The effects of the current administration’s value-added tax proposal as part of a sweeping tax overhaul and the “liquidity time bomb” of the Government Development Bank will make 2015 a “decisive year” for making harsh decisions, analyst firm H. Calero Consulting predicted in the latest edition of its publication “Compass.”
In the analysis released last week, the firm offered its views of 2014, describing it as “another turbulent year for the Puerto Rican economy.”
“Businesses and households sadly miss the stable growing years of the late 80s and 90s. This continued state of crisis impacts householders’ and business owners’ peace of mind. Many households have lost confidence in Puerto Rico’s recovery and consequently, they are migrating to the U.S. [mainland],” the firm said, adding that other issues causing uncertainty, such as the tax reform and other laws are fueling the outward shift.
In its overview of the economy’s key components, H. Calero Consulting concluded that most sectors produced dire results, with the exception of manufacturing and the leading index. The manufacturing sector saw a slight gain throughout the year with the fourth quarter reporting a 1.4 percent growth ending 2014 with near zero, but positive growth in all 4 quarters.
“The threat to the manufacturing sector in Puerto Rico comes from the recent announcement by President Obama that he will propose an increase in taxes on controlled foreign corporations, many manufacturing operations in the island are CFCs, so they return to the U.S. mainland. That would be a blow for Puerto Rico,” the firm predicted.
Meanwhile, jobs and construction activity continued to plunge, adding to the dismal results for 2014. But despite the negative performance in the construction sector, several projects, namely the Ciudadela complex in Santurce and the development plans announced for the former naval base Roosevelt Roads in Ceiba are bright lights in the bleak scene, the firm said.
Finally, the firm noted that Puerto Rico’s banking sector continues on a “sickly” path, posting no positive growth and recording the longest contraction since 2010.
“Without positive growth in this sector, there is little hope of promoting investment throughout the island,” the firm said, mentioning Doral Bank’s precarious situation that could ultimately result in a closing of the bank by the Federal Deposit Insurance Corp. over a lack of liquidity.
Another bank the firm brought to the forefront is the GDB, which is facing liquidity issues of its own, which the firm likened to a “time bomb.”
“The liquidity time bomb of the GDB and the whole government will make 2015 a decisive year with no time to postpone harsh decisions,” the firm said.