Federal Reserve Bank of NY launches Investment Connection program in Puerto Rico

Community Foundation of Puerto Rico President Nelson Colón Tarrats speaks to attendees. (Courtesy)

In partnership with Puerto Rico Community Foundation and Inclusiv

SAN JUAN – Nonprofit organizations and cooperatives attended Thursday the launch of the Investment Connection Program in Puerto Rico, an initiative that seeks to connect stateside and island banks with community development projects on the island.

The initiative of the Federal Reserve Bank of New York, entails an alliance with the Puerto Rico Community Foundation (PRCF) and Inclusiv, a nonprofit that assists credit unions serving low-income communities,

The program provides community organizations with a model that “boosts an investment, donation or loan opportunity to promote and strengthen their community development proposals that are eligible under the Community Reinvestment Act (CRA),” the PRCF, which is the only local partner of the New York Fed in Puerto Rico, explained in its announcing release.

The launch event was aimed at educating organizations about the reinvestment law and its potential impact, including those related to a disaster recovery process. In addition, examples of collaborations between banks and nonprofits were shared.

The program is part of the Community Development Finance Model (CoDeFi) launched this year by the New York Fed to “support the transformation of communities, after the passage of hurricanes Irma and María, while increasing the impact of investments from local banks and the United States,” the release reads.

To request participation in the Investment Connection program, visit nyfed.org/codefi.

Puerto Rico officials meet with financial institutions in NY

SAN JUAN – After having met with Federal Reserve Bank of New York officials on Monday, the Puerto Rico governor’s chief of staff, Raúl Maldonado, and the island’s chief investment officer, Gerardo Portela, held meetings with financial institutions and investment banks in New York on Tuesday as well.

“We discussed several important issues for Puerto Rico and for Governor Ricardo Rosselló. Among them, the Opportunity Zones approved under the Tax Cuts and Jobs Act of 2017, the potential to channel investment through banks using the mechanism designed under the Community Reinvestment Act (CRA), as well as existing collaboration agreements between the Reserve Bank and the Office of the Commissioner of Financial Institutions,” said Maldonado, who was the island’s Treasury secretary.

Regarding the CRA, Reserve Bank officials mentioned the Interagency Statement on CRA Consideration for Community Development Activities in Puerto Rico issued earlier this year after Hurricane Maria struck the island.

“The CRA declaration allows any financial institution located in any state of the United States to invest in the development of the most affected communities in Puerto Rico, and that said investment is eligible for purposes of compliance with the provisions of the CRA,” said Portela, who was director of the island’s Fiscal Agency and Financial Advisory Authority.

Maldonado said that the Reserve Bank emphasized that the flexibility granted through the CRA declaration is still valid and represents a useful tool that allows banks and financial institutions to channel resources.

Federal Reserve Bank officials will travel to Puerto Rico next week to hold seminars for small and midsize businesses in collaboration with the Puerto Rico Science, Technology and Research Trust.

Puerto Rico should rebuild power from scratch: Fed official

NEW YORK – Puerto Rico should “start from scratch” rebuilding its already outdated power infrastructure after deadly Hurricane Maria last year devastated it and left citizens marooned, the U.S. central banker overseeing the island territory said on Thursday.

New York Fed President William Dudley did not comment on U.S. interest rates in a presentation of research on the effects of the storm that struck on Sept. 20. It was the worst natural disaster in 90 years and the largest government bankruptcy in U.S. history.

The Federal Reserve Bank of New York, whose district includes the Caribbean island, said Maria wiped out about 4 percent of its jobs, the fifth-worst among U.S. disaster regions in recent decades. Dudley said it will likely take “many more months” to restore electricity and critical infrastructure to Puerto Rico, adding it was unclear how many of the tens of thousands of residents who fled will eventually return.

Given the already outdated and inefficient power plants, he said, “now is a perfect opportunity for Puerto Rico to essentially start from scratch and build a resilient power generation and distribution network.”

