issue presents key figures and trends in Puerto Rico’s tourism. Can it grow faster than manufacturing, retail or construction? As measured by jobs in leisure and hotel accommodations, tourism has been generating jobs at approximately 1% since 2003, faster than the reduction of -4.2% in manufacturing, -7.0% in construction, and -0.4% in retail. How much do international visitors spend in PR? Along these lines, PR has launched a millionaire advertising campaign to attract more visitors to the island and increase the economic impact of tourism. Travelling for health and sun is gaining momentum in other countries. Millennials have different travelling habits from traditional tourists. Finally, we highlight the future of travel in PR. What will it take to succeed? The task may prove more difficult than suggested by Boston Consulting Group’s recent economic plan.

Puerto Rico Economic Pulse ©

October 2013: Health Has Lots of Moving Parts – Part II

Economic impact of Obamacare in Puerto Rico

Will Obamacare increase or decrease the average cost of an insurance policy on the individual market? Ending discrimination against sick people raises premiums for the healthy but lowers them for the sick. Reducing discrimination against old people raises premiums for the young but reduces them for the old. Regulating insurance products raises prices at the low-end of the insurance market but cuts costs for people who actually get sick and need insurance that actually covers illnesses. Unlike the US, Puerto Rico does not have a trillion dollars in subsidies to cut costs for the poor. Unlike the US, Puerto Rico does not have an Exchange to encourage competition between insurers and hence, reduce costs. Unlike the US, Puerto Rico does not have either an individual mandate nor an employer mandate to help reduce average premiums by bringing younger, healthier applicants into the market yet PR’s Insurance Code mandates essential benefits in health care plans. Find out some of the sobering implications of the Affordable Care Act of 2010 for MiSalud, Medicare Advantage, individuals, and employers in Puerto Rico.

Puerto Rico Compass ©

Q3 2013: A Commitment to Action in Puerto Rico

An analysis of 3rd Quarter 2013 economic indices

Before the 2007 recession hit, Puerto Rico’s economy had been posting modest but positive real economic growth rates averaging 2.2% from 2002-2005. Jobs grew by 2.0% during the five years leading to the prerecession high. Real Fixed Investment was growing about 1%. Housing demand was high and created expectations that the boom would continue. Unfortunately, the positive growth turned into a bust. Housing values have declined and credit has tightened. Public debt hit an all time high of $70 b in 2012 and the US municipal bond markets have now focused on Puerto Rico and the likelihood of a debt default. Puerto Rico turned a new chapter in 2013. Although it still has a long way to go, the current Administration, only 10 months old, has demonstrated its commitment to action towards economic growth and development. An analysis of six indices for the 3rd quarter this year highlights several moves in the right direction.

Puerto Rico Economic Pulse ©

September 2013: Health Has Lots of Moving Parts – Part I

Setting the stage for Obamacare in Puerto Rico

The Affordable Care Act of 2010, better known as Obamacare, consists of a set of rules, which represent the biggest change in US health public policy since 1965 when Medicare was created. The main goal of this law is to provide affordable health insurance for all US citizens, including Puerto Rico, and to halt the growth of health care spending for increasing numbers of older Americans in need of health care. Not all the provisions of this law will apply in PR and some analysts forecast it could increase insurance premiums by 15% to 20%, which is clearly against Obamacare goals. Will this law help with health conditions in PR? The island faces several health challenges, such as: an ageing population, outward migration of the younger age groups, high health costs and inflation, a fiscal crisis, high prevalence of chronic conditions, poor personal health behavior, and increasing need of health care professionals. All these issues are challenging PR’s population, policy makers, and health. This issue sets the context for the implementation of Obamacare in PR and to some extent enables readers to pass judgment on the effectiveness of health care expenditures in Puerto Rico.

Puerto Rico Economic Pulse ©

August 2013: The Truth About Jobs in PR

Inside the labor market now and in the future

The winds of change have swept through Puerto Rico during the first half of 2013 and not surprisingly some have found some of this change to be rather unsettling. Critical press coverage about the recently completed legislative session has raised concerns in some corners that future economic development might suffer. Not unexpected, the legislature enacted major changes to PR’s tax policy, which increased corporate tax rates as well as imposed new taxes to curtail an estimated billionaire budget deficit for fiscal 2013 and 2014. Meanwhile, the Secretary of Economic Development and its subsidiary, the PR Trade Company, keep harping on the topic of a job creation target of 50,000 jobs within the first 18 months of this Administration. Well, 8 of those 18 months have already elapsed. It is time to review what is really happening in the Island’s labor market.

