Economic Perspectives: Beyond the Reconstruction

December 10, 2019
Traffic entering the capital of Puerto Rico at night.; Shutterstock ID 1100207690; Job: NL-Comercial Q4; Client/Licensee: Banco Popular; Other: Comercial

By: José J. Villamil

Estudios Técnicos, Inc.

As expected, for the past two years, attention on the island’s economic situation has focused on reconstruction post-Hurricane Maria. There is still a long way to go for our economy to return to a pattern of sustained growth. The slow pace with which federal funds have been received has been an influential factor. Even so, these funds have had a positive impact on the local economy, as reflected by the indicators cited below:

TablaENG

These indicators’ recovery is at the pre-Maria level or even higher. However, our economy has experienced more than a decade of contraction and loss of jobs. The recovery process is not only a consequence of Maria, but also the result of a prolonged economic contraction.

For the next four or five years the economy’s growth will depend—to a large extent—on the amount of federal funds that reach Puerto Rico, the agility with which they are disbursed, and the uses to which they are allocated. The government and the agencies receiving these funds have processes in place to receive and use the money.

Beyond federal funds, economic perspectives depend on several conditions. One of them is the government’s ability to emerge from bankruptcy—something that looks increasingly possible in a relatively short time, even knowing that the agreements will be subject to litigation by the different groups of creditors. The second is the government’s ability to return to the capital markets.

Industries with growth potential

Post-reconstruction perspectives will depend on whether we can identify and take advantage of areas of opportunity with growth potential in the following industries:

  • Tourism or the visitors’ economy and its different ramifications
  • Agroindustry and the possibility of substituting agricultural products’ imports while increasing exports
  • Technological, telecommunications, medical, educational, and advanced manufacturing services
  • Alternative energy generation systems, which have the advantage of not having to be large-scale in nature to be viable and efficient
  • Integrating new technologies in health, education, and government services to support small and medium businesses

Of course, it is essential that we have a stable political system; in addition to the regulatory framework to help the private sector’s activity become viable. In this context, the tax system plays a key role. The current one is complex, expensive, and difficult to manage. Although it includes aspects that encourage consumption, it should also have measures to foster investment and productive economic activity. Economies do not grow or are strengthened by consumption, especially if what is being consumed is mostly imported.

We can achieve a better economic future. There are opportunities, but we must implement, as soon as possible, measures to achieve a better post-reconstruction economy.

Banco Popular de Puerto Rico (“Popular”) has no affiliation or relationship with Mr. José Villamil and/or Estudios Técnicos, Inc. This article is for informational purposes only and does not represent an endorsement or guarantee of its accuracy. Popular nor any of its affiliates, subsidiaries or related parties, are, nor will they be liable for any special, direct or indirect, incidental or consequential damages, including, but not limited to profit losses resulting from or related to communications, articles or counseling provided by Mr. José Villamil and Estudios Técnicos, Inc. or that may arise from the information contained in this article. Popular is dedicated to providing banking services, so it is not dedicated (directly or indirectly) to providing any type of services related to those stated in this article. If you require any of the related services, you should seek advice from a competent professional of your choice. Popular is not responsible in any way for the outcome of any related endeavor if you decide to voluntarily communicate with Mr. José Villamil and/or Estudios Técnicos, Inc.

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