Hurricane Maria killed dozens and left Puerto Rico’s 3.4 million U.S. citizens without power, along with reducing access to clean water and other essentials. The U.S. agency responsible for disaster response has been criticized for hiring contractors that failed to deliver relief to the island, and last month said it would continue to provide water, meals and other basic needs after earlier reports that it was going to halt aid.

Some 179,000 net people left Puerto Rico after the hurricane, with likely 20,000 to 30,000 of those tourists, the New York Fed found based on U.S. Census data. While it was hard to predict how many might return, New York Fed research analyst Jason Bram told reporters that relatively higher home ownership and lower mortgage debt “creates a little more links to the island.”

Assessing overnight satellite images of light on the island, seen as a creative proxy for economic activity, the New York Fed found the island was 76 percent as bright in January as it was before the hurricane hit in August. In October, Puerto Rico appeared to have only a fraction of its normal night light.

Dudley, who is set to leave his post by mid-year, said however that the island’s labor market appears to have stabilized thanks to a return of hospitality jobs and the emergence of construction. “These job gains are expected to continue for some time to come,” he told reporters at the New York Fed.

(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)

View the press briefing material here.

The following are Dudley’s remarks at the briefing, as prepared for delivery:

Good morning, and welcome to the New York Fed’s Regional Economic Press Briefing.  Today, we will provide an update on the economies of Puerto Rico and the U.S. Virgin Islands, with particular focus on the impacts of Hurricanes Irma and Maria.  As always, what I have to say reflects my own views and not necessarily those of the Federal Open Market Committee or the Federal Reserve System.1

Initial Fallout from the Storms

Hurricanes Irma and Maria did immense damage to Puerto Rico and the U.S. Virgin Islands, severely exacerbating what were already very difficult economic conditions.  My heart goes out to our fellow citizens who have suffered so much and who face a long and difficult recovery ahead.

Maria was the most devastating hurricane to hit Puerto Rico in nearly a century.  Many lives were lost, homes and businesses suffered immense damage, and large parts of the Island’s infrastructure and agriculture were destroyed.  Moreover, Puerto Rico’s power outage was, by far, the most severe in U.S. history, in terms of total customer-hours lost, and it will still likely take many more months to fully restore electricity and other critical infrastructure to all of the Island’s residents.  As a result, a sizable number of residents went to the U.S. mainland in the weeks following Maria, and it still is unclear how many will return once circumstances improve.

Even before the storms hit, Puerto Rico was struggling with severe fiscal difficulties and a long period of poor economic performance.  For over a decade, the Island has been experiencing a shrinking economy, contracting employment, low and declining labor force participation, and persistent out-migration of residents to the mainland.  Furthermore, public debt reached a problematic level, and the Commonwealth and its instrumentalities—including the power and water authorities—lost their ability to borrow in the public markets.  Defaults and ongoing debt restructuring efforts followed.

In the U.S. Virgin Islands, the situation is similar in many ways.  St. Thomas and St. John were ravaged by Irma, and St. Croix was devastated by Maria just two weeks later.  Their economy, which is much more dependent on tourism than that of Puerto Rico, has also been contracting for the better part of a decade.  However, the population of the U.S. Virgin Islands has not fallen nearly as sharply as Puerto Rico’s, and its economy had stabilized in the past two years following the closure of a major refinery in 2012.  Still, while by some measures the U.S. Virgin Islands are not as fiscally stressed as Puerto Rico, they, too, do not have access to the debt markets.

Recovery and Rebuilding

The combined impact of complex preexisting economic problems and the hurricanes has made recovery much more challenging.  The loss of market access has severely hampered the ability of the governments to mobilize resources to respond to the damage and rebuild and upgrade infrastructures.

