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Puerto Rico needs to ‘refocus to find economic growth’

Puerto Rico has had a rough decade, when the island’s Gross Domestic Product has been shrinking when measured in real terms.

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.

Economist Graham Castillo

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.”

Author Details
Author Details
Business reporter with 30 years of experience writing for weekly and daily newspapers, as well as trade publications in Puerto Rico. My list of former employers includes Caribbean Business, The San Juan Star, and the Puerto Rico Daily Sun, among others. My areas of expertise include telecommunications, technology, retail, agriculture, tourism, banking and most other segments of Puerto Rico’s economy.


  1. Puerto Rico City December 3, 2012

    I disagree that Puerto Rico can compete in the knowledge economy. On the contrary, the unmistakable trend has been that persons with advance education in science and technology leave the island.

    Puerto Rico’s comparative advantages lay in other areas such as tourism, entertainment, music, film, art, sports, food, and fashion.

    I believe that it is a grave mistake to advise policymakers and the Puerto Rican public that the Island should become a tropical mecca for high-tech, biopharma and other sophisticated manufacturing. It is an even more serious error to advise policymakers to grant fiscally disastrous tax exemptions and other subsidies in an attempt to attract these businesses to the island.
    Because of the tax exemption development model, Puerto Rico has not developed a real economy based on its competitive strengths. David R. Martin

  2. Luis Saavedra December 7, 2012

    Sports???? How is that our comparative advantage? Are you telling me we can compete with the MLB and the NBA?? Lol

    So based on your logic we should not try to lure in more pharmaceuticals so that 2/3 of the engineers from el Colegio keep flowing to the states? Sounds like sound policy.

    One of the main reasons that PR’s economy did not grow in the consumer sector is because the middle class has to pay for a huge government that has taken a lot of debt AND all the consumer goods being 20-30% more expensive because the trades laws imposed on the territory. The local economy will not grow until structural changes occur in the government.

    1. DavidRMartinR December 26, 2012

      What “structural changes” are you suggesting?

  3. Luis Saavedra December 7, 2012

    Oh yeah, one correction in the article. The $64 billion is NOT GDP, it is GNP. Our GDP is close to a $100 bill


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