Op-Ed: ’09-’14, Huge inflow of resources with no growth
In the years between 2009 and 2014, the economy of Puerto Rico had an inflow of funds (federal government and other sources) of about $110 billion. This inflow exceeded that of external direct (non-financial) investment to the island, representing 27.5 percent of the GNP (Gross National Product) for the period.
Yet, since Fiscal 2009, the economy has contracted in all but one year (Fiscal 2012), and growth that year was a very weak 0.5 percent according to the Puerto Rico Planning Board. How to explain that the economy has continued to contract given this huge inflow of funds? This note does not expect to answer this question. It merely provides a breakdown of these funds in the table included.
As can be seen in the table, the sources were various but can be grouped into several categories: funds from the American Reconstruction and Recovery Act (ARRA), the local Stimulus Fund, using bond proceeds from the Puerto Rico Sales Tax Financing Corporation (COFINA), from the reduction in tax rates for individuals and corporations through the Tax reform of 2011, and from federal funds to individuals, the Commonwealth, and municipalities.
The majority (92.4 percent) were federal funds, amounting to $101.6 billion, of which individuals received 75 percent (mostly corresponding to Social Security and Medicare payments, followed by food stamps, and scholarships). Given the high propensity to consume in Puerto Rico, it is safe to assume that most of that money went to personal consumption that represents 88.0 percent of the Island’s GNP.
The other big category was those funds received by the government (Commonwealth and public corporations, and municipalities.) They amounted to $15.8 billion, representing 14.4 percent of the total. Of these funds the majority are received by the Education and Health Departments, which accounted for 68 percent of the $15.8 billion.
In the area of infrastructure, inflows of federal funds (mostly to the public corporations, the Puerto Rico Electric Power Authority and the Puerto Rico Aqueduct and Sewer Authority) were $1.4 billion, representing a very small share in the total inflow of funds (1.2 percent.)
In the case of municipalities, the bulk of the funds received were for Community Development ($694.3 million,) of which we are assuming that at least a substantial portion goes to local infrastructure. In all, federal funds represented 25.4 percent of P.R.’s GNP during the period.
What these numbers tell us is that there are structural issues present that make the flow of resources to the economy very unproductive in terms of stimulating economic growth. This is partly explained by the fact that these inflows become consumption, mostly of imported goods, with little or no impact on the local economy.