Puerto Rico Compass ©

Q4 2008: Every Sector Takes a Beating

Economic indices in Q4 tell the story the PR economy

Puerto Rico is in its third year of an economic recession. The current economic crisis is worldwide with a financial crisis that has not been resolved. As the mortgage market failed and many financial systems were rescued by government intervention, consumers and investors were less willing to spend and invest. Our consumer has also turned more cautious and thrifty. Gasoline and electricity bills have taken a big bite out of household budgets. Consumption is restricted and credit constraints are tightened. All economic sectors in PR, including banking, manufacturing, and construction have taken a beating and are struggling to charge ahead. As 2008 ended, a new governor was elected and together with a new team, Puerto Ricans hope to resolve the fiscal crisis and avert more unemployment.

Puerto Rico Economic Pulse ©

December 2008: Effect of the Financial Crisis on Puerto Rico

What can be expected in 2009

As reported previously, the two main problems of the current financial crisis are mortgage-backed securities and credit default swaps. This triggered a massive and coordinated worldwide response. By mid-October, central banks throughout the world had implemented different measures to counter the ongoing situation including loan guarantees, bank nationalization, interest rate reductions, foreign currency sell-offs, and direct liquidity injections. The US Emergency Economic Stabilization Act (EESA), signed into law on October 3rd, designed several programs to be financed with taxpayers’ money.  In principle, the total value of the rescue package is $700 billion although the overall rescue effort could easily topple more than $2 trillion. Some banking institutions in PR could benefit directly from some of these programs. Find out what these plans are and how the crisis could affect us in 2009.

Puerto Rico Economic Pulse ©

November 2008: Staring at the abyss, Part I

Causes,consequences, and remedies for the world financial crisis

The world is going through its worst economic crisis in seventy years. The burst of the real estate bubble has already become a volcano eruption that is cracking the foundations of top financial institutions across the world. Even those who predicted the crisis have been baffled by its magnitude. Financial packages, bailouts, and rescue efforts have all failed to halt the lava that is mercilessly engulfing banks, investment companies, and even entire countries. This month’s newsletter reviews the economic events that led to the outbreak of this crisis, an event that is already a milestone in world’s economic history. This is a necessary step to understand what Puerto Rico should expect next year. Don’t miss Part II next month.

Puerto Rico Economic Pulse ©

October 2008: Exporting Services: Goal or Dream?

The next economic strategy for Puerto Rico

The winds of globalization are blowing harder and carving a new world. Foreign trade, formerly dominated by goods, is now featuring an unstoppable boom of services. Emerging and developing countries are fiercely fighting to excel as services exporters whether as R&D and financial centers, tourist destinations, or maritime ports, among others. The challenge has reached the shores of Puerto Rico and the island cannot dismiss it. With manufacturing faltering and agriculture on the brink of extinction, exporting services is a must for Puerto Rico. It is time to assess how the island can pull off this test and join the club of successful service exporters. Find out what is happening with services around the world and in Puerto Rico.

Puerto Rico Compass ©

Q3 2008: Collapse in the Financial Markets

Quarterly economic indices analyze the PR economy

The financial system throughout the world is on the brink of disaster. A downturn in the US economy plus an unregulated derivative market related to housing has caused failures in financial markets globally. For many, a future recession is imminent. How did this occur? Business and individuals had a positive outlook on the US economy. A housing bubble emerged and mortgage credits were provided to people who could otherwise not afford the units they bought. This speculative housing bubble started a boom in the construction sector. The bubble finally burst. Banks were less liquid than before. A credit crunch halted the boom and contaminated the rest of the global financial system. The collapse has just started. Financial bailouts by governments have been approved but it is yet too early to determine if they will succeed. Against this background, where is the Puerto Rico economy headed?

Puerto Rico Economic Pulse ©

September 2008: Decision 2008

Analysis of Economic Platforms of the political parties in PR

An important decision will take place next month in Puerto Rico. The upcoming general election could end gridlock between the legislative and executive powers. But will this be enough to restore growth in a weak economy? A US economic downturn is also affecting our economy. The island faces a saturated housing market, high unemployment, and low levels of growth. The principal challenge for the next 4 years will be the recovery of the island economy. Are all contenders’ proposals strong enough to restore growth in the long run? Or are they just proposing weak policies to mitigate short run problems while they are elected? This issue reviews the economic platforms of the four political parties in this election. Find out if their proposals address growth of our economy.

Puerto Rico Economic Pulse ©

August 2008: In Search of Growth and Certainty

Puerto Rico’s New Industrial Incentives Law

After a stormy and protracted debate, Puerto Rico finally unveiled a new industrial incentives law, effective July 1st, 2008. This was particularly important not only for the extension of industrial tax and other incentives for local and non-local businesses on the island but because it provided some certainty in a business environment pressed by recession and gridlock politics. The Puerto Rico economy achieved high rates of real economic growth from 1948 to 1973. Since then, it has been searching for growth. Will the new law be enough to compete globally? Will it boost local companies into exports? Find out whether the new law is a small step in the right direction to promote sector-specific activities where Puerto Rico could become competitive by world standards.

Puerto Rico Economic Pulse ©

July 2008: The Emergence of a New Luxury Good, Part II

The surge in food prices in Puerto Rico

Rising food prices are causing severe hardship and suffering to many households in Puerto Rico’s feeble economy. Restaurants and food service businesses are also at risk not only as inflation continues skyrocketing but as local economic conditions continue to worsen. The number of commercial bankruptcy cases filed monthly has escalated. The world food crisis affects more than 22 countries with price increases of 10% for sugar and rice, 50% for vegetable oils, 20% for wheat, and 30% for cereals. Since Puerto Rico depends heavily on imports for its food, we estimate that this externally driven inflation has moved about 62,000 persons below the poverty level. This issue has more significance since our weak agricultural sector appears to have been left behind. Can Puerto Rico do something?

Puerto Rico Compass ©

Q2 2008: A Second Quarter Meltdown in Puerto Rico

Quarterly economic indices tell the story

Puerto Rico’s second quarter has been characterized by media news regarding bankruptcies, food and gasoline price spikes, foreclosures, car repossessions, unemployment, companies leaving Puerto Rico, and job losses. Construction continues to pull the economy downwards while a cautious banking sector continues to tighten credit. This credit crunch halts consumer expenditures and investment. Meantime, local politicians engage in Byzantine debates in order to win the next election rather than suggest and find the means to finance countercyclical economic policies. We have relied on relief from the federal government and the Federal Reserve. It is time for us to lend them a hand and leave this trough.

Puerto Rico Economic Pulse ©

June 2008: The Emergence of a New Luxury Good, Part I

The worldwide surge in food prices and in Puerto Rico

Consumers all over the world are feeling the heat of a surge in food prices. In addition to skyrocketing energy prices, credit crunch, economic slowdown, and other problems, consumers now have to deal with a sudden jump in the prices of many food products. Rice, bread, milk, vegetable oil, among others, are some of the products whose prices have literally soared. Food, which until recently was considered an easy affair for developed countries, has now joined the group of luxury goods.  According to the UN, higher food prices threaten more than 800 million persons already facing hunger. This issue examines some of the reasons that have triggered such a worldwide mess in food. Part II next month will address how this has affected Puerto Rico and options available to the island.