Cuba & Puerto Rico: “From the Same Bird, Two ‘Broken’ Wings”

Cuba & Puerto Rico: “From the Same Bird, Two ‘Broken’ Wings” Eugenio J. Alemán, Ph.D. Director and Senior Economist February 2018

Cuba & Puerto Rico

Cuba & Puerto Rico: From the Same Bird, Two ‘Broken’ Wings

Economics

• Cuba got its independence from Spain after the Spanish-American war in 1898 • Puerto Rico was kept as a territory of the United States • From there, the history of both islands took very different paths • On March 2, 1917, the Jones–Shafroth Act was signed, collectively making Puerto Ricans United States citizens without rescinding their Puerto Rican citizenship.

• By the mid-1900s Puerto Rico established what they called the “Estado Libre Asociado,” which included the writing of a constitution • Throughout history, the economy of Cuba followed the volatile patterns of price of sugar, its main export product • The Puerto Rican economy got help from the U.S. to industrialize • The dictatorship of Fulgencio Batista finally collapsed on January 1st, 1959 to a “revolution” headed by Fidel Castro • Several years after the revolution triumphed, Fidel Castro established an alliance with communist USSR • Puerto Rico enjoyed a fast industrialization process and strong economic growth fueled by large U.S. government subsidies for American firms that opened production facilities in Puerto Rico • Strains in U.S. fiscal numbers produced several changes on the subsidies over the years until the subsidies were eliminated in 1995 with a 10 year draw down window that ended in 2005. The Puerto Rican economy entered into a depression in 2006 • Since then, instead of adjusting to the new economic and fiscal reality, the Puerto Rican government has been financing its expenses through the issuance of debt in the U.S. municipal market • After the collapse of the USSR Cuba has been helped by the Venezuelan dictatorship • However, the collapse in oil prices since 2014 has put strain to those economic subsidies 2

Puerto Rico • Infrastructure • • • •

Buildings Roads Water and Sewer Electricity

• Food • Employment & Wages •

Economy adjusting though quantity rather than prices

• Internet

Economic Activity Index

The Puerto Rican economic depression was followed by the collapse after hurricane Maria

Source: GDB and Wells Fargo Securities

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Consumer Price Index

Economic depression but prices are still growing after a deflation in 2016 and early 2017

Source: U.S. Department of Labor and Wells Fargo Securities

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Nonfarm Employment

Employment continues to fall, mirroring the economic depression

Source: U.S. Department of Labor and Wells Fargo Securities

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Unemployment Rate

The rate of unemployment has been coming down perhaps though less participation as well as out-migration

Source: U.S. Department of Labor and Wells Fargo Securities

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Manufacturing and Non-Manufacturing Employment

While employment in manufacturing has been severely affected by the elimination of the 936 laws services employment has also tanked

Source: U.S. Department of Labor and Wells Fargo Securities

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Population

Population growth is in reverse with no expected end in sight

Source: Census and Wells Fargo Securities

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Employment “Growth� by Sector

No sector of employment has been immune to the demise of the economy

Source: U.S. Department of Labor and Wells Fargo Securities

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Manufacturing Employment

Almost 100 thousand manufacturing jobs have been lost since 1990

Source: U.S. Department of Labor and Wells Fargo Securities

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Government Employment

After trying to keep government employment stable the Great Recession and the lack of financing trounced the government ability to keep its payrolls intact

Source: U.S. Department of Labor and Wells Fargo Securities

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Total Nonfarm Employment

After peaking before the Great Recession at 1.05 million, employment is down about 200 thousand

Source: U.S. Department of Labor and Wells Fargo Securities

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Cuba • Infrastructure • • • •

Buildings Roads Water and Sewer Electricity

• Food • • • • •

Rice Black beans Pork Lettuce, tomato (some times) Everything is scarce (of course!)

• Employment & Wages • •

Exploitation by the state Two economies (Cuban Peso, CUC)

• Internet •

Meet me at the plaza!

Cuba

Cuba’s infrastructure is collapsing

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Cuba

Cuba’s infrastructure is collapsing

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Cuba

Cuba’s infrastructure is collapsing

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Cuba

Cuba’s intelligence services are probably hard at work!

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Cuba

Cuba’s intelligence services are probably hard at work!

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Cuba

Cuba’s infrastructure is collapsing

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Cuba

Cuba’s infrastructure is collapsing

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Cuba

Cuba’s infrastructure is collapsing

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Cuba

Cuba’s food supply is suffering from “capitalistic” pressures

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Wells Fargo Securities Economics Group Global Head of Research, Economics & Strategy

Economists

Diane Schumaker-Krieg ………………… ….diane.schumaker@wellsfargo.com Global Head of Research, Economics & Strategy ……

sarah.house@wellsfargo.com

Michael A. Brown, Economist michael.a.brown@wellsfargo.com Jamie Feik, Economist

Chief Economist John E. Silvia

Sarah House, Economist

jamie.feik@wellsfargo.com

Erik Nelson, Currency Strategist

erik.f.nelson@wellsfargo.com

john.silvia@wellsfargo.com Economic Analysts

Senior Economists

Michael Pugliese, Economic Analyst Harry Pershing, Economic Analyst Hank Carmichael, Economic Analyst Ariana Vaisey, Economic Analyst Abigail Kinnaman, Economic Analyst Shannon Seery, Economic Analyst

Mark Vitner, Senior Economist mark.vitner@wellsfargo.com Jay H. Bryson, Global Economist

…jay.bryson@wellsfargo.com

Sam Bullard, Senior Economistsam.bullard@wellsfargo.com Nick Bennenbroek, Currency Strategist nicholas.bennenbroek@wellsfargo.com Eugenio J. Alemán, Senior Economist Azhar Iqbal, Econometrician

eugenio.j.aleman@wellsfargo.com

azhar.iqbal@wellsfargo.com

Tim Quinlan, Senior Economist

tim.quinlan@wellsfargo.com

Eric J. Viloria, Currency Strategist

eric.viloria@wellsfargo.com

michael.d.pugliese@wellsfargo.com harry.pershing@wellsfargo.com john.h.carmichael@wellsfargo.com ariana.b.vaisey@wellsfargo.com abigail.kinnaman@wellsfargo.com shannon.seery@wellsfargo.com

Administrative Assistants Donna LaFleur, Executive Assistant

donna.lafleur@wellsfargo.com

Dawne Howes, Administrative Assistant dawne.howes@wellsfargo.com

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