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H.CaleroConsulting Group, Inc.
Facts & Proposals
Puerto Rico at a Crossroads
Size of the PR Economy 2015
1% 1%
47%
7%
37%
7%
Agric/Min Constr. Mfg. Trade Services Gov
GDP Jobs
$103bn
2%4%
8%
24%
43%
19%
1m
PR is a regional economy of US
Real GNP growth, %
Source: PR Planning Board
8.0%
-1.7%
2.1% 2.1%
PR US
0%
Above Linked Below
111%
116%
96%
87%85%
95%
105%
115%
125%
0 1 2 3 4 5 6 7 8 9
It is the worst recessionReal GNP, Base year = 100 (year prior start of recession)
2006-15
82-84
01-02
1975
Yearshcalero.com
Investment went down
Investment as % of GNP
30%
13%
1999 2001 2003 2005 2007 2009 2011 2013 2015
Recession
hcalero.comSource: PR Planning Board
PR’s total exports
2005 2007 2009 2011 2013 2015
Other Pharma
$ Billion
$56.5
$69.4
60%
40%
70%
30%
% growth = 2.1%
Tourism is not a major driver
Caribbean = 22m
# tourists 2014, 000sVisitors’ expenditures, $m
How big is consumption?
90%
68%
PR US
Consumption as % of GNP, 2015
Source: PR Planning Board & BEA
Twins: consumption & debt
$ million
Source: PR Planning Board
14,063
61,911
4,463
22,597
1984 1990 1996 2002 2008 2015
Consumption Debt
Contribution of federal funds
$billion
$0.1
$14.1
2%13%
21%
1970 1980 1990 2000 2010
Net Transfers As % GNP
* Includes Net Transfers plus Federal Grants
‘15
$0.1
1970 1980 1990 2000 2010
Net transfers Grants
$
$17.5 B
19%
81%
‘15
Trends in public debt
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Other Public Corporations
Central Government Municipalities
Does not include $50 B in unfunded pension liabilities.
Congress ends
Section 936
$ Billion
$4
$71.2 B
$14
$48
$5
Source: PR Government Development Bank.
Demographic time bomb in PR
1950 1970 1990 201060+ Less 60
6% 20%15%
2.2 MM2.7
3.53.8 3.7 3.5
23%
PR population, million
673
281
392
Emigration Inmigration Netmigration
2005-2014, 000s
15’
The job challenge
Low participation still a major problem
Source: PR Department of Labor
46.9%
40.5%
10.4% 11.4%
2000 2003 2006 2009 2012 2015
Participation Unemployment
Apr 2016
Inflation is incredibly low
1.1%
-0.2%
10 11 12 13 14 15 16
US PR
Apr 2016
ADJUNTAS
AGUADA
AGUASBUENAS
AIBONITO
AÑASCO
ARECIBO
BARRANQUITAS
CABOROJO
CAGUAS
CAYEY
CEIBACIALES
CIDRA
COAMO
COMERIO
FLORIDA
GUANICA
GUAYAMA
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 15 $103b
Gross National Product 15 $68.5b
Population 15 3.5m
Share of Manufacturing in GDP 47%
Income Per Capita 15 $17,629
Total Employment 05/16 1.0m
Inflation 05/16 -0.4%
Unemployment rate 05/16 11.3%
Participation rate 05/16 40.6%
15Source: PR Planning Board, US Census Bureau, PR Department of Labor.
HCCG economic indices% change over previous year, 1Q-2016
-2.3%
-18.1%
-0.3%
-2.5%
-8.5%
-3.2%
Coinc. Constr. Cons. Mfg Banking Leading
Short term liquidity challenge
$ million – debt service
667
29 42 69
397
903
402
29 41
469
71
1,919
Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16
Source: PR Government Development Bank.
ERS, UPR, GOs, PREPA,
PRASA, PBA, HTA
GOs, PREPA,
PRASA, PBA, HTA
$1.7B
$1.9B
PR debt – The end game
Source: Press
Fore Research
Claren Road
Solus Alt.
