Economists: ‘It will take Puerto Rico 6 years to recover’
Assuming that Puerto Rico’s economy were to grow at an annual rate of 1.75 percent starting in 2014, it would take six years for it to bounce back into pre-recession growth levels, local firm Estudios Técnicos predicted Thursday.
In real terms, the island’s economy will grow conservatively at a rate of 0.2 percent in 2013, 0.80 percent in 2014 and 1 percent in 2015, the firm forecasted.
“The recovery will not be ‘V’-shaped or ‘U’-shaped, but rather ‘L’-shaped, which means we’ve touched bottom and will not pull out for years,” said Estudios Técnicos President José Joaquín Villamil, during the company’s “Effective Economy: Opportunities 2013” symposium. “This means that the economy has probably stopped contracting, but recovery is still a long way off, possibly until 2020.”
For the past six years, Puerto Rico has been stuck in what is likely the deepest economic recession the island has seen. Exiting that scenario will require specific strategies involving the public and private sectors, the economist said.
Puerto Rico’s GDP is currently estimated at $64.1 billion and has been in negative growth territory since 2006. However, activity has been rebounding since 2009, according to Planning Board numbers. Generally speaking, the island’s economy continues to grow at a slower pace than the U.S.
“A problem we had over the past decade was the reduction in gross domestic investment, particularly investment in construction. We made the mistake of thinking that consumption would generate economic growth,” he noted.
2 ways to improve
The way he sees it, Puerto Rico has two possible routes to take to improve its economic conditions: encourage the development of high-productivity firms focused on external markets; and establish specific measures to promote job creation aimed at less-prepared young people — the most affected segment of the population during the recession — by generating domestic activity.
“I don’t believe the first alternative will happen, but the latter two could,” Villamil said. “We require a labor market reform aimed at improving efficiency that includes measures to also increase the productivity of local firms and companies included in the second route.”
The government, he said, must lay down a legal framework tempered to current conditions that includes the private sector in the decision-making process.
Villamil mentioned for example the model used by Enterprise Florida Inc., a public-private partnership serving as the state’s primary organization devoted to economic development and International Enterprise Singapore, the government agency driving Singapore’s external economy.
Meanwhile, Puerto Rico also has specific areas of opportunity it can tap into, such as tourism, where the emphasis should be on hotel activity rather than cruise ship traffic. Boosting the sector will also require significant infrastructure investments in projects that set the island apart from its competitors, he noted.
But the island is still facing a laundry list of risks topped by: a possible reduction in federal funding; the prospect of a new recession in the European economy and the United States; uncertainty in the financial markets and banking sector fragility; the lack of flexibility by the Puerto Rico government to start new initiatives that require public funding; the extension of this decade’s migration trend; and the worsening of the island’s retirement fund woes.
“We need to ensure continuity in the implementation of development policies,” Villamil said. “It requires concerted action among diverse groups of interest to achieve that.”