puerto riCo’s three systemiC shoCks

Puerto Rico’s Economy During the Pandemic and Post-Maria

CNE: The impact of three systemic shocks on Puerto Rico and its economy

The Weekly Journal Staff

Editor’s note: The first article in a two-part series Puerto Rico’s short-term economic performance is overshadowed by a large cloud of uncertainty, as the island’s government concurrently addresses the impacts of three systemic shocks: the COVID-19 pandemic, Hurricane Maria of 2017, and the bankruptcy of the central government, according to Sergio Marxuach, Center for a New Economy’s (CNE) Policy director and editor of the think tank’s publication: The CNE Review.

In the analysis released by the specialized newsletter Marxuach emphasized that each of these processes generates its own set of risks, which oftentimes can interact in complex ways.

“For example, the implementation of fiscal measures to balance the budget could affect the capacity of the state to manage complex projects, while supply chain bottlenecks and inflation due to the COVID-19 pandemic may delay Hurricane

Maria’s reconstruction efforts,” he said.

At a deeper level, however, the analysis concludes that “it is worrisome that economic growth in the short term depends mostly on receiving federal transfers that we do not control. We worry that these expenditures will have a temporary positive impact on the economy that may set back efforts to develop a medium/longterm economic strategy or plan for Puerto Rico.” Marxuach added that it’s important to avoid that trap and stay focused on addressing the structural factors that are the root cause of Puerto Rico’s long-term economic stagnation.

The Three Systemic Shocks

The COVID-19 pandemic, which has adversely affected economic activity since the spring of 2020, is still an ongoing, developing event. We really don’t know what the recovery from a global pandemic looks like, how long it will take, or which long-term structural shifts will flow from it. “In the short term, the COVID-19 pandemic is the most significant source of economic risk and uncertainty. Eventually, though, we can expect

The CNE’s Sergio Marxuach >Courtesy

the COVID-19 virus to reach a sort of equilibrium with its human hosts. Until then, we will continue to see significant economic disruptions, recurring demand-supply imbalances, and periodic shipping logjams, with many governments continuously tightening and loosening restrictions on business and economic activity as the virus continues to wax and wane in accordance with its own evolutionary logic,” Marxuach said.

Four years after Hurricane Maria wreaked havoc on the island and generated some $90 billion in damages, the pace of reconstruction remains slow — while Congress has allocated $64 billion for disaster relief and recovery operations in the island, as of June 30, 2021, only $18.6 billion, or about 29 percent, has been spent. “Furthermore, some of the most important work — refurbishing and modernizing the electric grid; rebuilding schools, housing, roads, bridges, and healthcare facilities; and undertaking mitigation activities to increase resiliency and reduce the risk exposure of vulnerable populations — has not yet begun,” Marxuach explained.

The main risk regarding the Maria reconstruction could be the creation of a false sense of complacency as the economy begins to grow when the federal money starts to flow. It would be a mistake to believe that our economic problems will be over once the disbursement of federal reconstruction funding begins in earnest for at least two reasons, he noted. First, all that economic activity will be financed with federal funds transferred to Puerto Rico’s government instead of locally generated resources. It may be easy to forget that once the good times are rolling and erroneously believe the reconstruction is driven by the strengthening of the Puerto Rican economy, when in fact it is powered by congressional largesse. Second, the reconstruction process, by its nature, is designed to rebuild and repair what was damaged or destroyed by Maria. In that sense, its main objective is to restore Puerto Rico’s capital endowment to its pre-hurricane state. The reconstruction of damaged or lost assets does not constitute a net addition to the island’s long-term productive capacity.

Finally, the government of Puerto Rico is entering a critical phase of its debt restructuring process as ballots will be soon sent to creditors so they can vote on the Plan of Adjustment (POA) negotiated by the Financial Oversight and Management Board. “The POA has, among other things, to be in compliance with the Fiscal Plan for the central government and be found by the court to be feasible and in the best interests of the creditors. If certified by the court, Puerto Rico’s bankruptcy will be officially over and the POA will govern Puerto Rico’s fiscal policy for the next 25 years,” Marxuach added.

