Informe Económico de Puerto Rico (en inglés)

Country Report

Puerto Rico

April 2010

Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ United Kingdom

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Puerto Rico 1

Country Report April 2010 www.eiu.com © The Economist Intelligence Unit Limited 2010

Contents

Puerto Rico

3 Summary

4 Basic data

5 Political structure

6 Economic structure 6 Annual indicators 7 Quarterly indicators

8 Outlook for 2010-11 8 Political outlook

10 The political scene

12 Economic policy

13 The domestic economy

14 Foreign trade and payments

List of tables 10 Puerto Rico: forecast summary

List of figures

10 Puerto Rico: gross national product 10 Puerto Rico: consumer price inflation

2 Puerto Rico


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Puerto Rico 3


Puerto Rico April 2010

Summary

The governor, Luis Fortuño, of the pro-statehood Partido Nuevo Progresista (PNP), will face increasing public dissatisfaction as his measures to jump-start the economy are largely ineffective and the country plunges deeper into recession. Mr Fortuño's plans to use US stimulus money, totalling US$6bn (95% of GNP), to promote the recovery have yet to provide tangible results, as a significant amount of these funds have been earmarked for transfers to individuals and not to productive sectors. The government's popularity will be further dented by rising crime and high unemployment, which owes in part to a two-year restructuring programme put in place by Mr Fortuño in early 2009 to reduce the government’s fiscal deficit. Moreover, the US administration is proposing changes to tax legislation that could have major negative effects on US manufacturing companies operating in Puerto Rico. Under these circumstances, the Economist Intelligence Unit expects Puerto Rico to remain firmly in recession during the outlook period, with economic activity 7contracting by 6.6% in fiscal year 2009/10 (July-June) and 3.4% in 2010/11.

Mr Fortuño's popularity has fallen further as his fiscal austerity measures face widespread opposition and his party is tarnished by corruption allegations. Disagreements within the ruling party and the implication of important PNP legislators in the misuse of legislative influence have heightened political tensions. Puerto Rico's status issue has been largely unaddressed by the US federal government, dampening the prospects of a referendum in 2010.

The Fortuño administration has stepped up efforts to enact tax and labour legislation that will improve the business environment, attract foreign investment and lead to a recovery. A tax bill is set to be debated in Congress by mid-2010.

Monthly economic activity data suggest that the recession is far from over, with the pace of contraction accelerating in the second half of 2009 and early 2010 as domestic demand remains very weak. The government is now officially calling the downturn a depression.

Export revenue and import spending have plummeted since late 2008. However, recent data show that exports and imports declined at a slower pace in the fourth quarter of 2009, reflecting an improvement in global conditions and in the US.

Editors: Federico Barriga (editor); Bronwen Brown (consulting editor) Editorial closing date: April 16th 2010 All queries: Tel: (44.20) 7576 8000 E-mail: [email protected] Next report: To request the latest schedule, e-mail [email protected]

Outlook for 2010-11

The political scene

Economic policy

The domestic economy

Foreign trade and payments

4 Puerto Rico


Basic data

8,876 sq km

3.95m (mid-2008 US Census Bureau estimate)

Population in ’000, mid-2005 estimates

San Juan (capital) 428 Bayamón 222 Carolina 188 Ponce 182 Caguas 143 Arecibo 102 Guaynabo 103 Mayagüez 96

Sub-tropical

Hottest months, September and October, 24-30°C (average monthly minimum and maximum); coldest month, January, 21-27°C; driest month, February, 69 mm average rainfall; wettest month, July, 160 mm average rainfall. Hurricane season: June 1st to November 30th

Spanish and English

UK (imperial) and US systems

US dollar

4 hours behind GMT

January 1st, 6th, 12th and 19th; February 16th; March 22nd; Good Friday; April 20th; May 25th; July 3rd and 27th; September 7th; October 12th; November 11th, 19th and 26th; December 25th

