How Maria Forges PR’s Future - Rutgers University...Two sides after Maria Severe fiscal austerity...

H.CaleroConsulting Group, Inc.

Assessment and Forecast

How Maria Forges PR’s Future

An economy in recession…Real GNP growth, %

Source: PR Planning Board

8.0%

-1.1%

0%

High Moderate Negative

… with investment going downInvestment, $ billion and % of GNP

hcalero.comSource: PR Planning Board

$4.8

$12.0

$8.3 22%

30%

12%

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

Investment % GNP

Recession

Federal funds as a driving force$billion

$0.1

$14.2

2% 13%

20%

1970 1980 1990 2000 2010

Net Transfers As % GNP

‘16

Source: PR Planning Board

Trouble with public debt$ billion

hcalero.comSource: PR Planning Board

35%

71%

56%

99%

1970 1978 1986 1994 2002 2010Debt Debt/GNP

2016

$

Sec. 936 ends

The job challengeLow participation still a major problem

Source: PR Department of Labor

46.6%

40%10.1% 10%

2000 2003 2006 2009 2012 2015

Participation Unemployment

‘18

Feb 2018

Demographic time bomb in PR

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6% 20%15% 24%

PR population, million

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2005-2016, 000s

16’

Source: US Census Bureau

2.2

3.8 3.4

Recurrent fiscal deficitsGF net revenues – GF budget, $ million

(64)

(3,180)

(521)

348

2000 2004 2008 2012 20162017

Source: PR Planning Board

Vieques

Culebra

Aguadilla

AguadaRincón

Añasco

Moca

Isabela

Quebradillas

Camuy

Hat

illo

Arecibo

Florida

SanSebastián

Lares

Mayagüez

Las Marías

MaricaoHorm

igueros

CaboRojo

SanGermán

Lajas

SabanaGrande

Guánica

Yauco

Gua

yani

lla

Peñ

uela

sñ

Adjuntas

UtuadoCiales

Jayuya

Ponce

VillalbaCoamo

Aibonito

Guayama

Arroyo

PatillasMaunabo

Humacao

NaguaboCeiba

Faja

rdoLuquillo

SanLorenzo

Las

Piedr

as

RíoGrande

Canovanas

Carolina

TrujilloAlto

Gurabo

Junco

s

Cidra

AguasBuenas

ComeríoBarranquitas

Orocovis

San Juan

Gua

ynab

o

ToaBaja

Baya

mon

Naranjito

VegaBaja

MorovisCorozal

Yabuoca

Bar

celo

neta

Manatí Cataño

VegaAlta

Toa Alta

Loízaí

Dor

ado

Caguas

Cayey

Juana Díaz

SantaIsabel

Salinas

Municipalities also with deficit

Surplus Deficit

Source: OCAM

46 municipalities with deficit60% of 78

Deficit FY 2016

PR debt – The end game

Source: Press

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US takes action with PROMESA

Restructure debt with Court �Approve fiscal plan & budgets �Obtain financial audited statements �Freeze or reduce pension benefits �Issue bonds �Review Acts of Legislature �Exclude 25yr old from min. wage �Subpoena powers �Prohibit public strikes �Establish new personnel system �Not subject to Judicial review �

A conceptual growth planInvestment opportunities

InfrastructureEnergy

Highways

Ports

Telecom

TourismKey

ServicesManufacturing Agriculture

hcalero.comSource: HCCG

Economic growth

A dated infrastructure

45 %

34

17

4

Oil Gas Coal Renewables

20 bn kWh

Source: PREPA

Electricity generation by source, 2017, %

Untapped potential of tourismVisitor’s expenditures, $ million

hcalero.comSource: HCCG

$234

$3,985

4%

6%

1971 1979 1987 1995 2003 2011

Visitor's expenditures % of GNP

‘16

Manufacturing dominates in GDP but not in jobs, 2016

1% 1%

47%

8%

36%

7%

Agric/Min Constr. Mfg. Trade Services Gov

GDP Jobs

$105bn

2%3%9%

24%

43%

19%

1m

Source: PR Planning Board, PRDLHR

Agriculture is dormant$ million

hcalero.comSource: PR Planning Board

9.7%

0.8%

1960 1968 1976 1984 1992 2000 2008 2016Agriculture % GDP

164

Higher education in transitionExpense per university student, $

University enrollment trend by sector

73,83867,146

116,938

160,109

'02 '04 '06 '08 '10 '12 '14 '16Public Private

$17,099

$25,130

2006 2010 2015

Source: PR Council on Higher Education

Healthcare keeps going upGovernment funds for healthcare, FY, $ million

2,016

4,511

1,534

2,940

07 08 09 10 11 12 13 14 15 16

Medicare Medicaid/Mi SaludSource: PR Planning Board, PR OMB

Financial system is diversifiedPR financial system assets, $ million

Source: PR Department of Labor

88 57

76

50

6

9

14

6

29

23

2007 2017Banks IBE'sCredit Unions Investment banksOther

$ 144 bn

$ 214 bn

ADJUNTAS

AGUADA

AGUASBUENAS

AIBONITO

AÑASCO

ARECIBO

BARRANQUITAS

CABOROJO

CAGUAS

CAYEY

CEIBACIALES

CIDRA

COAMO

COMERIO

FLORIDA

GUANICAGUAYAMA

GURABO

JAYUYA

JUANA

DIAZ

JUNCOS

LAJAS

LARES

LAS MARIAS

MANATI

MARICAO

MAYAGÜEZ

MOCA

NAGUABO

OROCOVIS

PONCE

RIOGRANDE

SALINAS

SANGERMAN

SANJUAN

SANLORENZO

SANSEBASTIAN

SANTAISABEL

TOAALTA

TOABAJA

UTUADO

VEGAALTA

VEGABAJA

VILLALBA

YABUCOAYAUCO

Where is Puerto Rico today?

Gross Domestic Product 16 $105bGross National Product 16 $70.1bPopulation 17 3.3mShare of Manufacturing in GDP 47%Income Per Capita 16 $17,906Total Employment 2/18 1.0mInflation 2/18 1.5%Unemployment rate 2/18 10%Participation rate 2/18 40%

20Source: PR Planning Board, US Census Bureau, PR Department of Labor.

Economic activity after MariaHCCG quarterly indices, % change over previous year, 4Q-2017

-18.5%

10.8%

-27.3%

-4.9%-2.0% -2.1%

Coinc. Constr. Cons. Mfg Banking Leading

Destruction path of hurricanesRecent hurricanes in Puerto Rico

Ten biggest blackouts in US historyMillion customer hours of lost electricity service

1,248 1,050

775 753

700 683 681

592 515

483

Maria ('17)Georges ('98)

Sandy ('12)Irma ('17)

Hugo ('89)Ike ('08)

Katrina ('05)NE Blackout ('03)

Wilma ('05)Irene ('11)

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hcalero.comSource: FEMA

FEMA budget hurricane María, federal FY, $ billion

26%

74%

FY 2017

Assistance

$1.6 bn56%

44%

FY 2018

Operations & administrative

$15.9 bn

Methodology of damages

Nordhaus: Elasticity between:

� Wind speed� Nominal GNP = Damages

Strobl: Model with:

� Population� Wind speed� Investment� Openness

= GNP growth

The study quantifies damages by specific sectors

Maria set to increase poverty by 8% to 16%

% of population below poverty level

hcalero.com

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Base scenario

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Base scenario

Shock reaction model

hcalero.com

PopulationRecovery

funds Distrib. Timing

Base scenario

Pessimistic scenario

Optimistic scenario

MCSVAR model

I-R Shocks

Source: HCCG

Assumptions

hcalero.comSource: HCCG

Scenario definitionsAssumptions Base Optimistic Pessimistic

Population (2035)

Moderate loss (2.6 mn)

Smallest loss (3.0 mn)

Significant loss (2.4 mn)

Recovery funds

Most funds in govt. outlays &

investment> investment > consumption

Funds available

$23.8 bn $30.2 bn $16.7 bn

Timeline

Most funds FY2019 & FY2020,

then taper off gradually

> Funds FY2019 & FY2020

< Funds FY2019, constant funds during FY2020 -

FY2023

Forecast scenarios

The study provides:

√ real GNP growth forecasts

√ from 2018 thru 2023

√ Base, Optimistic, and Pessimisticscenarios

6,738

6,326

7,351

1,500

2,500

3,500

4,500

5,500

6,500

7,500

8,500

1972 1982 1992 2002 2012 2022 2032 2042Optimistic Baseline

Economic recovery will be slowReal GNP, $ million (1954)

Source: HCCG

12 yrs 22 yrs

Two sides after Maria

� Severe fiscal austerity

� Long debt renegotiation

� Outward migration

A new socioeconomic fiber

Private sector in new emerging activities

Access to a high income US market

Reconstruction funds to rebuild infrastructure

On one hand On the other hand

The study identifies specific opportunities in tourism, agriculture, manufacturing, and services.

Second chance after Maria

� To transform the economy

� To make reforms

� To rebuild infrastructure

� To restructure public debt

� To change the role of PROMESA Board

� To halt migration

Orders for the study thru

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