From Surviving to Thriving

The link between entrepreneurship and economic resilience

Rosario Fajardo

rfajardo@wjournal.com @RosarioWJournal

Entrepreneurship is an integral part of the economic resilience of communities, regions and local economies. But for entrepreneurs to succeed, they need a support network to aid their growth. However, since each jurisdiction is unique, entrepreneurial ecosystems are not replicable, which is why we must examine Puerto Rico’s unique geographical, political and socioeconomic context to properly aid emerging businesses, according to a new report by the Foundation for Puerto Rico.

The island’s long economic recession, dating back to 2006, compounded with the calamities of the hurricanes, earthquakes and the COVID-19 pandemic, has forced entrepreneurs on the island into an endless cycle of disaster recovery. “If the goal is to improve resilience at the regional level, strongly connected entrepreneurial ecosystems are needed to develop the capabilities necessary to overcome barriers to more successful innovationdriven enterprises,” stated Foundation for Puerto The renovated Guajataca Tunnel in Isabela has become a popular tourist attraction with the opening of 28 local Rico Program Manager Anneliz Oliver. businesses. >Courtesy of Discover Puerto Rico

But how do we go from a constant survival mode to a thriving entrepreneurial ecosystem that does not depend on reactive measures to flourish? To this end, Foundation for Puerto Rico’s newly released “From Surviving to Thriving: A case study on Puerto Rican entrepreneurship,” provides entrepreneurship support organizations an overview of Puerto Rico’s entrepreneurial ecosystem, the importance of well-connected networks to aid in the development of new ventures, and a toolkit to better serve entrepreneurs in the wake of disasters and beyond.

One key activity that can contribute to the resilience of a community is entrepreneurship, according to the 56-page document. Resilience is particularly important for entrepreneurs because of two reasons: First, when seen as the entrepreneur’s preparedness, persistence and self-efficacy, resilience can inform why some businesses perform better than others. Second, the psychological and behavioral traits around resilience can increase the ability of a business to adjust to new circumstances and use innovation to achieve sustainability in the long term. “For Puerto Rican entrepreneurship, most efforts and support programs are concentrated in the metropolitan area which comprises the capital of San Juan and neighboring municipalities. This means that aspiring entrepreneurs in rural and historically underserved communities are often overlooked and are put at a disadvantage. “Leveling the playing field to close the gaps in access is key. If the goal is to enhance resilience at the regional level, strongly connected entrepreneurial ecosystems are needed to develop the capabilities required to overcome barriers and see more successful and innovationdriven ventures,” as per the report. According to 2019 data from the U.S. Census Bureau, Puerto Rico has an estimated 44,000 micro, small, midsize and large businesses. For these companies to grow and thrive, the island needs a well-functioning entrepreneurial ecosystem that includes several elements, according to the report. These include networks of support organizations; strong market potential with distribution channels; skilled talent; access In fact, to capital; improved ease of doing business; a culture that supports entrepreneurship; and a reliable infrastructure of electricity, roads and broadband. According to 2019 For example, as part of its efforts to help data from the U.S. entrepreneurs who are not in the San Juan area, Census Bureau, Foundation for Puerto Rico has awarded $80,000 Puerto Rico has an in grants to 22 businesses in the southern area, estimated 44,000 which included restaurants, retail stores and micro, small, midsize supermarkets, specifically in the urban center of and large businesses. Ponce and the boardwalk area of Guánica. Recipients received financial grants of between $1,000 and $7,500 that could meet short-term access to capital needs or help them improve the resilience of their facilities in response to natural disasters. Meanwhile, Foundation for Puerto Rico has helped renovate the Guajataca Tunnel in Isabela with a $10,000 grant, and the area has now become a popular tourist attraction with the opening of 28 local businesses.