Land area

Population

Main towns

Climate

Weather in San Juan (altitude 14 metres)

Languages

Measures

Currency

Time

Public holidays

Puerto Rico 5


Political structure

Commonwealth of Puerto Rico

US-style representative system

Elected governor, currently Luis Fortuño (PNP), who took office on January 2nd 2008 for a four-year term; the next elections are due in November 2012

A governor is elected every four years, and appoints departmental secretaries to administer executive power with the approval of the Legislative Assembly

Bicameral Legislative Assembly; the Senate (the upper house) normally has 27 members, two for each of the eight districts, and 11 from the Commonwealth as a whole; an additional member from the opposition party is added if the ruling party has an overwhelming majority; the House of Representatives (the lower house) has 51 members, one for each of the 40 districts, and 11 from the Commonwealth as a whole. Next elections for both the upper and lower houses: November 2012

US-style court system, but based on the Napoleonic Code and operating within the Commonwealth; the island also functions as a US district, with justices appointed by the US president

November 4th 2008; the next general election is due November 2012

The Partido Nuevo Progresista (PNP) holds 22 of 27 seats in the upper house and 37 of 51 seats in the lower house. The Partido Popular Democrático (PPD) holds 14 seats in the lower house and 5 seats in the upper house

Government: Partido Nuevo Progresista (PNP) Opposition: Partido Popular Democrático (PPD) Extra-parliamentary opposition: Partido Independentista Puertorriqueño (PIP); Movimiento Independentista Nacional Hostosiano (MINH); Partido Puertorriqueños por Puerto Rico (PPR)

Governor Luis Fortuño Secretary of state Kenneth McKlintock

Agriculture Javier Rivera Aquino Consumer affairs Luis Gerardo Rivera Economic development & commerce José R. Pérez Riera Education Odette Piñeiro Caraballo Health Lorenzo González Feliciano Housing Yesef Cordero Labour & human resources Miguel Romero Natural resources Daniel Galán Planning board Héctor Morales Treasury Carlos Puig

Pedro Pierluisi

Secretaries of state

Resident commissioner (representative in US Congress)

Official name

Form of government

Head of state

The executive

National legislature

Legal system

National elections

National government

Main political organisations

6 Puerto Rico


Economic structure

Annual indicators 2005a 2006a 2007 a 2008 a 2009a

GNP at market prices (LCU bn)b 53,752.4 56,732.9 59,520.6 61,159.0 62,758.9

GNP (US$ bn)b 53,752.4 56,732.9 59,520.6 61,159.0 62,758.9

Real GNP growth (%)b 1.9 0.5 -1.2 -2.8 -3.7

Consumer price inflation (av; %) – – 3.0 9.6 4.4

Population (m) 3.9 3.9 3.9 4.0 4.0

Exports of goods fob (US$ m)b 56,543 60,119 60,011 63,954 60,807

Imports of goods fob (US$ m)b 38,905 42,630 45,266 44,928 40,651

Current-account balance (US$ m)b -5,800.4 -5,095.9 -3,909.7 -2,171.5 67.6

Total external debt (US$ bn)b 36.7 39.9 42.8 46.7 53.0

Debt-service ratio, paid (%)b 8.3 8.1 8.4 8.4 –

Exchange rate (av) LCU:US$ 1.00 1.00 1.00 1.00 1.00

a Actual. b Fiscal years ending June 30th.

