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Economist Intelligence Unit - ViewsWire

Puerto Rico: Outlook


August 6, 2003
Copyright © 2003 The Economist Intelligence Unit Ltd.. All rights reserved. 


OVERVIEW: The political scene will be dominated by the campaign for the general elections of November 2004. After a mild contraction in fiscal year 2001/02, economic growth is estimated to have reached 1.6% in 2002/03. Government spending on infrastructure will drive a recovery in activity and employment but manufacturing will face the uncertainty created by the threat of an end to US tax breaks.

DOMESTIC POLITICS: The political scene will be dominated by the campaign for the general elections of November 2004, which coincide with those in the US. The two main parties will hold primaries on November 9th 2003 to select candidates for governor, resident commissioner in Washington, legislators, mayors and district representatives. The pro-commonwealth Partido Popular Democratico (PPD) has already nominated Anibal Acevedo Vila (currently resident commissioner) as its candidate for the governorship and Senator Roberto Prats for resident commissioner. The opposition Partido Nuevo Progresista (PNP) will hold a primary to select its candidate for governor in a contest between Carlos Pesquera and the former governor, Pedro Rossello.

INTERNATIONAL RELATIONS: Following the US Navy's departure from the Vieques training area at the start of May, Puerto Rico's diplomatic contacts with the US will again become focused on economic relations. At a time when the US Congress is expressing concern about the widening fiscal deficit, lobbying for concessions for Puerto Rico, in particular a proposed amendment to Section 956 of the US tax code, may not receive a sympathetic hearing.

POLICY TRENDS: A programme of investment in infrastructure and public works designed to stimulate the economy is under way. The government plans about US$6bn in investments in infrastructure and public works to be realised over a four-year period. These include a transshipment port at Ponce, and a convention centre in the capital, San Juan, but most of the projects are smaller and less high profile. Implementation had been delayed, partly owing to a deterioration in the public finances in 2001-02, but a surge in government construction permits in the past year indicates that the programme is now under way.

ECONOMIC GROWTH: The economy was weak during most of the 2002/03 fiscal year, which ended on June 30th. Real GNP growth in the period is estimated at about 1.6%. The outlook for the 2003/04 fiscal year is brighter, assuming that the US recovery is sustained, with real GNP growth of 2.5% forecast. Government investment in infrastructure and public works is expected to increase by around 10% in real terms during the fiscal year. Growth in private construction will be lower, except in the housing sector, which continues to benefit from very low interest rates and a fast pace of new household formation.

INFLATION: We forecast an average annual inflation rate of 6.5% this year, falling to 5.5% in 2004.

EXTERNAL SECTOR: In the first eleven months of the 2002/03 fiscal year the cumulative value of merchandise exports (in current dollar terms) was US$50bn, a 16.2% increase year on year. Imports rose by 14.6% to US$30.7bn. Constant-dollar price data on merchandise trade are not produced in Puerto Rico, which makes it difficult to evaluate the flows of real imports and exports.

SOURCE: Country outlook

EIU Viewswire 30 Sep 2003, Part 8 of 14

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