Background for US action 1. PR has begun defaulting on its debt
2. It no longer has access to credit markets
3. Essential services have been cut since govt.
cannot pay its bills
4. Hospitals are closing floors
5. Business are leaving the Island
6. Tax refunds withheld from citizens
7. Pension assets depleted
8. Lawsuits have begun
9. GDB is undercapitalized
10.Central govt. could be force to shutdown
11.PR lacks tools to solve this crisis
Powers of Control Board
Restructure debt with Court √
Approve fiscal plan & budgets √
Issue stay on all proceedings √
Obtain financial audited
statements √
Freeze or reduce pension benefits √
Issue bonds √
Review Acts of Legislature √
Exclude 25yr old from min. wage √
Subpoena powers √
Prohibit public strikes √
Establish new personnel system √
Not subject to Judicial review √
Impact of Financial Control Boards
21
Indicator NYC DC Detroit PR
Start Date 1-Sep-75 17-Apr-95 1-Mar-13 TBD
End Date 30-Jun-86 30-Sep-01 Active TBD
Duration (years) 11 7 3 TBD
# of members 7 5 9 5
Deficit prior FCB ($M) $2,200 $722 $300 $740
Population loss -10% -29% -62% -9%
Population 2014 (M) 8.5 0.7 0.7 3.5
Credit rating
Start FCB Caa1 Ba1 Caa2 TBD
End Baa Baa1 B2 TBD
Upgrade notches 9 3 3 TBD
Terms - Financial Control Boards
22
Terms NYC DC
AssistanceGovt. assumed cost of
university, courts
Financial control of courts
& prisons
Covered city’s finances
Postponed pmts. on short-term
debt
Raised Medicaid
$1.4b infrastructure
$300million grants &
incentives
Finance$2.5b to buy MAC bonds Allowed borrowing from
Treasury
$2.3b short-term Fed loans
Pensions Untouched
Assumed $5b unfunded
liabilities
Pension Funds bought MAC
Taxes plus $200million new taxes IRS collected taxes
Raised tuition at CUNY
Raised transit fares Saved $117million to DC
Public layoffs after FCB
23
Number of layoffs 5yrs after FCB & % of total
100,000
35,900
7,000
16% 16%
8%
NYC DC Detroit
Layoffs % of total govt. jobs
What needs to be done?
• Develop & implement Economic Growth Plan
with:
• Poles of Growth and Investments for
infrastructure thru PPP
• Expansion PR-22 connecting Lufthansa
• Bridge Ceiba – Vieques
• Start redevelopment of Roosevelt Roads
• Train connecting Aguadilla to Ceiba
• Port of the Americas Ponce – Redistribution
• Gas fired power plants – Aguirre in Ponce
Aguadilla
Ceiba
Ponce
What needs to be done? cont.
• Ensure payment of GOs’ debt service
• Restructure other public debt
• Cut some government expenses
• Restructure some public corporations
• Privatize some public corporations
• Restore PR’s investment grade to
resume lending
Full recovery will take time…Forecast of US and PR real GNP growth
FY
Forecast
Source: PR Planning Board & HCCG PR Macroeconomic Model
Forecast as of November 2015
Years to return to 2005 GNP
2,901
7,315 7,329 7,224
1970 1980 1990 2000 2010 2020 2030
Actual Forecast @1% Forecast 3.4%
Real GNP, $ million
15 years
hcalero.comSource: PR Planning Board & HCCG estimates
4 years
Unemployment remains high
Baseline
History Projected
% change, real 2013 2014 2015 2016 2017 2018
Unemployment 14.0% 14.3% 13.0% 11.9% 12.0% 12.8%
28hcalero.comSource: PR Department of Labor & HCCG PR Macroeconomic Model
Inflation will rise
Baseline
History Projected
% change,
real
2013 2014 2015 2016 2017 2018
Inflation 0.9% 0.9% -0.3% -0.2% 1.0% 2.3%
29hcalero.comSource: PR Department of Labor & HCCG PR Macroeconomic Model
PR at a Crossroads
Stagnation Growth
Fiscal Control Board
PREPA’s restructure
Loss of population
VAT & more taxes
Political decision
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