Origins of gross national product 2008 % of total Components of gross national product 2008 % of totalManufacturing 41.2 Private consumption 89.4

Construction 2.1 Government consumption 17.0Transport & other public utilities 6.5 Gross domestic investment 18.7

Commerce 12.7 Exports of goods & services 127.7Others 37.1 Imports of goods & services -152.8 Principal exports fob 2008 US$ m Principal imports cif 2008 US$ mChemical products 45,662 Chemical products 19,338

Computers & electronics 4,084 Petroleum & coal products 5,170Processed foodstuffs 4,468 Computers & electronics 2,986Petroleum & coal products 1,585 Processed foodstuffs 2,628

Machinery 636 Transport equipment 1,909 Main destinations of exports 2008 % of total Main origins of imports 2008 % of totalUS 76.3 US 52.7Germany 5.2 Ireland 20.7

Belgium & Netherlands 4.2 Nigeria 4.6

Puerto Rico 7


Quarterly indicators 2008 2009 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 QtrEmployment, wages & prices Employment ('000) 1,226 1,218 1,197 1,193 1,150 1,133 1,105 1,120Unemployment rate (%) 10.2 11.0 12.3 12.7 13.9 14.7 16.2 15.2Consumer prices (2006=100) 108.4 111.6 115.8 115.8 115.1 116.8 118.8 120.7Consumer prices (% change, year on year) 8.4 11.6 12.0 9.6 6.2 4.6 2.6 4.3

Sectoral trends Cement production (‘000 sacks)a 8,450 8,409 7,283 6,287 6,178 5,411 5,603 4,783Tourism, visitors registered at hotels ('000) 403 337 291 292 362 332 299 n/aHotel occupancy rate (%) 70 70 64 58 66 65 68 n/aConstruction, permits issued (no) 1,863 2,257 1,865 1,505 1,362 1,512 1,407 1,204Construction, permits issued (US$ m) 592 595 582 324 379 394 447 324.0Electricity production (m kwh) 5,408 5,936 6,112 5,685 5,181 5,673 6,194 4,695Vehicles registered (no) 40,476 25,351 28,068 16,434 25,901 24,675 21,072 n/aForeign trade (US$ m) Exports fob 16,543 16,604 15,550 15,104 14,910 15,243 14,848 14,724Imports fob -11,374 -11,204 -10,636 -10,208 -9,766 -10,041 10,232 10,073Balance 5,168 5,400 4,913 4,896 5,144 5,202 4,616 4,651

a Sacks of 94lbs.

Source: Puerto Rico Planning Board (Junta de Planificación).

8 Puerto Rico


Outlook for 2010-11

Political outlook

Amid a severe and deepening recession, the governor, Luis Fortuño of the pro-statehood Partido Nuevo Progresista (PNP), faces a daunting array of policy challenges that include an unsustainable fiscal deficit, high unemployment and rising crime, as well as increasing public dissatisfaction with the government's austerity measures. Although Mr Fortuño has been able to push through some key economic reforms in the PNP-dominated legislature, rising discontent and continued weak domestic conditions will provoke challenges from the opposition as well as from senior members of the PNP. Political tensions are set to rise in 2010-11 as Mr Fortuño suffers from a loss of credibility, in part as his party's image is tarnished by a series of corruption scandals. Challenges on policy issues from within Mr Fortuño's own party will raise doubts about his ability to control the PNP rank and file. The president of the Senate (the upper house), Thomas Rivera Schatz (PNP), although openly loyal to Mr Fortuño, is expected to challenge for the party leadership. Party unity within the opposition Partido Popular Democrático (PPD) has failed to improve even after the acquittal of Aníbal Acevedo Vilá, the former governor (2005-09) and party leader, on fraud charges in early 2009. The PPD has been unable to capitalise on the worsening economic situation to increase its popular support. Given that the PPD was only recently in power, this will continue for some time to come. Despite promises from the government, security reforms will remain ineffective and the incidence and severity of violent crime is likely to increase in the outlook period as the economy—which has already been contracting for several years—will remain in recession in 2010-11, keeping unemployment high.

