The estimated damage caused by Hurricane Maria would be around 45 percent of the island's gross product, economist Rafael Romeu said. (horizontal-x3)
The estimated damage caused by Hurricane Maria would be around 45 percent of the island's gross product, economist Rafael Romeu said. (GFR Media)

The federal funds that Puerto Rico would receive after hurricane María will be almost equal to the gross product of the island and even then, the economy will not return to the levels of relative prosperity it had before the beginning of the crisis.

According to the economists who worked on the projections of the fiscal plan evaluated by the Oversight Board, over the next five years, the economy will grow approximately 3 percent in real terms, which would mean the first five years of positive performance in almost two decades

However, Rafael Romeu and José Pineda, of the firm DevTech Systems, stressed that this projection, as well as achieving the economy to grow in a sustained manner, depends on the plan's fiscal and structural reforms being carefully implemented.

This, so that on the fiscal side, the estimated savings in public spending are reached and on the economic side, benefits that would imply increasing the labor participation rate and improving the island's infrastructure are obtained.

For the first time, since Ricardo Rosselló Nevares administration submitted its plan to the Board, economists - who have advised the government in the development of the document since Alejandro García Padilla's government - offered details on how they arrived at their projections, figures that have become the target of criticism by bondholders, academics and political opponents.

Behind the figures

"To say that it is a plan that is not well-founded is completely false. There are interests on the other side of the table that aim to create uncertainty and disqualifying any work, both for financial and political reasons, some in Puerto Rico and others in New York, "said Romeu when El Nuevo Día requested a reaction to the multiple criticisms to the fiscal plan.

According to Romeu, the model that results in the figures of the Puerto Rico revised fiscal plan  included historical statistics data, as well as the methodology recognized by entities such as the International Monetary Fund to analyze the impact of natural disasters and federal transfers and crude oil prices, among others.

According to Romeu and Pineda, the fiscal and economic plan intended to be implemented in Puerto Rico is, in a way, "an experiment" that has no precedent.

And as such, Pineda added, the projection in the fiscal plan are subject to oversight from both the Board and its advisors as well as those in the process that is followed in the Title III cases of the federal PROMESA law.

For Romeu, at present, the Board's advisors agree with 90 percent of the projections contained in the plan.

"We cannot guarantee that we will agree to the very last detail," Romeu said.

This was Maria

"There will be a different Puerto Rico before and a Puerto Rico after María," Romeu said.

Before the hurricane on September 20, according to the DevTech analysis, the hurricane that caused the most damage in Puerto Rico was in 1998, when the damages caused by Georges were close to 6 percent of the GNP. In 1960, Donna caused damages equivalent to 6 percent of the GNP of the Island. The damage associated with Hugo, in 1989, did not reach 5 percent of the local economy.

The estimated damage caused by Hurricane Maria would be around 45 percent of the island's gross product, Romeu said.

"Other economies do not receive $ 50 billion from the Federal Emergency Management Agency (FEMA) after a hurricane," Romeu noted in describing one of the peculiarities that make Puerto Rico a particular case in the economic world.

Recovery

For Pineda, the federal injection will allow the economy to improve until 2023, but after that year, the economic growth will be lower and will depend on the reforms that are implemented.

The economist stressed that Puerto Rico needs to ensure that the federal funds to be  maximized in the short and long terms.

In simple terms, Puerto Rico must ensure that investments made in  infrastructure allow companies and individuals to take advantage of such changes .

Structural reforms

"The change in the economic trend will only be sustained if the government is successful in adopting the measures that are being proposed and that we believe are feasible," Pineda added.

In the conversation with Romeu and Pineda, some differences between the plans submitted  by the government were not clear.

For example, in the revised version of the fiscal plan that the Board is evaluating, the collections of the General Fund would show an increase of 14 percent, although it considers a more important  population reduction than in the fiscal plan of March 2017. A similar trend can be seen in the expenses charged to the General Fund.

Romeu and Pineda did not offer the multipliers they used to reach their projections.

However, they stressed that the reforms contained in the plan are connected.

According to Pineda, the labor reform would benefit companies, but a tax reform that includes the Earned Income Tax Credit will benefit those who are part of the formal economy.

"The success of the Puerto Rican economy in the future lies in increasing the size of the labor force," said Pineda.

However, reaching that point will also depend on the size and population of Puerto Rico.

According to the economists, the population reduction was inevitable before Hurricane Maria. Now, they explained, the decisions to be taken must be directed to stop migration of people in search of better economic conditions.

But in turn, even if Puerto Rico resizes its government, it must respond to an aging population, so the government will need to refocus its resources on other needs, such as health.


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