U.S. SBA Chief Visits Puerto Rico, Spotlights COVID Economic Recovery

Two Women Business Centers established on the island

Rosario Fajardo

rfajardo@wjournalpr.com @RosarioWJournal

Isabella Casillas Guzmán, the administrator of the U.S. Small Business Administration (SBA) and a member of President Biden’s cabinet, made her first official visit to Puerto Rico, engaging with government officials, small business owners, community organizations and business development centers to spotlight the island’s economic recovery from the coronavirus pandemic. During her visit, Guzmán met with Gov. Pedro

R. Pierluisi and Economic Development Secretary Manuel Cidre Miranda at La Fortaleza, as well as San Juan Mayor Miguel Romero Lugo. After visiting a Shuttered Venue Operators Grant awardee, Museo de Arte de Puerto Rico, she also met with natural disaster-impacted small business owners; toured Parallel18, a nonprofit organization that assists small businesses start and grow on the island; and discussed government contracting opportunities with government contractors and 8(a) small disadvantaged businesses. “I was inspired to learn from small business owners in Puerto Rico how they tapped into SBA programs to pivot, continue operations and survive during the COVID pandemic. As entrepreneurs faced COVID-19 induced uncertainty, public health restrictions and hardship, our federal agency has delivered over $4.5 billion to Puerto Rico small businesses so far, with more on the way,” Guzmán said. A native of California, Guzmán was a small business entrepreneur herself, before entering politics. She previously served as Director of the

California Office of the Small Business Advocate,

Isabella Casillas Guzmán, the administrator of the U.S. Small Business Administration >Courtesy

a position she held after being appointed by California Gov. Gavin Newsom in April 2019. She also held leadership positions at the SBA’s main offices in Washington, D.C. during the ObamaBiden Administration. While on the island, Guzmán also addressed the San Juan Economic Development Forum, participated in an Equity Roundtable, and announced the launch of two new Women’s Business Centers (WBC) in Puerto Rico to ensure female entrepreneurs have equitable access to resources as their male counterparts. The two Women’s Business Centers are sponsored by Ana G. Méndez University, Gurabo Campus and Friends of Puerto Rico. The two centers will receive an annual grant of $150,000 each to help women-owned small businesses throughout Puerto Rico start, grow and expand their businesses. “Latina entrepreneurs are among the fastestgrowing entrepreneurial segments in the nation. In honor of Hispanic Heritage Month and as the nation recovers, it is SBA’s priority to ensure that women in Puerto Rico have equitable access to resources and support to start, scale and grow much-needed businesses within their communities,” said Natalie Madeira Cofield, SBA Assistant Administrator for the Office of Women’s Business Ownership. “The SBA’s WBC program is that catalyst for the growth of in-depth, substantive, outcome-oriented business services for women entrepreneurs.” The WBC, sponsored by UAGM-Gurabo, will provide services in the Central Eastern Region of Puerto Rico in Aguas Buenas, Aibonito, Barranquitas, Caguas, Cayey, Ceiba, Cidra, Comerío, Gurabo, Humacao, Juncos, Las Piedras, Naguabo, Orocovis, San Lorenzo, Guayama, Arroyo, Patillas, Maunabo and Yabucoa. The second WBC, sponsored by Friends of Puerto Rico, will serve San Juan and Bayamón. The SBA’s Women’s Business Centers are a national network of more than 135 centers that offer one-on-one counseling, training, networking, workshops, technical assistance and mentoring to women entrepreneurs on numerous business development topics, including business startup, financial management, marketing and procurement. The Office of Women’s Business Ownership’s mission is to empower women entrepreneurs through advocacy, outreach, education and support. Since it was established in response to an Executive Order in 1979, the federal government office has provided training, counseling, technical assistance, access to credit and capital, as well as marketing opportunities to women.