Relations with the US will be dominated by economic ties and the status issue. The PNP favours statehood for Puerto Rico, and the resident commissioner in Washington, Pedro Pierliusi, has introduced a bill in the US Congress to address Puerto Rico's status. The bill is not expected to gain much traction, as bilateral relations are focused on economic issues, but a non-binding referendum or consultation on a bid for statehood is possible later in the outlook period. Corporate taxes will remain a key issue in Puerto Rico's economic relationship with the US. The US administration has announced its intention to limit the tax deferral advantages of US-Controlled Foreign Corporations (CFCs), which are exempt from paying US federal taxes on income earned in foreign tax jurisdictions (for tax purposes Puerto Rico is considered a foreign jurisdiction). If this materialises, it would severely limit the attractiveness of operating in Puerto Rico. The “rum wars” with the US Virgin Islands (USVI) over the move of a British distiller, Diageo, from Puerto Rico to the neighbouring US possession are set to be resolved in the second half of 2010 in the US Congress, with the outcome likely to deprive Puerto Rico of around US$100m in rebated tariff revenue.

As the global economy recovers, the main challenge for the Fortuño administration will be to kick-start the ailing economy, which has been mired in

Policy trends

International relations

Domestic politics

Puerto Rico 9


recession since 2006 and has been further hit by the US recession since late 2008. Mr Fortuño's plans include fiscal adjustment measures to cut back on non-essential expenditure, while using U$6bn (95% of GNP) in stimulus money from the administration of the US president, Barack Obama, to boost investment and economic activity. The government's stimulus measures, however, have been largely ineffective, as the funds are flowing slowly and are being spread over a wide range of programmes, including infrastructure investments and direct transfers to individuals, which have diluted the effects of the fiscal stimulus. Although stimulus funds will continue to flow through much of 2010, it is unlikely that these will be able to boost economic activity, private consumption and employment as Mr Fortuño had first promised. This will complicate the government's plans to implement highly unpopular measures necessary to reduce fiscal imbalances. Thus far Mr Fortuño has avoided a government shutdown (as occurred in May 2006 when the government could not meet payroll costs) in part by cutting 30,000 public-sector jobs, but as the recession lingers there will be little political appetite for similar measures. As a result, the Economist Intelligence Unit expects the fiscal deficit to remain large (it rose above 5% of GNP in 2008/09).

Mr Fortuño will seek to push through legislative changes to improve the business environment in 2010-11, but he will encounter significant opposition. The administration is currently drafting legislation to increase labour market flexibility and to reform the tax system. The governor may also try to reduce red-tape and privatise some government agencies, such as the State Insurance Fund, which provides insurance against job-related illnesses and injuries, and the operation of the San Juan International Airport. These measures would allow the Fortuño administration to lower the fiscal deficit but would require significant consensus building even in his party. Given recent tensions within the governing PNP, prospects for progress on these fronts are weak.

GNP is used in preference to GDP as a measure of growth in the local economy, as it nets out the large outflow of profits from US firms operating in Puerto Rico. Following an official GNP contraction of 3.7% in 2008/09 (July-June), we now forecast a deepening of the recession in the early part of the outlook period. We expect GNP to contract by 6.6% in 2009/10 (revised from a 2.1% annual contraction forecast in our January report), owing mainly to very poor investment and domestic consumption expectations on account of a weaker impact from the US stimulus funds. Although international conditions have stabilised, Puerto Rico's performance in 2009/10 will be one of the worst in the world (second only to Venezuela's 6.7% projected fall in 2010), reflecting the dire state of the economy. We continue to expect that the recession will tail off in the second half of calendar year 2010, on the assumption that US economic growth gains momentum (we forecast US growth of 2.8% in 2010) and that cuts in interest rates help to boost consumer spending. Assuming that there is no second fiscal stimulus package in the US, we expect US GDP growth to weaken to 1.6% in 2011, hindering a sustained recovery in Puerto Rico as investment and exports will be once again affected. As a result, we expect Puerto Rico's GNP to contract for the fifth year in a row, by 3.4% in 2010/11. This forecast is subject to downside risks, given the possibility of a weaker than

Economic growth

10 Puerto Rico


forecast stimulus impact and the possibility that higher inflation (owing to high food prices) further undermines private consumption.