Puerto Rico Economic Pulse ©

July 2013: In the Eye of the Storm

Budget woes set the stage for Puerto Rico’s economy in FY 2014

The financial and fiscal problems plaguing the Puerto Rico government are not new. The island has been borrowing its way to growth. Over the past years, PR has been struggling under the growing weight of massive fiscal deficits that have increased the costs of credit and among other things, disrupted reimbursements to vendors who contract with the government. The legislature and the governor recently approved a combination of revenue-raising and cost-cutting measures. The new budget includes $1.5 billion in additional new taxes. We need to understand how the underlying budget squeeze and recent wave of tax increases will impact GDP. Many fiscal distortions will deter investment. Can the PR tax system support growth in other ways? Preliminary forecasts suggest impacts on businesses and the economy could derail an already fragile growth in 2014.

Puerto Rico Compass ©

Q2 2013: Is the PR Economy on Life Support?

An analysis of 2nd Quarter 2013 economic indices

Even if the PR economy is only going through a transition, it is an extremely painful one for many. Employment trends have polarized the workforce and hollowed out the middle class. Poor job growth is still the result of a sluggish economy. Will the pressure on employment and the resulting inequality only get worse? As this issue of Compass reveals, economic fundamentals still continue to underperform after 7 years of economic recession. Many worry that even with robust demand, the construction sector will continue to struggle with underutilized capacity. Manufacturing is barely holding. We continue to expect a weak economy, burdened by the collection of new taxes. Consumer confidence is weak as rising gasoline, electricity, and water prices pull future spending to lower levels. While the banking index is not back to pre-recession levels, the recent gain is positive. Growth is likely to still lag behind most previous recoveries.

Puerto Rico Economic Pulse ©

June 2013: PR’s Emerging Economic Fiber

Small scale activities can drive economic development

Puerto Rico’s own Great Recession has already left an indelible mark on the local economy with several important issues still unresolved. The channels through which microeconomic activities typically unfold are in disequilibrium. Moreover, the Puerto Rican economy has not responded to economic fundamentals for some years, not because policy makers are consistently getting it wrong but rather because the fundamentals themselves have not stopped changing. As a result, old practices are dying out while new ones are emerging in response to these very fluctuations.  These changes will create challenges in the form of market gaps and unmet demand that will transform the way businesses are conducted on the Island. This second installment on local SMEs examines how the new emerging economic fundamentals are creating opportunities for small-scale businesses.  Hence, not everything is lost for the Island.

Puerto Rico Economic Pulse ©

May 2013: Can Small Lead the Way?

Why small and medium enterprises will matter more than ever

Puerto Rico’s economic landscape has always been dominated by initiatives targeting big business. In practice, every major initiative relegated small and medium enterprises (SMEs) to the backseat when it came to public policy.  This is not to say that SME-targeted resources were not available (quite the opposite) but rather that SMEs were always considered the complement to the “true” engines of economic growth. A careful look at SMEs reveals, however, a different picture. Personal consumption—typically the largest contributor to GNP growth—depends largely on the jobs generated by SMEs. Furthermore, as PR rebuilds its economic fiber, small businesses will continue to channel innovation, entrepreneurship, and small-scale investment.  Interestingly, opportunities will abound in ways that will surprise even the skeptics. This Pulse will tell you why and where.

Puerto Rico Economic Pulse ©

April 2013: Survival of PR’s Public Retirement System

Analysis and lessons to be learned

In 2011, the Center for Retirement Research at Boston College concluded the average baby boomer was financially unprepared for retirement and, as a result, had to plan to work longer. The 2008 financial crisis wiped out $11 trillion of US household wealth, including both real estate and financial assets. The recent stock market recovery trimmed that loss to about $8 trillion. Since 2004, PR has lost $18 billion of wealth, as measured by the PR Stock Index. People close to retirement age still have an enormous savings gap if they aim to keep their current lifestyles. Since Government accounts for 26% of total employment in PR, public retirees will represent an important share of all retirees. In FY 2011, the unfunded liability of the Public Retirement Systems, Central Government plus Teachers, amounted to $35.6 billion. How did we get there? What can we learn from other jurisdictions? Is recent Law 3 a solution? Find out in this Pulse.