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Editorial & Column


The Year In Review


December 25, 2003
Copyright © 2003 CARIBBEAN BUSINESS. All Rights Reserved.

The long-awaited recovery finally came to the mainland U.S. economy in 2003. No such luck for Puerto Rico, though.

Despite the uncertainty brought about by the war in Iraq, signs of improvement in the stateside economy began to show up early in the year and continued to build throughout 2003, right into the third quarter, when the economy exploded into 7%-plus growth.

While that remarkable rate of growth is not considered sustainable, stateside economists agree 2004 could see average growth of around 4% barring a major terrorist attack on the U.S. home front.

The stimulus in the mainland U.S. economy came from two main sources: more money in the pockets of consumers and business owners as a result of federal tax cuts and tax refunds, and increased government military spending in support of the war effort.

By the third quarter, enough business confidence had built up that companies finally started to spend more aggressively. The fact that throughout the slowdown inventories had been virtually depleted also helped to boost new factory orders. And although businesses were not yet ready to start hiring new workers, at least the hemorrhaging of employees through layoffs was stopped.

In Puerto Rico we didn’t have such luck.

On the one hand, the federal government’s increase in military spending brought no benefit to the island. In fact, because of the Navy’s departure from Vieques and Roosevelt Roads and downsizing at Buchanan, Puerto Rico actually saw a reduction of at least $300 million in military spending this year.

On the other hand, President Bush’s federal economic stimulus package, with its tax cuts and refunds, didn’t help us one bit since for those purposes Puerto Rico is not part of the federal tax system, something that some local politicians ironically praise as the benefits of the island’s "fiscal autonomy." Instead, higher taxes were imposed at the local level, particularly hefty tax increases that affected consumers.

Further, despite repeated promises, the local government failed for the third year in a row to crank up its infrastructure construction program, at least until the last few months of this year. The promising statistics regarding the value of construction permits issued this year will not translate into actual construction until sometime in 2004.

In fact, next year being an election year, we’re going to have both public and private construction coming out of our ears. Although the nightmarish government permitting process has not only not improved but has actually gotten worse, the fact is there are enough projects already in process, with the financing already in place, to ensure economic growth of at least 2.5% next year.

Finally, it’s safe to anticipate that the administration will try to shift gears and put its best foot forward next year by delivering as many positive results as possible before the November elections.

During this administration’s three years in office, most government agencies have gone through two, three, and even four different people at the helm. Furthermore, the government, including most of the agencies and the Legislature, has been almost totally focused on investigating and punishing corruption that occurred in the past administration. Ironically, it has been the federal authorities, not the local government, who have discovered and effectively prosecuted most of the corruption cases.

Although we are all in favor of uncovering and punishing corrupt people–whether in government or in the private sector–the fact that the administration has been almost completely focused on this issue has meant that almost nothing has been done to deliver on its repeated promises to get the economy going.

Yet we’re optimistic. The governor probably does not want to go down in history as a total failure. And she might still have some interest in helping her party win re-election.

So 2004, the last year of this administration, will probably be much better than the other three combined.

This Caribbean Business article appears courtesy of Casiano Communications.
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