September 20, 2019 will mark the second anniversary of the impact of the devastating Hurricane Maria on Puerto Rico. Since then, the economy shifted from the devastation in the immediate aftermath, to moderate growth (rebound) after Maria, but in the last months of 2019 there has been a weakened productive activity.
It is important to place into context that prior to the hurricane, Puerto Rico’s economy was already a decade into a depression and that in 2016 the island had formally entered into a federal liquidation process under the Puerto Rico Oversight, Management & Economic Stability Act (Promesa).
Thus, three crises coincided simultaneously: a severe depression, fiscal bankruptcy, and a hurricane, which represent an historic challenge to the local economy.
Federal Aid Assigned to Date
In Inteligencia Económica Inc. we have estimated that ever since the hurricane impacted the island, the economy has received roughly $19 billion, which includes $5.4 billion in FEMA funds, $1.2 billion in the Nutritional Assistance Program (PAN by its Spanish acronym), $3.2 billion in additional Medicaid funding, and the insurance companies have already paid $6 billion.
The Small Business Administration (SBA) provided loans upwards to $2.2 billion, while more than $4.9 billion were allocated to rehabilitate the electricity system.
These funds were essential in providing the economy a level of temporary dynamism between 2018 and the first half of 2019. As of March, as mitigation funds run out, the local economy begins to exhibit a slowdown.
However, the focus of analysis at this time is if the $45 billion that the U.S. Congress approved to finance Puerto Rico’s reconstruction will finally be disbursed by the corresponding federal agencies.
Way before the Ricardo Rosselló administration collapsed on July 2019, federal aid appeared to be drowned by federal and local bureaucracies. Public confrontations between the Donald Trump administration and then-Governor Rosselló sharpened the stagnation of these funds. Sources from the U.S. Congress affirmed that it is uncertain whether the appropriated funds will ever reach Puerto Rico.
The discomfort from Congress towards the local government and the political sector in general is very high. There is also a high level of distrust from Trump’s advisers towards the local government’s real capacity to use that money effectively.
Trump’s own public scrutiny against the island’s corruption send a message not only to Puerto Rico, but to the Republican Senate and the legislative minority in the U.S. House of Representatives, also, Republican.
Wars Against the Oversight Board Don’t Help Either
Battles between the local government and the Financial Oversight & Management Board (FOMB) to implement Promesa haven’t helped either in creating a collaborative environment so that Congress is more open to helping Puerto Rico.
In fact, the scenarios of economic recovery and debt repayment capacity created by FOMB are based on the fact that, in effect, the $45 billion be used to empower the economy, increase tax collections, and pay off a larger portion of the public debt.
As such, there needs to be a thorough consideration on the possibility of those funds not arriving, and there needs to be an alternate plan. In the short term, the government and the private sector in its entirety have placed all hopes on that federal aid, which every day seems farther away.
If that funding were not to arrive, the economy could regress to FOMB’s original projections for the gross national product (GNP) in the following years. This is a macroeconomic scenario of zero external funding from federal resources, very low private investment, and an austerity measure via FOMB’s Fiscal Plan.
This would place Puerto Rico in a scenario of total reliance on the possibility of being able to return to capital markets after we succeed the bankruptcy (Title III of Promesa), or the internal financing of the recovery process through private funds.