2019 Summary
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12/2019: Economic Events That Defined 2019

Puerto Rico’s economy facing new realities and challenges
Albeit several positives were observed in 2019, such as the first fruits of the debt restructuring process, it was also a year marked by lack of progress in getting the economy back on track. Once the tail winds from the post Hurricane Maria rebound fizzled, economic activity hit negative territory once again. To make matters more worrisome, there was no significant private sector investment through Opportunity Zones (OZ), key structural reforms remained incomplete while others, such as the pensions system, may yet bring about a severe backlash. This year also saw the formal confirmation of everyone’s worst fears—that US funds for reconstruction will be significantly less than expected at first (around $30 bn less), which, unfortunately, altogether, does not bode well for us in 2020. The economy needs to grow soon, or the assumptions made in negotiating with bondholders may have to be revisited. Something everyone will want to avoid.

An Alluring Goal or an Undesirable Result? On Puerto Rico’s long-term economic sustainability
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07/19 An Alluring Goal or an Undesirable Result? – On Puerto Rico’s long-term economic sustainability

Straightening out PR’s public finances—which by now is a legal obligation rather than a lofty public policy objective—has exposed a myriad of nefarious economic dynamics. For years, these were masked by indirect subsidies, such as those afforded under Section 936, but most of all, through the use of affordable and attractive cheap debt. In fact, the perverse dynamic of using debt to cover the gap in recurrent expenditures—done by all administrations—ended up normalizing the unthinkable: debt was simply redefined to be “extra constitutional” whenever the constitution forbade it. Unfortunately, regaining our long-lost economic sustainability will require further adjustments that could deepen the current socioeconomic and demographic spiral. By chasing an elusive goal, we might end up facing a curse yet to be materialized. With 30% of the population expected to be over 65 by 2040, missing the target this time around is simply not an option.

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01/2019: The Banking Sector’s Current Impasse

Remaking Puerto Rico's Banking SectorThe remaking of PR’s economic landscape will reshape banks
The last fifteen years witnessed a remaking of PR’s banking sector that continues to unfold. The process has been largely uneven as consolidations, the bursting of a real estate bubble, an economic depression, population decline, and the default of public debt have all had a direct impact on the sector’s core capabilities and operations. In response to this, banks were forced to retrench their activities, mitigate risk, and become risk-averse. This, understandably, has resulted in a more passive sector, one that, in the future, stands to react rather than lead the creation of new economic opportunities. In this sense, unless the recovery funds are managed to create the right incentives for them to remain on the Island, the banks will simply not leverage capital to jumpstart much needed economic growth, or support development, regardless of continued interest rate hikes. The stakes at the moment could not be higher. PR must get it right this time.

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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.

Puerto Rico Compass ©
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Q2-2018: Impact of Millions in Puerto Rico

Analysis of Puerto Rico’s Q2-2018 Economic Indices
Economic recoveryAlmost 11 months have gone by since hurricanes Irma and Maria struck the Island in September 2017. The unconvincing and uneven economic recovery is a deterrence for attracting new investments to the Island. Construction and consumption are the biggest winners in this quarter and the other quarterly indices have also improved, but will this trend continue? What is the real amount of federal disaster funds allocated for Puerto Rico? Given the impact of the recent hurricanes, have all relevant federal agencies seen an increase in their budgets for Puerto Rico? Has the job market shown clear signs of recovery in 2Q-2018? This issue answers some of these questions and analyzes the post hurricane economic situation by sector.

Puerto Rico Economic Pulse ©
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02/2018: Out With the Old, In With the New – Part II

The Government’s Revised Fiscal Plan stumbles on assumptions

Out with the Old In with the NewEconomic modeling is both science and art. Failure to take this seriously leads to wrong decision-making scenarios in PR. If that was acceptable in the past, it is not at present. Old ways relied on a relatively stable population to forecast growth and fiscal revenues. As per the revised fiscal plan, this appears not to be the case. Old ways relied on government revenues forecasted, in many cases, as trend of past collections. Now, these revenues must be tied to demographics and economic growth in the aftermath of hurricane Maria. Old ways relied on GNP growth forecasts by the PR Planning Board. Now, the forecasts in the fiscal plan need to use a coherent economic model of PR’s economy rather than mere assumptions with irreconcilable results. This issue questions the assumptions and results of the most recently revised Central Government Fiscal Plan.