With government consumption forecast to contract by 5% in real terms during the outlook period, the Fortuño administration is counting on Public Private Partnerships (PPPs) to produce a substantial flow of new investment to buoy the recovery. A pick-up in external demand will also be needed, but investment from US-based pharmaceutical companies, the island’s largest export sector, will be necessary to boost economic growth. High-tech exports, which have risen every year since 2002 and reached US$4bn in 2008, could also suffer in 2010-11, resulting in an even steeper contraction of real GNP growth than we currently forecast. Export and import levels will largely follow US growth patterns, rising more robustly in the second half of 2010, before slowing down as OECD recovery loses momentum.

Puerto Rico: forecast summary (% unless otherwise indicated)

2007a 2008 a 2009 a 2010c 2011c

Real GNP growthd -1.2 -2.8 -3.7 -6.6 -3.4

Consumer price inflation (av) 3.0d 9.6 4.4 7.0 6.7

Exports fob (US$ m)d 60,011 63,954 60,807 63,847 65,124

Imports cif (US$ m)d 45,266 44,928 40,651 42,684 43,537

a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. d Fiscal years ending June 30th.

Source: Economist Intelligence Unit.

(% change, year on year) (av; %)

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

US Puerto Rico

1110090807062005-2.0

0.0

2.0

4.0

6.0

8.0

10.0

US Puerto Rico

1110090807062005

Puerto Rico: gross national product Puerto Rico: consumer price inflation

The political scene

Dissatisfaction with the governor, Luis Fortuño, of the Partido Nuevo Progresista (PNP), is rising as the economy falls deeper into recession, disarray amongst PLN members increases, and corruption scandals in the ruling party dent the government's popularity. Labour unions and opposition groups, however, have been unable to capitalise on public dissatisfaction and escalate their protest actions since their show of force in October 2009, when over 200,000 protesters carried out angry demonstrations in San Juan, the capital, after

Mr Fortuño's image affected by corruption scandals

Puerto Rico 11


30,000 public-sector jobs were cut as part of emergency fiscal austerity measures. Mr Fortuño's policies have instead been challenged from within the PNP ranks, with Thomas Rivera Schatz, the president of the Senate (the upper house), publicly opposing some of the governor's measures. Seeking to assert his leadership, in April Mr Fortuño tested the legislature by introducing a reform bill that would reduce sharply the number of seats in the Senate and the House of Representatives (the lower house). The bill, which Mr Fortuño argues will help reduce the size of government, met with open opposition from at least two PNP legislators and is expected to suffer amendments, if it is not simply rejected outright.

Mr Fortuño's image has been further damaged by the emergence of several corruption scandals within his party. Most of the cases are fallout from the conviction in a US federal court of a former PNP senator, Jorge De Castro Font, who admitted to taking bribes in exchange for made-to-order legislation. Mr De Castro is currently on trial in local courts for influence peddling and his testimony to US and local authorities has implicated other legislators in his bribe-taking scheme. In March the local Justice Department ordered a special investigation of a former PNP senator, Carlos Díaz, while a US federal grand jury in the US launched an investigation in April of a current PNP senator, Héctor Martínez. Mr Martínez resigned in April as chairman of the Senate’s Public Safety and Judiciary Affairs Committee after being notified that he was the target of an investigation. According to local press reports, Mr De Castro told federal agents that Mr Martínez accepted payment for travel and tickets to a boxing match in Las Vegas from the president of a private security company in exchange for authoring legislation to favour private detectives. In early April, the US Federal Bureau of Investigation (FBI) raided the offices of the Asociación de Companías de Seguros (Acodese, the association of insurance companies), after a former executive director of Acodese admitted that the association’s board of directors authorised US$50,000 in bribes for Mr De Castro. It is likely that some private-sector figures will be charged in federal or local courts, since the Justice Department is also investigating the matter.

