3. Puerto Rico NOW
Puerto Rico is in a very important political juncture. The following months
will not only mark a decade of the islands depression but will determine
the future of the island’s economy.
• On Dec. 16, provision that would have granted Puerto Rico access to
Chapter 9 bankruptcy laws were left off the U.S. omnibus spending bill.
• The federal spending bill did includes some assistance for Puerto Rico.
It boosted hospital reimbursement rates under Medicare to eliminate
payment disparities with the 50 states that could shore up a troubled
health-care system.
• The Federal Reserve increased interest rates from 0.25% to 0.50%, the
first increase since 2006. This will likely harm consumption, credit
inquiry, and investment in Puerto Rico.
• On Dec. 17, Gov. Alejandro Garcia Padilla said "There is no money to
pay essential services and pay the creditors”.
• The government needs $120 million for the Christmas bonus and an
additional $90 million for the last payroll payment of December. 3
4. Developments in 2015
• In January, the government of PR and Doral fail to establish an
agreement and in February Doral closed it’s doors. The fourth
bank to fall during the recession.
• In February, KPMG published a report requested by the
government on changing the SUT to a VAT of 16%. The
government fails to pass legislation to change it.
• In March, the government files a plea for the Restructuring Act
of Public Corporations after the judge's decision to declare it
unconstitutional.
• In June the SUT increases from 7% to 11.5%. New budget of
$9.8 Billion.
• The Government Development Bank (GDB) declared in June
they were short in liquidity and may not meet some obligations.
• On June 30th the governor said that “the debt is unpayable.”
4
5. Developments in 2015
• In August, the government pays $57 million in debt of the Public
Financing Corporation (CFP). Although the GDB made its $159
million payment.
• In October a Business-to-business (B2B) tax of 4% started. The
GDB’s drops to $875 million.
• In December, the governor of Puerto Rico, the resident
commissioner and others attended Washington DC, in another
hearing held by Congress, asking the federal government to
provide aid to Puerto Rico.
• A payment is made by the government covering GOs using a
measure called "claw back".
• At least one of the agencies of "claw back" the Authority
Infrastructure Financing(AIF), can not pay the maturity of a
January 1st $46.7 million payment.
5
6. Payments in 2016
• At the top of the bond hierarchy, are the general obligation (GO)
bonds that have constitutional provisions that give these
bondholders the right to sue the commonwealth, if necessary, to
apply any available resources to pay GO debt service. A
separate constitutional provision gives GO bondholders a first
claim on the government's available resources.
• On Jan. 1, the commonwealth faces nearly $1 billion in interest
payments on more than half a dozen bonds. The next scheduled
GO debt payment, when $332 million in interest is due to
bondholders on this date.
• If Puerto Rico is able to clear this financial hurdle, the next major
debt deadline would be on May 1st, when approximately $422
million is due to bondholders of the Government Development
Bank.
• Between July 1st and December, the government has to make
over $1 billion in payments.
6
8. A decade in recession - projections
Source: Government Development Bank, projections by Inteligencia Economica
0.5%
-1.2%
-2.9%
-3.8%
-3.6%
-1.8%
0.5%
-0.2%
-0.9% -1.0%
-1.2%
-4.5%
-4.0%
-3.5%
-3.0%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 (p) 2016 (p)
Recession starts in April/May 2006
The SUT is implemented in
November 2006
ARRA Funds help the
economy but are not
recurring funds
Projections to FY2016 if there is no
government default or shutdown
8
9. Projections with default
Source: Government Development Bank, projections by Inteligencia Economica
0.5%
-1.2%
-2.9%
-3.8%
-3.6%
-1.8%
0.5%
-0.2%
-0.9% -1.0%
-2.3%
-4.5%
-4.0%
-3.5%
-3.0%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 (p) 2016 (p)
Recession starts in April/May 2006
The SUT is implemented in
November 2006
ARRA Funds help the
economy but are not
recurring funds
Projections to FY2016 if there is a
government shutdown or default
9
10. Economic Activity Index
-5.3%
2.2%
-4.3%
0.95%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0% Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Economic Activity Index – y-o-y % change
Source: Government Development Bank
• The Economic Activity Index (EAI), published monthly by the GDB, increased in
October reaching positive territory for the first time since 2012.
• The sub-indices – employment, gasoline consumption, energy consumption and
cement sales – have remained stagnant. The government publishes increasing
numbers in gasoline consumption, which makes the EAI increase in the past
year.
• Sources close to Inteligencia Economica, as well as market analysis, indicates
that the government does not use the correct methodology to analyze the
consumption of gasoline. This is why the EAI has been increasing but gasoline
sales decrease. 10
11. Labor Market
Source: Bureau of Labor Statistics
• Unemployment rate averaged 12.1% in 2015, an decrease of 2 points
• Participation rate averaged 40%, a .1 increase. One of the lowest,
compared to USA 66%, Dominican Republican with 60%, and others.
• 55.9% of employed people have a university degree.
• 55.3% of unemployed people were let go of their Jobs. Over 24% have
been searching for a job in the last 15 weeks.
