Puerto Rico needs to ‘refocus to find economic growth’
Puerto Rico’s current economy is smaller and less populated than when many of its legal and government structures were effected, making it necessary to refocus development policies to be able to move forward.
“We participate in a global scenario that is more competitive and volatile,” said José J. Villamíl, president of the Estudios Técnicos analyst firm in a presentation to local business and government leaders last week. “We’re still 100 x 35, but we’ve gotten smaller. We have important challenges ahead, but there are also opportunities for effectively inserting ourselves in the new global environment.”
Puerto Rico has had a rough decade, during which the Gross Domestic Product has been shrinking when measured in real terms. While activity peaked in 2004, it dropped to its lowest point in 2009 — right smack in the midst of a major recession that is just now showing signs of abating.
At present, the Puerto Rico Planning Board estimates the island’s GDP at $64.1 billion in 2011, up slightly from the $63 billion projected the prior year.
“But in real terms, the economy has been in negative for a long time. The only year that showed growth from 2001 to 2010 was 2004. In just a few years, our economy shrank significantly,” he said.
“What happened in the period between 2001 and 2012 is not a cyclical recession, but rather the culmination of a long process in which Puerto Rico has been losing its ability to generate high growth rates. There are structural problems we must address,” he said.
Villamil gave several reasons behind Puerto Rico’s current circumstance: a reduction in gross domestic investment, particularly in construction and “making the mistake that consumption would generate growth.”
The deficit of economic growth was masked by increases in public spending, federal fund transfers and increases in public sector debt. This ability to increase debt is now very limited, he said.
Puerto Rico’s dependency on federal coffers has increased persistently since 2004, when it received a little more than $10 billion in transfers. That figure is now more than double, at nearly $22 billion, Estudios Técnicos calculated.
“That mitigated the shortcomings of Puerto Rico’s ability to grow,” he said.
Now, the government needs to rethink its economic development strategy by redesigning a system “designed toward an economy for which we’re no longer headed,” supposing a shift from manufacturing to exporting, Villamil added.
A new demographic
Meanwhile, economist Graham Castillo, also with Estudios Técnicos, explained how migration has taken a toll on the island, especially since the majority of Puerto Ricans who have left in recent years falls into the younger generation. All told, the island has lost about 286,000 residents in the last 10 years.
“Most of the migration that we saw happening in Puerto Rico took place in towns where there were high levels of job losses. That has impacted property sales, income per capita and has accelerated the aging of our population,” Castillo said.
Puerto Rico’s aging population sets off fundamental problems in many industries as well as public finances, requiring different social needs due to lower income.
Where are the opportunities?
Having said that Puerto Rico’s leaders both in the public and private sector must look toward different horizons to improve economic conditions, economist Luis Rodríguez-Báez said the move now should be toward exporting knowledge.
“The move toward a knowledge-based economy is a development strategy and not an isolated program. It is a global phenomenon,” he said.
To achieve that, it is also necessary to spur the creation of more local businesses that need not be large-scale, but have the capacity to adopt new organizational structures that allow for serving not just the local market, but the world.
Technology, wireless networking and developing for the cloud are three areas of opportunity Rodríguez-Báez said are ripe for growth and “presents great potential for entrepreneurship and economic growth, in terms of the opportunities in the public and private sectors.”