Puerto Rico Compass ©
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Q42017: A Shattered Economy After Hurricane Maria

Shattered EconomyAnalysis of 4th Quarter 2017 economic indices

At the end of 2017, PR exhibits a shattered economy with a broken infrastructure due the devastation of hurricane Maria on September 20, 2017. As of January 2018, more than 400,000 clients or 30% of PREPA’s clients still had no electricity. As analyzed in our previous Q3 issue, a fast recovery of electricity is a key factor in the island’s economic recovery. Other basic infrastructure, such as, water, communications, and roads continue to have problems. The lack of a fully operational and reliable infrastructure is hitting businesses as well as households. With lower demand and rising operational costs, many businesses have reached the point of no return and have closed or filed for bankruptcy. Families have chosen the option of mass migration, particularly to the USA. HCCG’s six quarterly economic indices highlight the effects of the broken infrastructure and a weak economy in the post Maria era.

Puerto Rico Economic Pulse ©
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01/2018: Out With the Old, In With the New – Part I

Elements of a much-needed economic plan
Out With The Old In With The NewOut with the old and in with the new is a two-part analysis of key strategic elements that Puerto Rico’s economic plan must outline and execute if we are to compete and regain our title of the “Shining Star of the Caribbean”. Infrastructure is a recurrent topic in economic growth and development strategies. Hurricane Maria devastated the Island’s electrical system, highways, ports, water facilities, and telecommunication systems. To this date, neither the Government nor the Supervisory Fiscal Board have communicated the outline of such a comprehensive Plan and instead, the Governor has announced the need to privatize the PR Electrical Power Authority and the Board has insisted on a revised Fiscal Plan. Meanwhile, government liquidity and credibility issues threaten the continuation of government services and timid recovery efforts. This Issue addresses what needs to change from the old to the new focus in strategy and execution if PR is to compete, worldwide.

Puerto Rico Economic Pulse ©
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12/2017 The Perfect Storm in 2017

Irma, Maria, and the US Tax Reform
The Perfect StormOn Wednesday December 20th, 2017, the House of Representatives joined the Senate in passing the US Tax Cuts and Jobs Act. This is a major overhaul of the US tax code that will substantially cut corporate tax rates on a permanent basis and tax cuts to households that will expire over the next decade. It will also increase the Federal deficit by $1.5 trillion and adversely hits Puerto Rico as “collateral damage”. PR will remember 2017 as the year of the perfect storm with category 5 hurricanes Irma and Maria in September and the US tax reform. The latter threatens 50% of our GDP, 288,000 direct and indirect jobs, and 33% of the central government budget. The hurricanes destroyed PR’s electrical grid; uncovered the face of poverty; bankrupted many small and medium businesses; incentivized massive migration to the US, and further curtailed PR’s autonomy to govern itself as Congress mandated a Fiscal Supervisory Board. Will business and financiers gamble on PR?

 

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Nov 2017 The Other Side of Maria: Poverty Uncovered

A comparative analysis over time
Since 1970, official statistics corroborate that Puerto Rico made significant advances on the war on poverty. Economic growth and federal assistance in the Island were responsible for poverty reduction. On September 20th, hurricane Maria hit Puerto Rico leaving major economic damages and wiping out most of the vegetation in the Island. Besides its physical and economic impact, Maria also uncovered the poverty that exists in the Island and which makes us the poorest jurisdiction among the 50 States and PR. The face of poverty includes children, women, blacks, and the mountain area in PR. This issue addresses how poverty has changed in PR, what was the profile of poor people before Maria, what are the welfare programs to fight poverty, and what will it take to halt the increase in poverty levels caused after hurricane Maria.

Poverty Uncovered