CNE – Centro Para Una Nueva Economía – Center for a New Economy
Non-profit, economic research and policy development organization
John Maynard Keynes, the most influential economist of the first half of the 20th century, wrote in his seminal “General Theory of Employment, Interest, and Money” (1936) that “practical men, who believe themselves to ve quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”
Last week, Mayor William Miranda MarĂn presented a voucher for opening a bank account to the mother of a newborn child in Caguas. This was the first installment of a city-wide program whereby the parents of all children born after July 1, 2007 to bona fide residents of Caguas will receive a $250 voucher that can be used to open a children savings account at a financial institution.
In 1930, the Brookings Institution, a Washington D.C.-based think tank, published a report entitled “Porto Rico and Its Problems.” This report, prompted by various groups of Puerto Rican private citizens, was a thorough examination of the island’s social and economic landscape, covering, among other topics, education, public debt, public health, agriculture, trade and the state public works. It included a long list of recommendations, many of which were eventually implemented by the Puerto Rican government.
Puerto Rico is facing a severe fiscal crisis. Central government expenditures consistently exceed income and the Commonwealth has been forced to borrow from the Government Development Bank (GDB) $250 million, $233 million and $550 million to balance each of the last three central government budgets.
Last week, members of the Acevedo Vilá administration met with representatives of Moody’s Investors Service and Standard & Poor’s Rating Services, the credit rating agencies informally known as Moody’s and S&P respectively. When the government of Puerto Rico or one of its agencies issues bonds, these rating agencies analyze various quantitative and qualitative factors that may affect the borrower’s ability and willingness to repay, including, but not limited to, the financial condition of the borrower, the prevailing economic conditions in the island, and the political environment at the time of going to the market.
The availability of high quality, reliable and cost efficient electric power is of strategic importance for the future economic development of Puerto Rico. This means that without access to relatively affordable and reliable electric power it will be extremely difficult, if not outright impossible, to promote sustained growth in basically any area of economic endeavor in Puerto Rico, be it in industrial biotechnology, retail commerce, small and medium enterprises, tourism or services because the cost of electric power is usually one of the top cost drivers in each of these industrial or commercial sectors.
Recently, the Center for the New Economy, a non-profit, non-partisan think tank where I work, published a study analyzing the state of the Puerto Rico electricity sector.
The Acevedo Vilá administration has recently introduced a bill (HR 1579) to impose an additional temporary tax of 4 percent on corporations and partnerships that provide financial services in Puerto Rico. In our view, the proponents of the tax have ignored a basic tenet of economics, namely, that people, including corporations, respond to incentives.
