H.Calero Consulting Group, Inc. How Maria Forges PR s Future Assessment and Forecast
An economy in recession Real GNP growth, % High Moderate Negative 8.0% 0% -1.1% Source: PR Planning Board
with investment going down Investment, $ billion and % of GNP 30% $12.0 Recession 22% $4.8 $8.3 12% '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 Investment % GNP hcalero.com Source: PR Planning Board
Federal funds as a driving force $billion $14.2 20% 2% $0.1 13% 1970 1980 1990 2000 2010 16 Net Transfers As % GNP Source: PR Planning Board
Trouble with public debt $ billion $ 71% Sec. 936 ends 99% 35% 56% 1970 1978 1986 1994 2002 2010 Debt Debt/GNP 2016 hcalero.com Source: PR Planning Board
The job challenge Low participation still a major problem 46.6% Feb 2018 10.1% 10% 40% 2000 2003 2006 2009 2012 2015 Participation Unemployment 18 Source: PR Department of Labor
Demographic time bomb in PR PR population, million 2005-2016, 000s 3.8 3.4 2.2 6% 15% 20% 24% Source: US Census Bureau 16
Recurrent fiscal deficits GF net revenues GF budget, $ million 348 (64) (521) (3,180) 2000 2004 2008 2012 2016 2017 Source: PR Planning Board
Municipalities also with deficit Deficit FY 2016 Rincón Aguada Cabo Rojo Aguadilla Moca Añasco Mayagüez Hormigueros Isabela Quebradillas San Sebastián Las Marías San Germán Lajas Maricao Sabana Grande Guánica Camuy Lares Yauco Hatillo Guayanilla Peñuelas ñ Arecibo Ponce Barceloneta Florida Manatí Toa Alta Trujillo Alto Morovis Ciales Corozal Utuado Aguas Gurabo 46 municipalities Buenas Orocovis Comerío with deficit Caguas Jayuya Barranquitas Adjuntas Cidra San 60% of 78 Villalba Aibonito Lorenzo Juana Díaz Vega Baja Coamo Santa Isabel Vega Alta Dorado Toa Baja Naranjito Salinas Cata ño Bayamon Cayey Guaynabo Guayama San Juan Patillas Arroyo Carolina Loízaí Canovanas Juncos Maunabo Las Piedras Yabuoca Río Grande Humacao Luquillo Naguabo Vieques Fajardo Ceiba Culebra Surplus Deficit Source: OCAM
PR debt The end game Source: Press
US takes action with PROMESA Restructure debt with Court Approve fiscal plan & budgets Obtain financial audited statements Freeze or reduce pension benefits Issue bonds Review Acts of Legislature Exclude 25yr old from min. wage Subpoena powers Prohibit public strikes Establish new personnel system Not subject to Judicial review
A conceptual growth plan Investment opportunities Economic growth Tourism Manufacturing Agriculture Key Services hcalero.com Source: HCCG Energy Ports Infrastructure Highways Telecom
A dated infrastructure Electricity generation by source, 2017, % 4 17 45 % 20 bn kwh 34 Oil Gas Coal Renewables Source: PREPA
Untapped potential of tourism Visitor s expenditures, $ million $3,985 6% 4% $234 1971 1979 1987 1995 2003 2011 16 Visitor's expenditures % of GNP hcalero.com Source: HCCG
Manufacturing dominates in GDP but not in jobs, 2016 GDP Jobs 36% 7% 1% 1% $105bn 47% 43% 1m 19% 2% 3% 9% 8% 24% Agric/Min Constr. Mfg. Trade Services Gov Source: PR Planning Board, PRDLHR
Agriculture is dormant $ million 9.7% 164 0.8% 1960 1968 1976 1984 1992 2000 2008 2016 Agriculture % GDP hcalero.com Source: PR Planning Board
Higher education in transition Expense per university student, $ University enrollment trend by sector $25,130 160,109 116,938 $17,099 73,838 67,146 2006 2010 2015 Source: PR Council on Higher Education '02 '04 '06 '08 '10 '12 '14 '16 Public Private
Healthcare keeps going up Government funds for healthcare, FY, $ million 4,511 2,940 2,016 1,534 07 08 09 10 11 12 13 14 15 16 Medicare Medicaid/Mi Salud Source: PR Planning Board, PR OMB
