Country Report Puerto Rico July 2009

Outlook for 2009-10

The governor, Luis Fortuno, of the pro-statehood Partido Nuevo Progresista (PNP), is facing an even more challenging environment than when he took office in January. Mr Fortuno's fiscal austerity programme appears to be moving at a slow pace, while resistance to some of the administration's policies has arisen from union leaders and well as within the PNP. In the US, the administration of Barack Obama is proposing changes to tax legislation that could have major negative effects on US manufacturing companies operating in Puerto Rico. The second half of 2009 will be decisive for the outcome of the austerity-plus-stimulus fiscal balancing act that Mr Fortuno unveiled in February. The administration will attempt to cut down the government's large structural deficit and jump-start the economy at the same time-the latter plan will utilise the US$6bn (9.5% of GDP) coming from the US stimulus package. The final outcome of this unusual policy mix is uncertain, depending as it does on the timing of local adjustment measures and the impact of the stimulus plan. The Economist Intelligence Unit estimates that GNP contracted by 4.5% in fiscal year 2008/09 (July-June) and forecasts the recession to continue with GNP contracting by a further 3% in 2009/10.

The political scene

Mr Fortuno is facing widespread opposition to his plan to sack 30,000 public-sector employees as part of fiscal austerity measures. The PNP-dominated legislature has limited the ability of the Partido Popular Democratico (PPD) to mobilise opposition, but there have been moves from PNP legislators to limit the scope of Mr Fortuno's programme. The political status issue will remain important; a proposed referendum is not guaranteed but remains a possibility.

Economic policy

The first wave of cuts in government jobs began on July 9th. Given the dire economic situation, the government's fiscal austerity programme will face continued criticism and opposition.

The domestic economy

A variety of indicators suggest that the recession is far from over and that some areas of the economy may have worsened in April-June. The government is officially calling the downturn a depression.

Foreign trade and payments

Export revenue and import spending have plummeted since November 2008. Recent data show that exports continued to decline sharply throughout April while import contractions began easing in March, leading to a substantial narrowing of the trade surplus.

This report covers the following industry codes:
SIC Code: 60;37;70;53;49;82;2834;80;20;22;39
NAICS Code: 52;336;72;44;22;61;3254;62;311;313