One example is Puerto Rico’s electrical grid, which is a major obstacle to recovery.  Even before Maria, Puerto Rico suffered frequent blackouts, and the high cost and unreliability of electricity had reduced business competitiveness.  Puerto Rico’s power plants are largely outdated and inefficient, and the electrical distribution system is poorly maintained and extremely fragile.  In my mind, given this poor starting point, now is a perfect opportunity for Puerto Rico to essentially start from scratch and build a resilient power generation and distribution network.  I would assume that an emphasis on renewable energy would be part of this effort, especially given the dramatic fall in costs for this form of electricity generation.  The challenge, of course, will be how to finance this investment, when the Commonwealth is already mired in debt.

Despite these woes, there are signs of resilience in Puerto Rico.  As we will show, job losses following the storm were very substantial, totaling around 4 percent in Puerto Rico and 8 percent in the U.S. Virgin Islands.  These losses are considerably steeper than after most major hurricanes that have hit the United States. However, they are not as devastating as Katrina’s impact on the New Orleans economy more than a decade ago, which was and remains unprecedented.  Nonetheless, the labor market, at least in Puerto Rico, appears to be stabilizing as jobs in sectors that were most affected—such as leisure and hospitality—have started to come back.  And, as repair and rebuilding efforts get underway in both Puerto Rico and the U.S. Virgin Islands, jobs are being created in sectors such as construction.  These job gains are expected to continue for some time to come.

Looking Ahead

Puerto Rico now must not only complete the recovery from the hurricane, but also do what is necessary to get on a sustainable economic and fiscal path.  Given the Island’s high debt, unfunded pension obligations, declining population, and now the hurricane, the outlook may seem grim.

But there are good reasons not to despair.  As I have noted previously, New York City went through a similar crisis during the 1970s: its population was declining, the economy was in a five-year recession, and the city had literally run out of money to pay its employees and could not borrow in the debt markets.  However, leaders had the courage to confront these problems head on, and they adopted a series of reforms, including the establishment of a fiscal oversight board and a more transparent budgeting process.  All of this helped transform the city from an increasingly blighted urban landscape to the vibrant economy of today.  And, New York City is not the only example of a major turnaround.  Now-dynamic cities such as Washington, D.C., Pittsburgh, and Seattle also went through wrenching economic and fiscal contractions.  While Puerto Rico’s path to prosperity will not look exactly like that of New York or other cities, history can provide valuable lessons, as well as hope for a better future.  The same can be said for the U.S. Virgin Islands.

In addition, Puerto Rico has a number of unique attributes and endowments that it can leverage as it seeks a path toward prosperity, including its educated and bilingual workforce, its proximity and access to markets on the U.S. mainland, and its extensive experience as a host to various major U.S. multinational corporations.

But, a recovery is not going to happen on its own.  We at the New York Fed have made a number of suggestions over the years that we think can help improve Puerto Rico’s competitiveness and economic prospects.2   Some of these issues are now being addressed, and still more are at least being discussed.  Among others, lowering the costs and disincentives to doing business, helping Island residents develop and use their human capital, and improving labor market opportunities are all important steps that must be taken.

On the fiscal side, the Financial Oversight and Management Board and the Commonwealth together will be making a series of difficult choices over the coming months.  It will be critically important that these decisions put the Commonwealth on a sustainable fiscal path going forward.  As in other examples, such as New York City in the 1970s, the fiscal adjustment will be painful, and many important decisions will undoubtedly be unpopular.  While the pain has been—and will continue to be—widely shared, it is also critical to seek ways to ensure that the benefits from the restoration of growth are shared broadly.  How exactly to make this work is an open question that I am certain the oversight board and its stakeholders will consider carefully over the coming months.

The New York Fed will continue to help in the best ways we can—by providing independent research and analysis, and by leveraging our convening authority to bring together stakeholders to share expertise, explore opportunities, and provide information to those who need it most.  We recently held two events on the Island—one for small business owners impacted by the storm and another for credit unions.  We plan to do more in the months and years ahead, and I look forward to gaining a better understanding of conditions on the ground and how we can help when I travel to Puerto Rico and the U.S. Virgin Islands next month.

Now, I’d like to turn it over to Jason Bram, who will talk more about what we are starting to see in terms of the economic impact of the storms.