Another scandal involves a PNP representative, Antonio Silva, chairman of the House of Representatives Treasury Committee and a respected figure in the legislature. During a newspaper investigation of a reputed drug lord wanted by authorities in Puerto Rico, the US and the Dominican Republic, it surfaced that Mr Silva had requested an executive pardon for the fugitive years ago, when he was in prison in Puerto Rico on a murder conviction. The pardon was not granted, but the fugitive later managed to escape from prison, using a forged release order, and allegedly went on to become the top drug dealer in the Dominican Republic. That a high ranking and respected PNP legislator had ties to a drug baron has caused a stir in local politics and further tarnished the party’s image.

Relations with the US government have been blurred recently by a weak commitment by the US federal government to deal with the status issue, and by economic disputes concerning transfers and tariffs. The 18-member task force created by the US president, Barack Obama, in 2009 to look into Puerto Rico’s political status and economic difficulties received a tepid reception in San Juan

Relations with US government stumble

12 Puerto Rico


when it held hearings in March. Key political leaders were not invited to testify and those who participated were given only four minutes each to address the group, prompting criticism. The hearings were perceived as being little more than a formality. Local lawmakers also failed to achieve full parity in federal health programmes for Puerto Rico, although the territory was included in the US healthcare reform act passed in March, and will receive US$1bn in federal funds for local public health programmes and Medicare, a federally-funded healthcare initiative for pensioners.

Meanwhile, Puerto Rico has fared poorly in a court battle against the US Virgin Islands (USVI) over tariffs on rum exports, in what is now being described as the "rum wars". A British distiller, Diageo, has decided to move its production facilities for a popular brand, Captain Morgan, to the USVI following an offer from the USVI government to split the US tariff rebate with the company (territories such as Puerto Rico and the USVI are rebated a portion of the tariff on rum they export to the US). Puerto Rico has called this unfair competition and is trying to get the US Congress to block the deal. If Diageo does move to the USVI, which currently appears highly likely, Puerto Rico will lose around US$100m in tariff revenue annually.

Economic policy

Despite growing public discontent, the governor, Luis Fortuño, of the Partido Nuevo Progresista (PNP), has continued to focus his efforts on promoting economic stimulus measures and pushing for new legislation in an attempt to improve the country's business environment and end the recession, which has persisted for four consecutive years. Studies are under way in preparation for a tax reform, with Mr Fortuños's seven-member Economic Council conducting analysis on the burden and effects of taxes. Mr Fortuño has also appointed a special task force to draft the reform project, headed by Xenia Vélez, a former Secretary of the Treasury and a tax expert. The goals of the reform are to lower marginal tax rates, simplify the tax code, fight tax evasion, stimulate savings and investment, and increase overall tax revenue. Fiscal reform has become a priority for Mr Fortuño, as Puerto Rico's tax base has steadily eroded in the past three years in line with negative economic growth. In the first eight months of the 2009/10 fiscal year (July-June), personal income taxes totalled US$1.5bn, or US$120m below the figure for the same period in the previous fiscal year.

A reform of labour laws is also being drafted by the administration with support from business organisations. Labour representatives, however, have not been involved in the process, and will surely oppose any bill drafted exclusively by the business sector. It is expected that the reform will seek to lower the costs of hiring and firing workers and to reduce the number of holidays and other benefits. The administration has further sought private advice on the development of several Public Private Partnerships (PPPs) meant to provide the thrust of private-sector investment in the post-recession economy. One of these projects involves selling the operation of the San Juan International Airport to a private company, a move that has already been cleared by US transportation authorities. Other PPPs are planned for highway development and improvement.

