Wednesday, April 14, 2021

THINK STRATEGICALLY: Measuring the successes and failures of the Rosselló, Vazquez administrations

By on January 3, 2021

Governor Ricardo Rosselló announces Wanda Vázquez as Justice Secretary. Two years later she substitutes him as Governor. (CB)

SAN JUAN — One of the benefits of using financial and economic metrics to measure performance is that we can draw unbiased conclusions from the resulting data. A couple of days from now, on Jan. 2, Gov.-elect Pedro Pierluisi will take the oath of office as part of a democratic transition. For the benefit of the incoming administration, it is worth evaluating how the Puerto Rico economy has performed after 48 months of the Ricardo Rosselló and Wanda Vázquez administrations. While measuring a successful governorship takes much more than these metrics, they do allow us to gauge the overall direction of our economic well-being while pointing the new government in the right direction. 

No one can dispute that both governors Rosselló and Vázquez inherited a Puerto Rico that was declared bankrupt, with a Financial Oversight and Management Board to deal with, and an economy in contraction and without access to capital markets. To make matters worse, Puerto Rico’s fragile economy was further shakened by a series of tumultuous events, namely the devastating impact of Hurricane Maria in 2017, which brought the island to its knees; the political and social upheaval resulting from the Telegram Chat scandal that forced Gov. Rosselló to resign in July 2019; as well as the destructive earthquakes that continue to impact the southwest of Puerto Rico.  

If these events were not enough, on March 11, the virus that causes the Covid-19 disease was declared a pandemic, forcing lockdowns and social distancing measures worldwide in an attempt to flatten the infections curve. The results have been quite destructive, with several unprecedented events occurring throughout the rest of 2020. 

Puerto Rico has seen 72,443 cases of Covid-19, resulting in 1,432 deaths. The curfews that the commonwealth government started to enforce on March 15 have had a significant impact in terms of economic destruction, as evidenced in a recent Estudios Técnicos, Inc. study in which business owners were polled on critical economic metrics: 

  • 54.7% of business owners point to the economic situation as their biggest concern. 
  • 36% claim that the pandemic has made business much worse. 
  • 43.3% of all businesses have closed for an average of 100 days. 
  • 84.7% feel that Puerto Rico is in a recession. 
  • 71.3% have not had Covid-19. 

Moreover, the following metrics must also be considered by the incoming administration if it wants to achieve success and recognize it. We see a severe deterioration in: 

  • Erosion in the image, trust, and credibility of the figure of the governor of Puerto Rico. 
  • Erosion in the image, confidence, and credibility of many agency heads. 
  • 40% to 64% of residents in 68 out of Puerto Rico’s 78 municipalities have incomes below the poverty level. 
  • Close to 70 municipalities face bankruptcy. 
  • The number of unemployed in Puerto Rico was at 88,165, up from 85,789 last month, although down from 90,149 a year ago. This is a change of 2.77% compared to the previous month. 
  • Puerto Rico’s unemployment rate remains at 8.5%, compared to 9% last year. This is lower than the long term average of 13.89%. 
  • The island’s labor participation rate dropped to 39.8% and continues to fall. 
  • Average household income was markedly eroded by the pandemic. 
  • The gross domestic product (GDP) is projected to shrink by 6 percent in 2020. 
  • The impact of the curfews has destroyed thousands of companies; between 15,000 to 25,000 businesses will go bankrupt, close, or be dramatically reduced, eliminating over 80,000 jobs. 

All the improvements in unemployment and job growth that had occurred by February are mostly gone. The median household income, which had grown 6.65%, is now falling rapidly. The gross national product (GNP) growth rate of 1.7% achieved for 2019 has turned into a contraction of 6%. Our tourism sector, which had been recovering from the devastating effects of Hurricane Maria, has had to deal with the impact of this year’s earthquakes and Covid-19 pandemic. 

Sources: Bureau of Labor Statistics, Federal Reserve Bank of NY,
Junta de Planificación, Estudios Técnicos

Puerto Rico’s economic engine and any other advances have to be reworked, as the pandemic derailed most of the initiatives detailed in the commonwealth’s fiscal plan. Even as disruptive as the pandemic was, outgoing Gov. Vázquez took time for a political battle while developing a polarizing attitude that has set a negative tone with most citizens.   

During the 48 months of the Rosselló and Vázquez administrations, Puerto Rico has had a combination of advances and setbacks. 

In our view, the most essential advances are as follows: 

  • Placing Puerto Rico on the Washington agenda. For decades, Puerto Rico was absent from the Washington agenda, and Hurricane Maria changed this. 
  • Seeking Medicare and Medicaid parity. Puerto Ricans pay 100% of the Medicare and Medicaid insurance costs, yet we receive less than 40% of the benefits. In any book that is considered a discriminatory practice. The governor has harped on that message to the point that parity may be on the horizon. 
  • The inflow of reconstruction funds is significant. According to federal data, Puerto Rico has been assigned $83 billion for hurricane-related reconstruction, $600 million to repair earthquake damages, and $14 billion to deal with the Covid-19 pandemic, for a total of $97.6 billion. This is enough to rebuild all critical island infrastructure on the island. 

