By H. Calero Consulting Group Puerto Rico Economic Pulse© • • 0 Comments

11/2019: The Fiscal Board’s Disingenuous Approach

PR’s fragile outlook may hit home sooner than expected
The Fiscal Oversight and Management Board’s (FOB) recent admission that there would be fewer reconstruction funds than originally expected, around $30 bn less, is a devastating blow to PR’s recovery efforts. Worse yet, the announcement carries a sense of foretold inevitability that erodes the FOB’s credibility as a guarantor of good fiscal practices. As result, the down scenario is now beginning to gain traction with the economic activity index having shown no gains during FY 2019 (in fact, it contracted slightly). Moreover, the process of reforms has been based on unrealistic and sometimes unfounded assumptions, such as the perceived damage caused by Law 80 on unjustified firings. In our opinion, there are risks in negotiating a debt restructure based on flimsy assumptions. Can these probable scenarios be changed?

By H. Calero Consulting Group Puerto Rico Economic Pulse© • • • 0 Comments

04/19 & 05/19: It’s—Again—the Economy!!! A forecast that defies imagination

The story of the PR economy is a “gripping whodunit”. Real economic growth for FY2018 reflects a record low -4.7% and a much worse revised growth of -3.0% for FY2017. Since 1948, the Island had never experienced such negative growth. Can we revert this course and reignite growth? Is there a political will to do so? How likely is engaging in aggressive fiscal policy when the bulk of public debt has not been renegotiated and financial markets are not too keen on lending bankrupt PR? Will growth take place without a plan and with austerity measures imposed by a US Congress-mandated fiscal board, which views its role as steward of fiscal discipline and not growth? The biggest threat to the Island’s recovery after Hurricane Maria is not only economic reconstruction and vision, but the acceleration of a declining, yet aging population. This issue of PR Economic Pulse analyzes the historical performance of our economy plus forecasts and risks for 2019 thru 2022.

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11/2018: A Plan with More Questions Than Answers

Opportunity Zones may just provide a much-needed response
Puerto Rico Opportunity Zones MapThe latest Federal Oversight Board’s (FOB) certified fiscal plan (October 2018) reveals a coherent, but dangerously limited understanding of PR’s present economic situation. In effect, it provides a one track-logic, based on reform and austerity measures, expected to yield the necessary cash flows to both repay the renegotiated public debt and achieve economic self-sustainability. Unfortunately, the problem is not so simple. Sustainable debt repayment requires a viable expansion of the Island’s tax base, which, in turn, requires long-term sustainability of economic activity. On a more fundamental level, the attainment of these goals requires economic development and growth. In this sense, the Opportunity Zones (OZ) initiative is a definite step in the right direction that could provide what the plan lacks. It remains to be seen however, particularly given PR’s dismal record of execution and operationalizing such initiatives, whether OZ can channel the investment capital that PR badly needs now.

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08/18: Code of Conduct – Fiscal Oversight Board

Insights into the fiscal discipline of PROMESA staff in Puerto Rico

Code of Conduct – Fiscal Oversight Board Puerto RicoPuerto Rico’s fiscal and economic crisis has thrust people into unlikely roles. On June 2016, President Barack Obama signed the legislation Puerto Rico Oversight Management, & Economic Stability Act to address Puerto Rico’s economic crisis. The Act established a 7-member oversight board with an Executive Director and staff to, among other things, provide Puerto Rico with tools to impose discipline over its finances, meet is obligations, and restore confidence in its institutions. The Board has sweeping powers over the Island and its staff has a significant and increasing budget, paid by PR taxpayers, to execute those powers. After the devastation of Hurricane Maria on September 2017, the economic reconstruction of the Island becomes even more important for PR to meet its fiscal and debt obligations. Is the entity in charge of balancing fiscal budgets and controlling expenses in PR applying these same principles to its expenses? It is in this context that this issue analyzes how the administrative staff of the Fiscal Board stacks against results.

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06/2018: In Search of Better Ways for Puerto Rico

In Search of Better Ways for PROn labor reform and job creation options

Puerto Rico desperately needs new sources of jobs, but the labor reform proposed by the Puerto Rico Federal Oversight and Management Board (FOMB) has not been convincing. By requesting an end to long-standing employee benefits, like Law 80, FOMB intended to align the local labor market with that of the US and allegedly remove what is seen as an impediment for higher labor participation, job creation, and economic recovery, in general. However, the proposed labor reform set forth by FOMB seems to draw a lot from the Bible of the International Monetary Fund (IMF) but misses critical points of the very particular economy of Puerto Rico. In fact, we could wind up in a worse situation. This issue of Pulse analyzes some myths regarding Puerto Rico’s labor market and suggests better alternatives to incentivize jobs in the Island’s labor market.

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04/2018: A New Privatization Model for PREPA

Competition can support Puerto Rico’s future

PrivatizationThe aftermath of hurricanes Irma and Maria essentially sealed PR Electric Power Authority’s (PREPA) fate, at least in its current legal form. The magnitude of the physical destruction experienced both by its generation capacity and its distribution networks renewed historical calls for its privatization. That possibility now seems irreversible, particularly given the Fiscal Oversight Board’s (FOB) drive to impose austerity across the public sector and the government’s market-friendliness inclination. However, not all privatization processes are the same and, by extension, not all lead to the same outcome. This issue of Pulse presents a novel approach to privatization—one based on the controlled introduction of competition in regional markets. The approach described herein has been successfully applied elsewhere. More importantly, it is designed to align electricity generation with PR’s changing socioeconomic landscape at zero cost to the government, consumers and businesses. Sometimes, privatization does work.