Tag: Puerto Rico Economic Pulse©

The PR milk industry is immersed in a crisis.  Despite government protection, all players – dairy farmers, processors, and even retailers– keep complaining and foretelling the end of milk production in PR The regulatory environment has failed to change the course of an industry that is heading to extinction.  This is the story of the many failures of the visible hand of the Government. The results are well known: fewer cows, less production, zero exports, fewer manufacturing plants, and higher retail prices.  In other words, we have reached the worst possible scenario. We have nothing to win by staying the same course. It is time to try a different route to save the milk industry and redeem the biggest loser in this game: the PR consumer.

Praised as an economic miracle in Latin America, Puerto Rico’s economy has undoubtedly lost steam. The same island that pulled off an amazing transformation in just two decades, is now struggling to get back on a steady path of growth. The economic model is showing fatigue and former recipes that once fostered investment and development, seem ineffective nowadays. This issue briefly reviews the long uphill path of PR, from the dawn of industrialization to an economy burdened by debts, unemployment, and an overweight public sector. This is the story of a spectacular rise, slowdown, recession, and the hope for a second miracle.

In recent months, there has been a media blitz about PR migration towards the US. Many have said the traditional migration patterns of low-skilled workers have changed, and now perhaps too many highly qualified professionals may be leaving (a “brain drain” problem). This issue reviews historical trends, the characteristics of Puerto Rican population in the United States, the main states of destination, how this flow has changed during the past seven years and what are the economic effects of these migratory patterns in Puerto Rico. Find out if we face an exodus of professionals or blue collar workers?

After struggling for many years with a flawed Consumer Price Index, Puerto Rico finally has a new CPI. The previous index had become a useless tool that placed Puerto Rico amongst the top countries with highest inflation in the world.  The obsolete index proved so misleading that many economists disregarded it. Now, a new index has seen the light and has fixed many of the flaws afflicting its predecessor. The basket of the new CPI shows 3.1% inflation with food, housing, and transportation being responsible for 70% of the weight in the index. Still, we are now better poised to track inflation on the island and portray a more realistic picture of the economy. This issue analyzes the young index and opens a door for a more accurate and complete analysis of inflation in Puerto Rico.

From 1992-2005, Puerto Rico’s banking industry enjoyed historical growth rates thanks to favorable economic conditions and low interest rates. For the past two years, the banking industry has faced an economic deceleration, an inverted yield curve, and a credit crunch. All these factors are forcing banks to look for ways to increase efficiencies in order to maintain profitable operations. Many argue that an overdue industry consolidation is necessary to reach those efficiencies. During the past 15 years, the industry consolidated from 22 institutions in 1992 to 10 in 2007. Given this trend, is Puerto Rico still overbanked?

At last, after ten long years, low wage workers finally received some relief from the overall price increases of the past decade as the minimum wage increased $0.70 to reach $5.85 an hour on July 07. Further increases are scheduled to reach $6.55 on July 08 and $7.20 on July 09. There is little research for PR and no hard evidence whatsoever regarding the effects of minimum wage. This issue analyzes the likely effects of the minimum wage increase on the PR economy. Will we end up with fewer employed workers earning higher hourly wages?  Find out how many workers are at risk; which industries are the most affected; and  what are the expected short and long run effects.

Over the past ten years and whether from the central government, public corporations or municipalities, Puerto Rico has piled up a huge amount of public debt. Puerto Rico is not the only developed country afflicted by large public debt, but we have many reasons to be concerned. Despite big injections of money, our public infrastructure is nothing to be proud of. The government has covered budget shortfalls with debt issues. It is definitely time to find a way out of this perverse trend that drags the economy and clouds its recovery. This issue zooms on public debt in Puerto Rico and analyzes how sustainable is the pace of public debt and its implications for economic growth.

How far is Puerto Rico from becoming a Bio-Island? A new public policy is geared to taking PR in that direction. But, is PR equipped with the basic educational endowments needed for this new development phase? Educational outcomes indicate there is a wide gap between our current educational level and the state’s policy goal. Proficiency levels in Math and Science tests are low. Reducing high school dropouts and the need to increase the skills of labor are essential ingredients if PR wants to get ahead in the race for high quality education. This edition of Economic Pulse analyzes how biotechnology and R&D can work if education plays center stage in the island’s economy.

What is the role of agriculture within the PR economy?  What would happen if food imports were suddenly interrupted? Agriculture is central to any economy and Puerto Rico is no exception. It is more than farming since it touches jobs, animal welfare, socio-economic and environmental issues. Today’s agricultural industry is changing as a result of global awareness to the growing importance of environmental concerns and key issues such as the socio-economic development of rural communities and world hunger. World agricultural production must double to meet the needs of an estimated additional 3.5 billion people in 2050. This edition of Pulse analyzes recent developments within the international agricultural sector and explains what are the challenges and how PR is guiding its policy.

Studies by the Federal Reserve Board have shown that an increase in housing wealth leads to an increase in long-run consumption 1.5 times greater than stock wealth increases. Homeownership in Puerto Rico is estimated at around 80% of households. Several arguments support this theory. For instance, home prices are less volatile than stock prices. Stocks are highly concentrated among high-income individuals. Finally, stocks are subject to capital gain taxes and early withdrawal penalties.  In contrast, housing wealth receives a more favorable tax treatment. Will future gains in housing wealth require a healthy mortgage banking industry and an efficient construction industry in PR? Currently the mortgage banking industry is facing tough times. In addition, the signs of a slowing construction industry and declining stock prices, raised concerns about what would be the source of household wealth for the upcoming years.