Financial system is diversified PR financial system assets, $ million 29 14 6 76 88 $ 214 bn $ 144 bn 2007 2017 Banks IBE's Credit Unions Investment banks Other 23 6 9 50 57 Source: PR Department of Labor
Where is Puerto Rico today? AGUADA AÑASCO MAYAGÜEZ CABO ROJO MOCA Gross Domestic Product 16 $105b TOA VEGA MANATI BAJA VEGA BAJA SAN ALTA ARECIBO JUAN TOA Gross National Product 16 ALTA $70.1b RIO FLORIDA GRANDE SAN Population 17 3.3m SEBASTIAN CIALES GURABO AGUAS LARES UTUADO Share of Manufacturing in GDP 47% BUENAS JUNCOS NAGUABO COMERIO LAS MARIAS OROCOVIS CAGUAS BARRANQUITAS Income Per Capita JAYUYA 16 $17,906 CIDRA ADJUNTAS MARICAO SAN AIBONITO LORENZO Total Employment 2/18 VILLALBA 1.0m CAYEY SAN COAMO YABUCOA GERMAN YAUCO Inflation 2/18 1.5% PONCE JUANA Unemployment rate DIAZ 2/18SANTA SALINAS 10% LAJAS ISABEL GUAYAMA GUANICA Participation rate 2/18 40% CEIBA Source: PR Planning Board, US Census Bureau, PR Department of Labor. 20
Economic activity after Maria HCCG quarterly indices, % change over previous year, 4Q-2017 10.8% -4.9% -2.0% -2.1% -18.5% -27.3% Coinc. Constr. Cons. Mfg Banking Leading
Destruction path of hurricanes Recent hurricanes in Puerto Rico
Ten biggest blackouts in US history Million customer hours of lost electricity service Maria ('17) Georges ('98) Sandy ('12) Irma ('17) Hugo ('89) Ike ('08) Katrina ('05) NE Blackout ('03) Wilma ('05) Irene ('11) 775 753 700 683 681 592 515 483 1,248 1,050
FEMA budget hurricane María, federal FY, $ billion FY 2017 FY 2018 26% $1.6 bn 44% $15.9 bn 56% 74% Assistance Operations & administrative hcalero.com Source: FEMA
Methodology of damages Nordhaus: Elasticity between: Wind speed Nominal GNP = Damages Strobl: Model with: Population Wind speed Investment Openness = GNP growth The study quantifies damages by specific sectors
Maria set to increase poverty by 8% to 16% % of population below poverty level Base scenario Base scenario hcalero.com
Shock reaction model Pessimistic scenario Base scenario Optimistic scenario VAR model I-R Shocks MCS Assumptions Population Recovery funds Distrib. Timing Source: hcalero.com HCCG
Scenario definitions Assumptions Base Optimistic Pessimistic Population (2035) Moderate loss (2.6 mn) Smallest loss (3.0 mn) Significant loss (2.4 mn) Recovery funds Most funds in govt. outlays & investment > investment > consumption Funds available $23.8 bn $30.2 bn $16.7 bn Timeline Most funds FY2019 & FY2020, then taper off gradually > Funds FY2019 & FY2020 < Funds FY2019, constant funds during FY2020 - FY2023 hcalero.com Source: HCCG
Forecast scenarios The study provides: real GNP growth forecasts from 2018 thru 2023 Base, Optimistic, and Pessimistic scenarios
Economic recovery will be slow Real GNP, $ million (1954) 8,500 7,500 12 yrs 22 yrs 7,351 6,738 6,500 5,500 4,500 6,326 3,500 2,500 1,500 Source: HCCG 1972 1982 1992 2002 2012 2022 2032 2042 Optimistic Baseline
Two sides after Maria On one hand Severe fiscal austerity Long debt renegotiation Outward migration On the other hand A new socioeconomic fiber Private sector in new emerging activities Access to a high income US market Reconstruction funds to rebuild infrastructure The study identifies specific opportunities in tourism, agriculture, manufacturing, and services.
Second chance after Maria To transform the economy To make reforms To rebuild infrastructure To restructure public debt To change the role of PROMESA Board To halt migration
Orders for the study thru website hcalero.com