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Hoping For Better Days


April 3, 2003
Copyright © 2003 CARIBBEAN BUSINESS. All Rights Reserved.

According to local political folklore, you know it’s an election year when your neighborhood street gets a fresh coat of asphalt.

This time around, construction industry executives are hoping the election-year cycle will bring much more than that.

By now it’s old news that the construction industry has suffered a significant decline in the past two-and-a-half years. The main culprit has been the considerable reduction in government infrastructure construction activity. Although the pace of private-sector construction has kept fairly steady in the past three years, the value of public construction activity has declined significantly.

In particular, the level of investment in large infrastructure projects by key Puerto Rico government agencies has declined markedly from its 1999 all-time high. According to Planning Board numbers, annual investment in government infrastructure projects--i.e., construction of major infrastructure works by main government agencies--grew from $1.2 billion in 1993 to $2.4 billion in 1999, with an average annual growth rate of 13.8%. By contrast, government infrastructure investment during the Calderon administration has dropped 25% to $1.8 billion. When all other public construction activity is counted, not just major infrastructure works, a similar decline is also noted.

That should come as no surprise. During the first couple of years of the Calderon administration, almost all existing government infrastructure projects were put on hold to be re-evaluated, and no significant new ones were announced.

Since then, the administration has several times announced the imminent turnabout of the situation. Every step of the way we’ve covered the administration’s pronouncements of the impending restart of the many public construction projects that were stopped in early 2001. We’re still waiting.

Meanwhile, the Government Development Bank has been busy. Very wisely, it has taken advantage of the prevailing low interest rates to raise all the capital it needs not only to refinance existing debt but also to finance the government capital improvement program into the future. Altogether, during 2001 and 2002, the GDB structured a whopping $10.9 billion in bond issues involving new money, plus $3.2 billion in issues involving refinancing, with another $1.7 billion in government bonds projected to be issued in the next six months.

"Where’s all that money," the construction industry is asking. "We certainly don’t see it being put to work," they say. Neither do we.

It may be that, true to Puerto Rico’s electoral politics tradition, the administration is planning to put to work now the bulk of the money it has raised in the past two years. If that’s the case, brace yourself, we’re in for a lot of construction in the next 18 months, we hope. And with it, we should see an improvement in the local economy.

As we’ve said before, no other industry creates jobs faster and moves money through the economy more quickly and more directly than the construction industry.

If it happens, welcome. It’s better late than never, not just for the construction industry but for all of the island’s economy. On the other hand, what a pity it will have been to have delayed Puerto Rico’s economic recovery because of the administration’s strategy of pushing the thrust of its government construction program toward the end of the four-year term. Along the way, thousands of businesses in Puerto Rico have hurt so badly that many have gone into bankruptcy to continue operating and others have gone belly up all together.

Finally, we should also be concerned by the lack of proposals for new infrastructure projects. All the major infrastructure projects the current administration is trying to finish were planned or begun during the last administration, and no new ones of any significance have been proposed. Regardless of the outcome of the next election, businesspeople, in particular the construction industry, should be wondering: After those projects are finally finished, then what?

This Caribbean Business article appears courtesy of Casiano Communications.
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