December 1999: Breaking into the New Millennium

This has been the year in which more money has been pumped into the megaprojects of the Super aqueduct, the Urban Train, and highway construction. The six-year old health care reform plan for the medically indigent is already in need of reform. The disaster of Hurricane Gorges in September 1998 turned out to be a blessing in disguise, propelling the economy to 4.2% real growth in fiscal 99. Our consumers kept breaking sales records. But depending on the two C`s: construction and consumption may be too complacent for the economic outlook in year 2000. Although, not an alarming fact, it does cast some doubt as to our ability to stay on the path of growth. As we break into the new millennium, we face an election year crammed with challenges and issues for the new gubernatorial candidates. Find out how a review of the major headlines during the year provides some clues on the economy at least for the next twelve months.

Learn how changes in age composition can affect your business. Puerto Rico has become an important consuming market, considered by many as one of the youngest markets in the world. But will Baby Boomers soon begin to show their wrinkles? Find out which age bracket will have the highest growth in spending power. The next 20 years could see a fundamental restructuring of how workers fund retirees. Timely reaction to these consequences will enable retailers to understand and reach the elusive moving target… customers.

As time goes by, the international or offshore banking plays an important role in a country`s financial development. Puerto Rico is no exception and has hitched on to this bandwagon. But, how effective have IBEs been since the law was amended in 1989? The emergence of financial institutions that establish their operations outside their home country is supposed to help the host country attain more economic development. Has the opening of subsidiaries in Puerto Rico by offshore institutions generated more jobs? Are the jobs created more sophisticated, highly skilled, and technologically oriented? Find out what has been the contribution of these entities to PR.

A gyrating US stock market has made investors fearful of interest rate hikes. Is that panic justified in Puerto Rico? Financial market deregulation and innovation, along with the rising importance of globalization have changed the structure of Puerto Rico`s economy. Our empirical evidence suggests a reduction in the economy`s overall interest sensitivity. This reduction is not spread equally across all sectors of the economy, however compsumption and residential investment have become less interest sensitive, while net exports now fall rather than rise in response to an interest rate hike.

By international standards, our share of consumption in GNP exceeds 93% of all countries in the world yet our income is barely a third of Mississippi`s per capita income. The consumer sector in Puerto Rico does not appear severely strained by low savings. Dramatic use and availability of credit is partly the explanation. Find out how the average consumer spends its income; why, despite a revolutionary health care reform, we are spending more on health and less on food. And, are we really spending less on education? In assessing whether the household sector has become overextended, debt balances provide some answers and worries as interest rates start to rise again.

A low unemployment rate in Puerto Rico does not necessarily mean more jobs are being created. Discourage workers leave the labor force and this artificially reduces unemployment. By international comparisons, the island`s 78% share of services in employment surpasses Europe, Latin America (64%), and most country (29%). During the past twenty year, services have grown uninterruptedly. Services is the big winner and manufacturing is the big loser in jobs but not in wages. Brainpower is wanted with Professional and Managers experiencing the highest demand. Learn about the risks of Puerto Rico`s secret weapon to achieve economic development.

It has become second nature to assume that Puerto Rico is essentially an integrated economic region of the United States. There are, however, some key sectors of the Puerto Rican economy that can be affected by other Caribbean economies in the region. Specifically, tourism and services represent two areas that must fight for a share of the regional markets. Furthermore, these are two of the strategic areas in the new model for PR. It is, then important to find out how Puerto Rico fares in the region. Newly integrated world and regional markets and the possibility of further Cuban competition only stress the need for Puerto Rican businesses to be prepared. Learn how PR is doing and what it can do to maintain its position in the region.

To understand Venezuela`s crisis, it is useful to examine the economic programs that preceded it. With oil prices riding high in the mid-seventies and eighties, both government and consumers spent more than their income. Find out how inefficient subsidies interfered with the free market; how prices soared; and why the people took to the streets and rioted. During 1998, economic growth was negative and income inequality worsened. For many retailers on the island, the collapse of oil rich Venezuela has not been good. What are the lessons of Venezuela`s crisis for Puerto Rico. Can the PR economy say that on average it is OK? Find out the answers in this issue.

Is the Puerto Rico economic model of the past fifty years dead? We used three measures to evaluate the performance of the model: growth in output, productivity, and job creation. The record in terms of growth and productivity is impressive but the fruits of economic growth have not been shared by those persistently unemployed. Times have changed and we are challenged with a new economic model based on tourism and services. Find out if these sectors can replace manufacturing as the engine of growth and high wages. Learn how PR can overcome the handicap of high wages on competitiveness in this fourth industrial revolution.

The growth of the Puerto Rico economy in 1998 was higher than expected. Why? Partially, the impulse of the US economy echoed in PR, mainly through exports and record low interest rates that zapped construction. Find out how Viagra helped PR. Government contributed with a massive program of public works. Productivity posted significant gains, particularly in manufacturing. Tourism also thrived under the umbrella of government incentives. Our economy grows apart from the US. Is this a trend? With this landscape, our model forecasted a continuation of positive but lower growth for most sectors, coexisting with still high unemployment and inflation during 1999 and 2000. Y2K remains a risk factor.