1 Jaison Abel, Jason Bram, Gerard Dages, Richard Deitz, Suzanne Elio, Jack Gutt, and Andrew Haughwout assisted in preparing these remarks.

2 See, for example, our Report on the Competitiveness of Puerto Rico’s Economy, June 2012, and An Update on the Competitiveness of Puerto Rico’s Economy, July 2014.

Cooperatives in Puerto Rico gain access to opportunities to invest in their communities

SAN JUAN – The executive director of the Cooperative Executives Association (ASEC by its Spanish acronym), José Julián Ramírez, announced that dozens of credit unions were holding meetings during a training session to obtain certification granted by the Financial Institutions Office for the Community Development Fund Initiative (CDFI), with the objective of strengthening the coop’s work in favor of their community’s economic development.

The certification provides access to financial resources, both private and federal, to support the economic development promoted by cooperatives in their communities.
Under the theme “Exploring a new role for the financial cooperative system,” the National Federation of Credit Cooperatives for Community Development (NFCDCU) offers the island’s 116 savings & loan cooperatives the possibility of accessing more funds for investment, Ramírez explained.

“Receiving the CDFI certification will provide a great impetus for credit unions to continue doing the work they have been doing for decades,” said Cathie Mahon, chief executive officer of the NFCDCU.

Puerto Rico co-ops unfazed by debt-forgiveness talk, Moody’s downgrade

Recently, the Federal Reserve authorized banks to make contributions to Puerto Rico and U.S. Virgin Islands through the Community Reinvestment Act (CRA), in support of recovery efforts by the U.S. islands hit by hurricanes Irma and Maria.

“That the CDFI Fund and the NFCDCU are providing this training in Puerto Rico is a recognition of the social functions of our cooperatives and the potential we have in economic development, especially in this process of reconstruction that the country is experiencing,” said the ASEC executive director.

The Federation of Credit Coops is an organization that supports and invests in savings & loans cooperatives with the mission of providing services to low-income communities or groups unattended by traditional financial systems, such as for stateside and Puerto Rico Latino/a communities.

It foments that the cooperative system provide financial education, savings and microenterprise development among vulnerable populations, a task that is carried out by ASEC members through the 116 cooperative branches in Puerto Rico.

The training was supported by the Federal Reserve Bank of New York, the CDFI Fund, BanCoop, the New York Credit Union Association, Citi, CMG, Vancity and ASEC.

N.Y. Fed: Repercussions of Hurricane Maria difficult to measure

SAN JUAN – Puerto Rico’s historical path was changed Sept. 20, and much has been said about the magnitude of Hurricane Maria’s repercussions since then. Nonetheless, this climatic event has caused devastation on many fronts, diminishing quality of life and increasing human suffering, both physically and mentally. According to a blog by researchers from the Federal Reserve Bank of New York, the economic toll cannot easily be measured.

In the aftermath of this historic event, the massive damage wrought upon the island’s infrastructure has even made it difficult to determine loss of life. The islandwide loss of electric power, still being experienced by nearly one-third of the population, has been unprecedented in modern U.S. history. A widespread lack of drinking water and access to medicine and medical personnel, as well as downed telecommunications, are but a few of the additional obstacles that arose post-Maria.


With the hurricane, however, Puerto Rico’s need for financial resources has only exacerbated the island’s economic crisis, which at the individual level has been magnified through the loss of jobs and access to cash in an economy made instantly devoid, albeit temporarily, of modern conveniences.

So, for how long will the economic effects of this calamity be felt? Puerto Rico’s ailing economy and indebtedness were made exponentially worse through lost capital, diminished economic output and a displaced, or unavailable, labor force. It has been estimated that more than 15% of the population will have relocated stateside by the end of the recovery period. Estimates of the resulting economic loss range from $16 billion to $95 billion, depending on the source.

Puerto Rico fiscal board calls for changes to municipal emergency funding bill

The most severe and damaging factor is probably the lack of electric power, which ranged from 98% of the island after Maria left to about 30% of utility customers who are still in the dark today.

