Tag: Puerto Rico Economic Pulse©

Soaring oil prices and six years of economic recession are prompting the government to take swift actions to reduce the country’s dependency on oil-fueled electricity. At the center of its strategy lies the construction of the highly controversial “Via Verde”, a 92 mile gas pipeline running northbound across the Island to supply natural gas to power plants in the north region. The government argues that the pipeline is the best short-term solution to reduce the cost of electricity. Opponents are concerned about the safety hazards; permanent environmental impact and many are skeptic about the savings that could actually be accomplished and whether it is the best alternative available. As the different groups debate, in this issue we provide an objective evaluation of Via Verde and the government’s energy policy.

Much has occurred since our last issue of March wherein we analyzed the PR economy in 2010 and forecast for 2011 through 2013. Since then, we have seen the escalating price of gasoline as oil prices and wars have escalated; the heated debate in US Congress on account of the federal budget deficit and the rapidly approaching ceiling of the trillionaire public debt of the US. And if these events were not enough, Japan, the third largest economy in the world experienced a major earthquake followed by a tsunami and the fear of radioactive fallout from some of its atomic plants. Puerto Rico is not isolated from the adverse effects of these international threats. What could potentially be the most pessimistic economic outlook for the island? How can you as a businessperson and consumer be ready? The key to your success lies in the use of this information to identify risks and opportunities.

In FY2010, PR experienced its 4th straight year of negative economic growth. This is the worst recession in PR history since the beginning of the national accounts in 1947. In fact, the only period when PR has experienced consecutive years of negative growth in the past was between 1981 and 1983 when GNP shrank annually at 0.6%, 2.6% and 2.6%, respectively. Besides this three-year recession, PR has only had negative growth for single years in 1975 (-3.3%) and again in 2002 (-0.3%). The current recession officially started in FY2007 when real GNP grew at –1.2% and worsened in subsequent years with annual rates of –2.8%, -4.0% (revised) and –3.8% (estimated) between FYs 2007-2010. The hit on the economy has been so hard that real GNP in FY2010 is now 3% below its FY2000 level. This issue reviews the contributions of consumption, investment, government and net exports to the past and future growth of the PR economy.

Trade is increasingly important for the continued growth of the PR economy. Extensive and efficient infrastructure is also critical for the effective functioning of the economy. In addition, the quality and extent of infrastructure networks significantly impact economic growth. Puerto Rico needs both. Ports of entry are PR’s gateways to the world, enabling international commerce, immigration, and tourism. Ports provide a crucial link between land and sea transport. They also have an important social function, through the provision of jobs both directly and indirectly. As a supplier of jobs, ports do not only serve an economic but also a social function. However, since cargo nowadays is loaded and unloaded mechanically, the effects of changes in the amount of goods handled on local employment or the demand for port services is difficult to ascertain. Consequences of inaction or delay in improving trade-related infrastructure will have real costs to the economy. In this context, it is important to review why the Port of the Americas in Ponce has not taken off. Did we miss an opportunity?

As calendar year 2010 nears its end, we take a panoramic view of newsworthy economic events in Puerto Rico. The preface of course is what happened in the rest of the world and which also impacted our economy. The insatiable appetite of China’s exports as well as banking everywhere has touched us. At the start of the year, we were all hopeful that selected government policies would start turning the economy. Instead, we have seen the continuation of what could be described as the longest (4 years) and, so far, deepest economic recession in our modern history. In real terms, the economy’s real GDP has shrunk $767 million since 2006 and the labor market lost 176,000 jobs. Unemployment increased to 16% by October 2010. Indeed, 2010 feels as if 12 years instead of 12 months have elapsed. Policies, jobs, and houses have a lot to do with it.

As calendar year 2010 nears its end, we take a panoramic view of newsworthy economic events in Puerto Rico. The preface of course is what happened in the rest of the world and which also impacted our economy. The insatiable appetite of China’s exports as well as banking everywhere has touched us. At the start of the year, we were all hopeful that selected government policies would start turning the economy. Instead, we have seen the continuation of what could be described as the longest (4 years) and, so far, deepest economic recession in our modern history. In real terms, the economy’s real GDP has shrunk $767 million since 2006 and the labor market lost 176,000 jobs. Unemployment increased to 16% by October 2010. Indeed, 2010 feels as if 12 years instead of 12 months have elapsed. Policies, jobs, and houses have a lot to do with it.

The Governor of Puerto Rico, Hon. Luis Fortuño said in November 2010 “History has taught us that indeed, a dollar in the hands of Puerto Rican consumers generates more economic activity than a dollar in government hands”. With this statement, the current administration announced a pragmatic economic policy oriented to reduce personal and corporate income tax rates as well as inviting consumers to spend on retailers throughout the Christmas’s season. Government seeks to boost the local economy with consumption. The PR economy has suffered a long and deep recession, whose causes are mixed. This issue analyses the reasoning behind this kind of measure, its implications, the current economic situation, and its possible net effects. The main question right now is will Puerto Rican consumers save this economy? Is there an alternate plan in case this policy does not work?

A global-scale recession started during the second half of 2008 and it hit the economy of the US. The recession in Puerto Rico started two years earlier and has not ended. It has impacted car sales; both in the mainland as well as in PR. President Barack Obama extended the financial bailout to once powerful US carmakers, such as, Chrysler and General Motors. Chrysler, managed by Fiat, is making progress and GM is profitable again. However, we understand this automotive industry crisis, which has affected manufacturers, workers, car dealers, and badly needed fiscal revenues, is not yet over. So far, economic recovery in the US translates into improving yet not spectacular car sales. PR has posted better car sales this year than in 2009 but they are still below 2006. With new technology and awareness of climate changes, will green plans drive car sales in the future? This issue analyzes how hybrid cars could shape the future.

Decade after decade, Puerto Rico has bet on its tourist industry to become a powerful growth engine of the local economy. However, time has passed and this industry is far from fulfilling such great expectations. Absolute dependence on US tourists, not much diversification, and high concentration in the San Juan metro area, among others, have strapped the PR tourist sector. While Puerto Rico remains sleepy, our neighbors in the Caribbean have achieved outstanding goals and left us with a smaller piece of the pie in the fight for foreign tourists.  This issue focuses on the local tourist sector and addresses the many challenges ahead for Puerto Rico and its competitors in the Caribbean. Does PR need more hotel rooms to compete? Is it an expensive destiny without proper service? These and other questions are relevant if the Island is to make this plane take off while competing effectively with its counterparts in the Caribbean.

Bankruptcy filings in PR rose 25% in calendar 2009 compared with the previous year, according to statistics published by the Boletín de PR. This takes filings to their highest point since tougher bankruptcy laws were introduced at the end of 2005. That change brought a spike of bankruptcies, as companies and individuals rushed to declare themselves broke under the more lenient old regime. The data suggest that an older trend is reasserting itself. This is more bad news for PR. These numbers reflect the impact of the current recession, which started in FY2006 and continues to the present. And judging by the rise in unemployment, lower pay, massive layoffs, fewer people with health insurance, the mortgage and foreclosure crisis, depressed sales, and tighter credit, the situation may get worse rather than better. This issue examines bankruptcy in PR, its historic trends, changes in bankruptcy law, most affected economic sectors and municipalities, and finally explains what bankruptcies entail for our economy.