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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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������
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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)
����� ��� �� ���� ��
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
websitehcalero.com