Add to that a general loss in quality of life that has ramped up outmigration; the enormous impact on infrastructure, from transportation to banking; healthcare and political disruptions; and a lull in Treasury revenue due to decreased worker take-home pay and no digital register of withheld sales taxes are among the myriad reasons for Puerto Rico’s uncertain socioeconomic and political future.

Fiscal board: Forensic audit is key to Puerto Rico disaster loan disbursements

In its Liberty Street Economics blog, the New York Fed, responsible for the Federal Reserve System’s second district, which includes Puerto Rico, recently posted a commentary entitled, “Beginning to Gauge Maria’s Effect on Puerto Rico’s Economy.”

Its writers– research officer Jason Bram and senior analyst Lauren Thomas, from the New York Fed’s Research & Statistics Group–said the island’s future is difficult to forecast compared with other places that have had natural disasters. Highlighting the time it has taken to repair the island’s electrical grid, its fiscal situation before two hurricanes in September  and the many factors that comprise its economy, the authors make a case about the time and incoming data needed to “predict Puerto Rico’s post-hurricane prospects.”

Agroecological industry calls on governor to revitalize Puerto Rico market

Historically, they said, recovery-related construction can offset lower employment after a hurricane, but the damage to agriculture may not recover quickly, pointing to an article that cites the island’s agriculture secretary saying 80% of crops were estimated to have been wiped out, while poultry production loss was pegged at 90%.

However, the authors contend the “worst-case scenario for the island’s economy”– people “emigrating, businesses closing, tax base shrinking, cuts in services and tax hikes leading to still more outmigration”–“appears to have been averted—at least thus far.”

Read the New York Fed’s post here.


New York Fed Releases Inaugural Puerto Rico Small Business Survey

Security officers stand guard outside the Federal Reserve Bank of New York Saturday Sept. 13, 2008 where deliberations resumed as leading Wall Street executives and top U.S. financial officials tried to find a buyer or financing for the nation's No. 4 investment bank, Lehman Brothers, and to stop the crisis of confidence spreading to other U.S. banks, brokerages, insurance companies and thrifts. (AP Photo/David Goldman)

The Federal Reserve Bank of New York (AP Photo/David Goldman)

SAN JUAN – The Federal Reserve Bank of New York has released findings from its Puerto Rico Small Business Survey, which focuses on the business performance, financing needs and borrowing experiences of firms across the island. This inaugural survey was designed by the New York Fed with input from partners in Puerto Rico, and is modeled after the U.S. mainland Small Business Credit Survey.

According to the New York Fed, the survey is a step in its efforts to “understand and inform policymakers and service providers about U.S. small business credit” and is “designed to fill important knowledge gaps about the Island’s small business financing conditions and flag potential economic growth opportunities for the Commonwealth.”

The agency said Monday that a majority of firms reported declining revenues and that a third did not receive the credit they were seeking. The survey also stated that 80 percent of businesses do not sell online or export.

According to the New York Fed, key survey findings include that firms are persevering through Puerto Rico’s economic crisis, though a majority reported declining revenues. Managing cash flow is a top concern, ranked above concerns about rising business costs.

There is significant demand for credit, with about half of all small firms needing less that $25,000 and the most common reason being the need to meet operating expenses. One-third of credit applicants didn’t receive any of the credit that they applied for.

“About 80% of firms do not sell online or export their wares or services. Firms see this as a growth opportunity, ranking programs in support of growing sales—to the federal government, via online commerce and through exports—as their top training need,” reads one of the release’s bullet points.

“By extending our small business coverage to include Puerto Rico, we are now broadening our understanding of the credit environment for all U.S. small firms. We also hope that the survey results will help advance the dialogue now underway on solutions to revitalize Puerto Rico,” Kausar Hamdani, senior adviser and senior vice president in the Communications and Outreach Group at the New York Fed, said in a Monday release.

Agency President William Dudley is scheduled to travel to the island this month.