Tax and labour reforms are taking form

Puerto Rico 13


In the past few weeks, the US Federal Deposit Insurance Corporation (FDIC) has been looking for buyers for three ailing Puerto Rican banks, a move that will produce a significant change in the structure of the local banking industry. Since early 2009, federal regulators and industry observers have been talking of the need for consolidation to reduce the number of banks and strengthen those that remain, but only in recent weeks has the FDIC come up with a sales strategy. Puerto Rico's banks have suffered heavy losses as a result of the 2008-09 financial crisis, excessive exposure to bad construction loans and also to the general effects of the four-year recession on the quality of loan portfolios. The banks on the FDIC’s for-sale list have been hit hardest, but virtually all institutions have suffered to some extent. Banco Popular, the island’s largest bank and itself a troubled institution, is seeking US$900m in new capital, reportedly to use in the purchase of one of the banks offered for sale.

The domestic economy

Despite continued improvement in global and US economic conditions, Puerto Rico's economy, which has been contracting steadily since 2006, remains extremely weak. Following a revised 3.7% decline in real GNP in the 2008/09 fiscal year, the latest economic data indicate that, although in some areas the contraction is easing, overall conditions deteriorated further in the second half of 2009 and early 2010. Since June 2009 Puerto Rico's monthly index of economic activity has fallen every month by an average of 6.1% year on year, and, at 129.5 in February 2010, it stands at weaker levels than in 2001. In February, the number of persons employed fell to 1.1m according to the Households Survey of the Department of Labour and Human Resources. This figure was 5% lower than a year earlier, or 57,000 fewer workers employed. The unemployment rate rose to 15.8% in February after having fallen to 14.3% in December 2009, while the participation rate dropped to 42%. Employment in manufacturing and construction were particularly hard hit in late 2009. The construction sector has continued to struggle since mid-2008 when housing prices began to fall, with cement production contracting by 28.1% year on year in February. The value of construction permits issued in January was US$66.1m, a 9.3% decline on a year-on-year basis, while the number of permits fell 17.5% over the same period. The weak outlook for the construction sector reflects in part poor domestic conditions and uncertainties in the investment climate.

On the positive side, hotel registrations in November 2009 (the latest month for which data are available) were 5.3% higher than a year earlier. The occupancy rate was 61.6%, up 3.1 percentage points from November 2008. The modest increase in tourism activity in November, which is the first month of the tourism season, owes largely to a partial US recovery in the latter part of 2009. Another positive note is the year-on-year growth in sales of new motor vehicles, which hit double-digit rates in January and February. Sales are still well below pre-recession levels, but all indications are that the number of new vehicle units sold in 2010 will be substantially higher than that in 2009.

Restructuring of local banking sector begins

Economic activity falls in late 2009 and early 2010

14 Puerto Rico


Foreign trade and payments

Although indicators of domestic demand show signs of deterioration in late 2009 and early 2010, recent data from the Junta de Planificación (JP, the planning board) suggest that the pace of contraction in foreign trade is slowing, reflecting an improvement in global economic activity, particularly in the US. Given that the US accounts for over 80% of Puerto Rico’s exports, an improving domestic market in the US is easing the contraction in export receipts observed earlier in 2009. Although merchandise exports (fob) totalled only US$54.7bn in January-December 2009 (compared with US$63.8bn in 2008), fourth-quarter export receipts fell by 2.5% year on year, compared with declines of 4.5% and 8.2% in the third and second quarters, respectively.

The contraction in import spending observed throughout the year also eased in the fourth quarter. Import spending contracted by only 1.1% year on year in the fourth quarter, compared with contractions of 3.8% in the third quarter and 10.3% in the second quarter. For the year as a whole, the import bill declined by US$3.3bn, to US$36.8bn. The reduction in the contraction in import spending was mainly the result of rising global commodity prices (particularly for oil) and, to a lesser extent, improving export orders (two-thirds of total imports are intermediate goods for export-manufacturing industries). The trade surplus for 2009 was US$19.6bn, US$767m less than in 2008.

Trade contraction slows in fourth quarter 2009

Documents

Informe Económico de Puerto Rico (en inglés)