|NY Fed Bank President William Dudley
Puerto Rico’s economy may be showing signs that it is finally emerging from the recession it has been under for the past five years, but conditions still remain difficult for many as the island pulls out of its slump, Federal Reserve Bank of New York President William Dudley said Friday in a presentation during the E-3 Summit of the Americas conference in San Juan.
The local recession, which he described as “deeper than the downturn on the mainland,” has lasted longer and recovery has also lagged.
While the mainland’s economy began to recover in mid-2009, Puerto Rico’s economy continued to decline for another year.
“But, since mid-2010 there have been promising signs: Recently released revisions suggest that job growth on the island, while still very weak, improved modestly since last summer. And most of the weakness since then has not been broad-based, but instead concentrated in construction and manufacturing,” said Dudley during his second visit to Puerto Rico in as many years.
Last year, Dudley met with community leaders, business people, academics, bankers and government officials during a meeting held at the Cantera sector of San Juan. Dudley was appointed the 10th president of the Federal Reserve Bank of New York in January 2009, following the confirmation of his predecessor, Tim Geithner as U.S. Secretary of the Treasury.
While he said Puerto Rico’s 16 percent jobless rate remains “unacceptably high,” Dudley touted the island’s ability to keep inflation subdued, despite recent volatility.
“On the mainland and in Puerto Rico, unemployment remains stubbornly high, but many indicators suggest that conditions are in place for stronger employment growth in the coming months,” Dudley said.
In 2009, the island’s inflation rate hovered at around 4 percent, but has since dropped to about 2 percent as of June 2010. But, the rise in food and energy prices is expected to push that average higher in coming months.
Looking ahead to the rest of the year, Dudley said: “I see grounds for cautious optimism. In particular, exports, which have been so important to the economic recovery on the mainland, have the potential to contribute to growth here in Puerto Rico as well.”
Citing recent data, Dudley pointed out that in 2009, the value of the island’s exports — consisting mostly of pharmaceutical products, medical equipment, computer and electronic products, and electrical equipment — was roughly $60 billion compared with roughly $40 billion of imports. Based on data through November, exports grew briskly, by about 10 percent, in 2010, he said.
Given that Puerto Rico’s main trading partners are all industrialized countries — the U.S., Germany, Netherlands, Belgium and Spain — the island has a good chance for improvement going forward.
“As more emerging economies narrow the gap between themselves and the more developed countries, the market for Puerto Rico’s goods could well expand accordingly. Going forward, I would not be surprised to see Puerto Rico’s exports rise further as your companies take advantage of the opportunities presented by the rapidly emerging economies,” Dudley said.
NY Fed’s role in island’s growth
During his speech, Dudley noted that the agency he heads will continue doing its part to support Puerto Rico. Specifically, he said the New York Fed will work to help the island’s banking and financial system “run smoothly so that it can support economic growth.”
“We are working hard to prevent the type of financial crisis that we recently experienced from recurring in the future, in a way that does not inhibit businesses from growing and prospering,” he said, referring to last year’s banking meltdown that resulted in the closing of three island banks.
“We are working closely with all of the banking supervisors and other key parties to facilitate an effective resolution to the problems facing the island’s banking sector,” he noted. “Last year, some of Puerto Rico’s banks were consolidated and many improved their balance sheets by selling underperforming assets. Both of these steps are likely to produce stronger, healthier institutions more able to make the sound lending decisions that support economic growth.”
Meanwhile, he said the agency will continue its partnerships with local nonprofit and private organizations, such as the Center for the New Economy, the Puerto Rico Bankers Association, and the Puerto Rico Statistics Institute, to provide technical assistance and implement local development programs.
Dudley’s speech drew immediate reaction from the local government, which classified his remarks as “further proof that we are in an economic stabilization period.”
Economic Development and Commerce Secretary José Pérez-Riera said Dudley’s predictions for recovery are “in line with what other experts have already said: that our administration’s economic development plan draws an accurate path to growth.”
Dudley’s remarks, he said, echo those of other economic experts, such as credit agencies Standard & Poor‘s, Fitch and Moody‘s and organizations such as the BMI and the World Economic Forum.
“As Dudley said, we still face many challenges in the short term, but I’m convinced we are headed in the right direction,” Pérez-Riera said.
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