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

10/2019: Brexit: the Story of a Forewarned Tailspin

The realities that continue to divide the UK after three years

With a little over three weeks to go before the UK faces its moment of truth, the process of delivering Brexit seems anything but clear. Over the past three plus years since the electorate narrowly voted in favor of leaving the European Union (EU) by a 52% to 48% margin, the political climate has significantly deteriorated as opinions have become bitterly polarized. The upside—if there is one—is that by now it is abundantly clearer what Brexit would look like, with and without a deal. Along the way, the UK has seen three Prime Ministers (PM), the overwhelming rejection by Parliament of a negotiated deal and a negotiating team that has repeatedly stumbled in its approach and strategic objectives. The negotiators, however, are not the whole problem. Reality has repeatedly clashed with intent as the process became mired around four key fallacies driving the country’s public debate. Unfortunately, the solution is not easy, but there are a few lessons PR can learn.

Can PR create the conditions for local investors to return?
By H. Calero Consulting Group Puerto Rico Economic Pulse© • • 0 Comments

09/2019: The Long Road to Repatriate PR’s Capital

Can PR create the conditions for local investors to return?

Long before the onset of PR’s current debacle, the economy used to generate consistent savings that in part justified its status as an attractive investment destination. In effect, personal savings ranged between 8% to 15% of personal income during the 1980s (the golden years for S.936 companies) and 1990s (the golden years of construction), most of which were channeled towards financial investment on the Island. Fast forward 15 years and those same assets under management are now almost entirely outside PR, the majority of them under tight institutional restrictions on questions such as geography, risk and return. Despite this, there is still a window of opportunity if the government is able to develop an investment plan articulated through the Opportunity Zones (OZ) initiative. Such a repatriation of capital requires an active risk-mitigation role from the government and, above all, allowing the economy to expand through stimulus rather than austerity. The final decision will have long lasting implications.

Puerto Rico at a Crossroads
By H. Calero Consulting Group Puerto Rico Compass© • 0 Comments

Q2/2019: The Roots of the Problem

Inside Q2-2019 economic indices for Puerto Rico
Puerto Rico still needs to find a new economic compass. At the root lie not only endemic generations of political corruption to which people now have said enough, but a search for new leadership that defines a new vision of economic growth and efficient performance by cabinet members and the private sector. A few of Q2-2019 quarterly indices are in positive territory, but construction and the consumer index are definitely negative. Our leading index is positive, but only barely. There is no definite take-off by Banking, which continues profitable at the expense of car loans. The next 3 to 4 months are not exactly a forecast of economic recovery, a crossroads between stagnation or realizing opportunities in Tourism, housing, and infrastructure, among others. Will President Trump continue with a different assessment of the threats facing PR? This Compass attempts to shed some light on these questions.

The Dire Reality of Most Municipalities The case of Puerto Rico´s municipalities in times of austerity
By H. Calero Consulting Group Puerto Rico Economic Pulse© • 0 Comments

08/2019 The Dire Reality of Most Municipalities: The case of Puerto Rico´s municipalities in times of austerity

The days of business as usual for PR’s 78 municipalities are long gone. What started as sluggish economic growth back in the early 2000s mutated into a full-blown crisis that now includes the highest emigration wave since the 1950s, negative yearly average investment growth since 2010, a default on $72bn of public debt, $49bn in unfunded retirement liabilities, the imposition of a Financial Oversight Board (FOB) and, most importantly, the continued contraction of central government subsidies to the municipalities. In early May 2019, the FOB approved a statute to certify the sustainability of each municipality’s budget. The possibility of lengthy red-tape disbursements for federal reconstruction funds may be the last nails on the coffin of many local governments. Find out why PR’s municipalities face financial distress and what needs to be done. The solution lies in viable regional economic development strategies, which have yet to see the light of day.

An Alluring Goal or an Undesirable Result? On Puerto Rico’s long-term economic sustainability
By H. Calero Consulting Group Puerto Rico Economic Pulse© • • 0 Comments

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.

Raising the Stakes of Our Economic Recovery The unintended consequences of the US-China Trade War
By H. Calero Consulting Group Puerto Rico Economic Pulse© • • • 0 Comments

06/19: Raising the Stakes of Our Economic Recovery – The unintended consequences of the US-China Trade War

With a potential disruption to world GDP of around $600 bn by 2021—in the full trade war scenario—the stakes of the US-China row could not be higher. For the US, the problems (tariffs are only the surface) were years in the making, which is why President Trump enjoys (rare) bipartisan support on the issue. On the other side of the Pacific, China found a niche, a model of authoritarian capitalism, that no longer seeks to accommodate the West´s values or its international architecture. In fact, it seems content to project its influence outside its domestic borders, in the best traditions of the West. For PR, the spat will mean a shift in the structure and dynamics of prices, including costlier construction costs, and increased risks of a delayed economic recovery. Worse yet, it can jeopardize the viability of recently renegotiated debt repayments. These risks imply that economic policy will need to be flexible so as not to be caught off guard once again.

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.