On the negative side, most experts agree that the government faced its biggest challenges after Hurricane Maria and this year’s earthquakes and pandemic. The following are setbacks, hindrances and unresolved issues that need to be addressed by the incoming administration: 

  • Not working with the Puerto Rico Legislative Assembly and the Financial Oversight and Management Board (FOMB) as a team. The best way to cure the financial crisis that has affected Puerto Rico is by reaching agreements with the FOMB, the legislature, and the U.S. Congress. Doing so will allow Puerto Rico to accomplish the required five years of balanced budgets and facilitate the eventual return to the capital markets. This will mean significant budget cuts and changes to the way Puerto Rico conducts its operations. 
  • Puerto Rico debt burden. The still mostly unresolved issues related to the commonwealth government’s debt will affect the government’s advances in other areas. 
  • Puerto Rico systemic risk in healthcare. Puerto Rico hospitals, and even those in the U.S., are being forced to reduce costs at the expense of creating potentially devastating impacts on the communities served.  This indubitable Hobsons Choice has developed through profound public policy and market moves that transfer financial risk into local healthcare systems. With little or no financing available in Puerto Rico, we have considerable similarities to the systemic risk crisis of 2008. Hospitals have so far lost $634 million. 
  • Demographic changes and loss of population. Recent data suggest that out-migration will be even more severe than projected. There is a consensus that by 2025 our population will be near 2.8 million. This population decrease will place additional pressure on scarce government resources. 
  • Crisis in the management of most government agencies. The current administration has become a revolving door for many heads of agencies and public corporations. The last 48 months have seen several leadership changes at Health, Labor, Police, Justice, Emergency Management and State departments as well as at the Puerto Rico Electric Power Authority (Prepa), the Health Insurance Services Administration (ASES, for its Spanish acronym), and many others.  
  • Poor selections in naming key positions such as comptroller and Puerto Rico Supreme Court justice nominees. 

A roadmap is needed to regulate the government through the evaluation of significant economic benchmarks. We must find ways to strengthen the way the government is managed, and this is done if we have the appropriate metrics. 

Benchmarking is a necessary function of government. It can enhance oversight and accountability of programs, improve the effectiveness and efficiency of services, and assess what works and what doesn’t, while providing critical information needed for making difficult policy decisions.  

More than any other time in recent history, Puerto Rico’s destiny is in the balance, and the direction we take is our choice. There are dangers related to our freedom, our democracy, and our way of life.  

We chose for decades to ignore the signs of impending doom brought on by our wrongful ways, always hoping that a fix would somehow be found. Implementing an accurate measure of the people’s strength is how they acknowledge their circumstances and change their ways. Puerto Rico has the option to evaluate its government and how it is performing.  

The economic progress we seek to achieve is one that contains the following elements: 

  • The capacity to create thousands of high-level, well-paid and stable jobs in the private sector. 
  • An economic model that promotes economic development, entrepreneurship, and self-employment. 
  • Effective and permanent insertion of Puerto Rico in the globalized economy, eliminating all barriers that prevent its realization. 
  • Conversion of the local business sector at all levels into a highly competitive, innovative, and export-focused one. 
  • Social welfare comparable to that of the most advanced countries. 
  • High quality of life and protection of the environment. 
  • Policies that foster, nurture and preserve Puerto Rico’s investment climate.               

These elements can be realized by achieving the following metrics contained in our Puerto Rico First Goals plan: 

  • Transform Puerto Rico with a robust economic development and sustained the growth of 4% over the next ten years. 
  • Transform our industrial structure into one in which employment is created in activities related to the knowledge-based economy, with no less than 25% of the GNP within ten years 
  • Create 300,000 new jobs in the private sector within the next ten years. 
  • Increase the labor participation rate to 55% within the next ten years. 
  • Reduce the unemployment rate to 5% within the next ten years. 
  • Close what has been called the “development gap.” 
  • Reduce the government apparatus by transferring to the private sector any corporation, operation, or service that the private sector can perform more efficiently. 
  • Increase median household income by 30%, from the current $20,873.80. 
  • Transform the educational system, from the primary to university level, into one focused on entrepreneurship, trades, and transformation. 
  • Measure Puerto Rico against its peer group using all available global benchmarks. 

In conclusion, we also note that Gov.-elect Pedro Pierluisi, whom I know personally, is a capable, decent human being with a storied career in both the public and private sector. He has mostly named exceptionally qualified agency heads.  

As with all incoming governments, we place our faith on their ability to lead Puerto Rico in the right direction while developing a set of key metrics that will allow any citizen to understand and recognize a successful government. 

Francisco Rodríguez-Castro is president and CEO of Birling Capitol Advisors. 

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