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Economist Intelligence Unit - ViewsWire

Puerto Rico: Country Outlook

March 12, 2003
Copyright © 2003
The Economist Intelligence Unit Ltd. All rights reserved. 


OVERVIEW: The governor, Sila Maria Calderon of the pro-commonwealth PPD, who is seeking re-election in November 2004, will focus on strengthening her economic record. Economic growth is forecast to reach 2.5% in 2002 and 2003.

DOMESTIC POLITICS: The economy will be the critical factor in the next general elections, scheduled for November 2004. The governor, Sila Maria Calderon of the pro-commonwealth Partido Popular Democratico (PPD), who is seeking re-election, will focus on strengthening her record on the economy. Recession has characterised the first half of her four-year term and has dented her popularity. Jaime Pesquera received backing from the governing board of the opposition Partido Nuevo Progresista (PNP) as the only candidate for the governor's position, but the PNP's position will continue to be weak.

INTERNATIONAL RELATIONS: The PPD's lack of closeness with either the Democrats or the ruling Republicans will contribute to Puerto Rico 's difficulty in winning policy concessions from the US. Mrs Calderon has declared herself not aligned with any US party. Puerto Rico 's diplomatic contacts with the US will be focused on ensuring that the US Navy leaves and cleans up the Vieques training area as promised in May 2003. The island's long-term economic future is dependent on securing tax breaks from the US government .

POLICY TRENDS: A sign that the economy will be commanding most of Mrs Calderon's attention is the recent creation of a special citizens' committee to review economic development strategies for the next two decades, the Year 2025 Committee. Mrs Calderon has also announced that she favours a cut in personal taxation in 2003, although the specifics of that proposal are still to be worked out. A programme of investment in infrastructure and public works designed in large measure to stimulate the economy is getting under way.

ECONOMIC GROWTH: According to unofficial reports, the Puerto Rico Planning Board estimates that real gross national product (GNP) contracted by around 0.1-0.3% in fiscal year 2001-02 (July-June), and in the first half of 2002-03 growth is estimated to have been about 1%. GNP is expected to grow by 2.5% in 2002-03, and by 2.7% in 2003-04. This is based on our core forecast of a strengthening in the US economy in 2003 and 2004.

INFLATION: Inflation is expected to remain near the current 5.5% rate for the next six to 12 months, but will rise if petroleum prices increase significantly. Inflation will continue to be higher than on the mainland.

SOURCE: Country outlook

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