Published on May 23, 2022 / Leer en español
In This Issue
Several positive trends are clearly converging in 2022 to create the opportunity of a generation for Puerto Rico to turn around its economy and start a process that would generate long-term economic growth and development.
In this edition of the CNE Review, we take a look at the current conditions, the risks, and the context in which these trends are developing.
In sum, our net assessment is that, 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. Economic growth will not happen on its own. We need to take concrete, affirmative actions to make the most of the current situation.
To that end, CNE will be convening a broad group of stakeholders from academia, government, the private sector, and NGOs over the next few weeks to jumpstart a process that, hopefully, will generate the long-term economic growth and development we so desperately need. Stay tuned.
–Sergio M. Marxuach, Editor-in-Chief
Insights + Analysis from CNE
2022 – The Opportunity of a Generation for Puerto Rico
By Sergio M. Marxuach, Policy Director
After 15 years of economic stagnation, a fiscal and debt crisis, the bankruptcy of its government, the damage caused by Hurricanes Irma and MarĂa in 2017 and a series of earthquakes in 2020, and the pain inflicted by the COVID-19 pandemic, Puerto Rico has a once in a generation opportunity to turn its economy around.
- The debt restructuring process is over. The certified Plan of Adjustment provides significant debt relief to the island by cutting the Commonwealth’s debt by approximately 50%. It is quite difficult, though, to determine today whether this amount of debt relief is sufficient. What is clear is that the medium to long-term viability of the Plan depends on jumpstarting economic growth in Puerto Rico.
- The Biden Administration has been willing to disburse the money appropriated by Congress five years ago. These funds will finance hurricane reconstruction efforts, which will allow Puerto Rico to significantly upgrade a large part of its physical infrastructure endowment in a relatively short period of time.
- There is reason to believe, or at least hope, that the worst of the pandemic may be ending soon. While the risk of the emergence of a new variant is still, and will probably always be, present, it is also true that humankind has made tremendous progress in understanding the clinical evolution of this disease and developed in record time both vaccines and new treatments that reduce the incidence of severe symptoms, hospitalizations, and deaths.
- The intellectual and political turn towards a more activist state affords Puerto Rico the necessary policy space to develop and implement creative solutions to its economic problems. The spirit of the times is favorable for the development and implementation of a carefully crafted economic strategy for Puerto Rico. In this sense, it is important to note that while the Pierluisi Administration and the Financial Oversight and Management Board (the “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.
These efforts are certainly significant and seek to address important issues, but are inadequate on the whole, because both the government of Puerto Rico and the FOMB are looking at only some pieces of the puzzle, and no one is looking at the entire puzzle. Here we would do well to follow the advice of Michael Spence when he said “we shouldn’t slip into the mistake of equating something useful, like financial-sector development or anything else, with a sufficient condition for growth.” (Commission on Growth and Development, p. 33.)
Similarly, we shouldn’t make the mistake of equating a set of quite disparate and perhaps marginally effective structural reforms with an economic strategy. Simply stated, the structural reforms favored by the FOMB and set forth in the Fiscal Plan are second-order issues and will not generate the long-term economic growth Puerto Rico requires, both for increasing the living the standards of its people and to pay off its restructured debt, unless they are embedded or framed within a larger economic strategy or vision.
While the trends mentioned above are generally positive, the current economic environment is also characterized by significant uncertainty and downside risks. Click the button below to read more on these risks and the context in which these trends are taking place.
On Our Radar...
The Brave New World of Artificial Intelligence – Advances in the development of new applications of artificial intelligence (“AI”) technology have the potential to create new ways of knowing and understanding reality and to disrupt many fields of human endeavor. Yet, AI, just like any other technology, can be used for both good or evil. This series of stories in the MIT Technology Review takes a look at some of the more controversial aspects of AI, specifically, “how AI is impoverishing the communities and countries that don’t have a say in its development—the same communities and countries already impoverished by former colonial empires.” The authors, however, “also suggest how AI could be so much more—a way for the historically dispossessed to reassert their culture, their voice, and their right to determine their own future.”
The Return of Wars of Conquest? – There have been many wars since the end of World War 2. Very few of those conflicts, however, involved the outright conquest of another internationally recognized country. That is why Russia’s invasion of Ukraine has been so shocking. “Now, with Russia’s invasion, the norm against territorial conquest has been tested in the most threatening and vivid way since the end of World War II. The war in Ukraine is reminiscent of a previous, more violent era. If the global community allows Russia to subsume Ukraine, states may more frequently use force to challenge borders, and wars may break out, former empires may be reinstated, and more countries may be brought to the edge of extinction”, writes Tanisha M. Fazal in Foreign Affairs.
White Christian America Fights Back – The political turmoil unleashed by a leaked draft of a U.S. Supreme Court opinion overturning Roe v. Wade has focused on its implications for reproductive freedom and other rights anchored on the same constitutional basis. It also highlights, according to Ronald Brownstein writing in The Atlantic, a “deeper phenomenon in American politics: the urgency and ambition of the Republican drive to lock into law the cultural priorities of its preponderantly white, Christian, and older electoral coalition at a moment of rapid demographic change.”