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onCe-in-a- generation ChanCe for development
A “once in a generation” chance for economic development
Outcome will depend on a well-designed strategy
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Juan A. Hernández, The Weekly Journal
Despite all the hardships that have plagued Puerto Rico for the last decade, the island now has the necessary conditions to “turn its economy around” and put it back in track to “increase the living standards of the people and pay off its restructured debt.”
“Notwithstanding the existence of certain substantial risks, current conditions are auspicious for undertaking a broad-based economic development effort in Puerto Rico. However, that will happen only if we design an economic strategy that allows Puerto Rico to take advantage of this opportunity,” said Sergio Marxuach, Policy Director for the Center for a New Economy (CNE).
In the CNE’s most recent policy brief, Marxuach summarizes the conditions that he considers would turn around the island’s economy.
Favorable Conditions
For the economist, the most salient of these conditions is the culmination of the debt restructuring process. “The certified Plan of Adjustment provides significant debt relief to the island by cutting the Commonwealth’s debt by approximately 50%,” Marxuach states in the brief. Nevertheless, while he does admit it is difficult to determine “whether this amount of debt relief is sufficient,” he also points out that “the medium to long-term viability of the Plan depends on jumpstarting the economic growth in Puerto Rico.”
Second, Marxuach points to the Biden Administration willingness to disburse the money appropriated by Congress five years ago to finance hurricane reconstruction efforts, which will allow Puerto Rico to significantly upgrade a large part of its physical infrastructure in a relatively short period of time. He also argues that “while the risk of the emergence of a new (Covid) variant is still, and will probably always be, present,” there is reason to believe that the worst of the pandemic may be ending soon.
Finally, Marxuach considers the island’s political shift “towards a more activist state affords Puerto Rico the necessary policy space to develop and implement creative solutions to its economic problems.”
But, while the economist is convinced the
Sergio Marxuach Policy Director, CNE
conditions are favorable for the development and implementation of a carefully crafted economic strategy, steps toward that end fall short.
“It is important to note that while the Pierluisi’s administration and the Financial Oversight and Management Board (FOMB) have proposed new economic incentives and the implementation of structural reforms, respectively, both efforts fall well short of crafting an economic strategy for Puerto Rico,” he said. “These efforts are certainly significant and seek to address important issues, but are inadequate on the whole because [they] are looking at only some pieces of the puzzle, and no one is looking at the entire puzzle.”
Risks
About the risks that could negatively affect the success of Puerto Rico’s economic development strategy, Marxuach mentions the rampant inflation in the U.S. and the significant risk of a recession within the next 18 months. “The Federal Reserve really has no other option but to tighten monetary policy because the current rate of price inflation is politically untenable,” the CNE policy director said about the recent increase in interest rates and the expected second and third hikes before the year’s end. “The Puerto Rican economy will certainly be negatively affected by higher interest rates. However, the negative impact of tightening monetary policy could be partially offset by the ramping up of federal spending for reconstruction projects in Puerto Rico,” he admitted, but emphasized he is not saying that “federal reconstruction spending will completely offset the effects of a broad economic slowdown or that such spending is a sustainable long-term economic growth strategy.”
“Our point is that to the extent federal reconstruction spending is executed in a timely fashion and in accordance with Congressional mandates that require providing a preferential option to local contractors in such spending, then Puerto Rico would have a cushion to partially offset any economic contraction in the short-term,” argued. “The CNE will be convening a broad group of stakeholders from academia, government, the private sector, and NGOs over the next few weeks to jump-start a process that, hopefully, will generate the long-term economic growth and development we so desperately need.”
