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P.R. Achieves Sustained Moderate Growth After Recession

Government estimates 1.9% economic growth for FY 2003; expects 2.9% in 2004


December 18, 2003
Copyright © 2003 CARIBBEAN BUSINESS. All Rights Reserved.

Puerto Rico’s economy is in a period of sustained moderate growth and has partially recovered from the past two years’ economic recession, said Gov. Sila Calderon and her economic development team during a recap of the island’s economy.

"Economic development and the creation of new jobs remains the first priority of this government," said Gov. Calderon. "We will continue focusing on manufacturing as our economic driver and on diversification to incentivize the various production sectors. There are three priorities until the end of my four-year term: economic development and new jobs, the special communities, and safety."

FY 2003 a success

Citing Puerto Rico Planning Board statistics, Economic Development & Commerce Secretary Milton Segarra said, "During fiscal year [FY] 2003 [ended June 30], Puerto Rico’s economic growth was 1.9%, a success considering the island registered -0.3% growth during FY 2002. For FY 2004 and FY 2005, the island’s economic growth is projected at 2.9% and 2.7%, respectively.

"Puerto Rico’s economic recovery translated into sustained moderate growth, which is validated by statistics from several industry sectors," added Segarra. "We have a very open economy, meaning that foreign trade represents a large proportion of our economic activity. But private and public expenditures increased in real terms between FY 2002 and FY 2003."

Segarra said private expenditures, which increased 3.2% during FY 2003, compared with 1.9% in FY 2002, and construction investments were two of the biggest factors in Puerto Rico’s economic growth. The construction industry experienced a significant recovery from January to October 2003, when the number of permits granted increased 1.6% over the same period a year earlier.

According to Segarra, the value of construction permits grew from $616 million in 2001 and $1 billion in 2002 to $1.9 billion in 2003. Construction expenditures for 2004 and 2005 are estimated at $2.7 billion and $2.8 billion, respectively.

"The government played an important role in the economic recovery of the island through its concession of public works permits, whose number increased by an estimated 78.2% over 2002; the value of public works permits increased by 64.4% over the same period," said Segarra. "An important reason we feel construction will continue growing is that investment in equipment and machinery increased an average 4% over 2002. This reflects well on investors’ short-term expectations and offers additional confidence with respect to the economy’s actual conditions."

While the Calderon administration claims the partial elimination of Internal Revenue Code Section 936 was a key reason for the job losses in 2001, statistics show most of the jobs eliminated came from labor-intensive sectors such as apparel and leather, where Puerto Rico can’t compete with low-wage countries such as the Dominican Republic, China, and Singapore.

The government continues its efforts to attract high-technology industry capital to the island. Yet most of the new-construction efforts in this sector have come from pharmaceutical drug manufacturers’ expansions, such as the Abbott Laboratories, Amgen, and Eli Lilly biotechnology plants.

Cash in the bank

From 2001 to 2003, the Government Development Bank (GDB) issued $6.5 billion in bonds, generating $835 million in accumulated savings for the central government and its public corporations, according to recently appointed GDB President Antonio Faria. The government expects to issue another $2.3 billion in 2004.

With a $2.9 billion investment portfolio through November 2003, the GDB’s assets increased to $8.9 billion, with $2.2 billion in equity. Net revenue for FY 2003 was $153.3 million and the loan portfolio was $2.8 billion.

In tourism, the GDB approved a $390 million credit line for the Tourism Development Fund in FY 2003. The renovation of the Condado Trio received $94 million, and the Puerto Rico Convention Center was assigned $296 million. Another $39 million was invested in remodeling the Courtyard by Marriott ($28 million) and Isla Verde’s Holiday Inn ($11 million).

Faria also highlighted financing to the Rincon Beach Resort ($7.3 million), Mova Pharmaceutical ($7.9 million), and Paseo Caribe’s parking facility ($27 million). Another $207.2 million was approved in municipal financing projects for the purchase of equipment and capital improvements.

The Puerto Rico Industrial, Tourism, Educational, Medical & Environmental Control Facilities Financing Authority (Afica by its Spanish acronym) approved $111 million for projects encouraging economic development on the island and is evaluating private-sector proposals for a total $275 million in financing.

According to Housing Secretary Ileana Echegoyen, construction has begun in 93 special communities at an investment of $140 million. The special communities program has $936.4 million: $678.7 million for building new housing and $257.7 million for new infrastructure projects. The GDB recently approved a $700 million credit line to the Housing Department for its 2004 new-construction and remodeling program, which includes 41 housing projects.

Construction of the new GDB headquarters will start in January at a cost of $100 million. The building will also house the Economic Development Bank, the Office of the Financial Institutions Commissioner, the Office of the Commissioner of Insurance, the Housing Financing Authority, and the Infrastructure Financing Authority.

Employment on the rise

Labor Secretary Frank Zorrilla said employment increased by 2.9%, or 34,000 people, from January to November 2003. With the number of workers increasing by 2.6%, or 35,500 people, in the first 11 months of 2003, the work force participation rate increased 0.4%.

"These statistics are a good X-ray of our economic reality," said Zorrilla. "During the worst of the economic crisis, the government stepped forward with programs to avoid unemployment. Despite the heavy rains that affected the agriculture and construction sectors in November 2003, the unemployment rate was 12.1%, a 0.3% decrease compared with November 2002."

Value of Public Works & Housing Projects

By Calendar Year, In $ millions

2001: 365 Housing, 616 Public Works

2002: 560 Housing, 1026 Public Works

2003: 536 Housing, 1922 Public Works

Source: La Fortaleza Strategic Projects & Infrastructure Office

Unemployment Rate

Accumulated from January to November

1981-‘83: 22.1%

1985-‘87: 19.3%

1989-’91: 15.0%

1993-’95: 15.2%

1997-’99: 13.0%

2001: 12%

Source: Puerto Rico Labor & Human Resources Department

This Caribbean Business article appears courtesy of Casiano Communications.
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