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2014 995 994 992 989 987 984 982 981 980 981 982 983
2015 995 1,005 1,008 1,003 997 989 992 996 1,003 1,004 1,005
%change 0.0% 1.1% 1.6% 1.4% 1.0% 0.5% 1.0% 1.5% 2.3% 2.3% 2.3%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
965
970
975
980
985
990
995
1,000
1,005
1,010
1,015
Labor Market
(,000)
11
12. Labor Market - regional
Source: Department of Labor, information for the month of October 2015
• Increase in the workforce in areas of San Juan-Carolina-Caguas MSA and
Aguadilla-Isabela MSA, growth of 8,600 and 3,200 jobs, respectively.
• Other rising markets were Ponce MSA (2,100), Arecibo MSA (1,600), and San
Germán MSA (600).
• The municipalities with the lowest unemployment rate in October 2015 were
Culebra 4.7%, 7.5% Guaynabo, and Trujillo Alto 8.5%, below the average of
Puerto Rico of 12.0%.
12
13. Labor Market - sectors
Source: Department of Labor, information for the month of November 2015
-56.1%
-38.8%
-4.5%
40.8%
19.9%
10.0%
-80.0%
-60.0%
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
Construction Manufacturing Retail Trade Educational
Services
Health Services Leisure and
Hospitality
Tendencies on major sectors
2005 vs 2015
(,000) 2014 2015 Dif.
Construction 27.4 24.3 -3.1
Manufacturing 75.2 73.9 -1.3
Durable Goods 32.2 31.5 -0.7
Nondurable Goods 43 42.4 -0.6
Retail Sale 130.7 131.2 0.5
Finance 43.1 42.2 -0.9
Educational Services 37.6 41.2 3.6
Leisure & Hospitality 80.1 81.2 1.1
State Government 165.6 161.0 -4.6
Municipal Government 54.6 56.6 2 13
14. Inflation
Source: Department of Labor
-4.00%
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
Consumer Price Index
Inflation (y-o-y change)
All Groups Apparel Housing Medical Care Food and Beverage
14
15. Key Findings – Inflation and SUT
• All Groups: Inflation will close natural year (Jan-Dec) 2015 in
negative terrain. This will be the first year in over a decade
where overall prices in all groups decreased. We analyze the
decrease in different sectors such as Apparel, Food &
Beverage, and others. The decrease in crude oil prices is a
HUGE factor for the decrease in overall prices. Plus, we analyze
sub-indexes affected by the increase in the Sales and Use Tax
(SUT).
• Transportation sub-index Motor Fuel decreased an average of
28.9% in 2015. While Electricity (a sub-index for Housing)
decreased an average of 19%. This is due to crude oil prices.
• The CPI rose 1.4% in July, a result of rising sales and use tax
(IVU) from 7% to 11.5%. But despite this increase, in the first 10
months of the year prices have risen only 0.4%.
Source: Department of Labor
15
16. Key Findings – Inflation and SUT
• The Food and Beverage basket increased prices following
July, but this increase was mainly to the sub-index of Food away
from the house (restaurants). In the first half of 2015 (Jan-Jun)
prices averaged a monthly 2.4% increase. Following the
increase of the SUT, priced averaged a surge of 6.4% monthly
in prices.
• Prices in Medical Care have an average monthly increase of
4%, this has been since before 2012. This increase could be
due to Obamacare. This surge in prices comes from the sub-
index of medical care commodities (devices, over-the-counter
pharmaceuticals, etc.), which increased an average of 8.2% in
2015. This sib-index was also affected by the increase in
the SUT. The first half of 2015 (Jan-Jun) prices averaged 7.5%
increase, after July prices averaged 9.2%.
Source: Department of Labor
16
17. Bankruptcies
706
919
1,007
950
1,001
848
909 906 903
957
771
839
695
821
960
817
869 874 856 859
950
1,027
950
0
200
400
600
800
1,000
1,200
Ene Feb Mar Abr May Jun Jul Ago Sep Oct Nov Dic
Total files bankruptices
2014 2015
Source: Boletin Puerto Rico
Total filed bankruptcies between January
and November 2015:
Chapter 7: 4,099 (7.98%)
Chapter 11: 156 (-15.2%)
Chapter 12: 16 (-27.3%)
Chapter 13: 5,317 (-9.5%)
TOTAL AGGREGATE: 9,588 (-3.0%)
TOTAL DEBT: $1,516,029,487 (-7%)
Debt: Individuals: $776,364,687 (-11%)
Debt: Businesses: $739,664,799 (-3%)
Aggregate information as of November 2015
Grocery Stores: 24
Supermarkets: 4
Building Contractors: 27
Medicine Doctors: 20
Pharmacies: 6
Hotels: 8
Restaurants: 32
Dairy Farms: 10
Major Petitioner:
San Juan Resorts Owners, Inc. 17
18. Tax Revenues
Jul Aug Sep Oct Nov
2014 $624,229 $440,579 $709,025 $675,822 $451,883
Estimate $605,419 $534,841 $776,711 $654,015 $503,956
2015 $626,495 $549,999 $759,278 $626,663 $488,609
$-
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
$900,000
Treasury Department Revenues
(millions)
Source: Treasury Department
Tax revenues: July to November
down by $23.9 million (-0.78%) from estimates
over $15 million from Jul-Nov 2014.
19. Tax Revenues
Source: Treasury Department
Jul-Nov 2015 Jul-Nov 2016 Dif.
Estimates
Jul-Nov 2015
Dif.
General Fund Net Revenues $2,901.50 $3,051.00 $149.5 $3,074.90 $-23.9
Individuals 867.9 735.1 -132.8 763.2 -28.1
Corporations 492.3 487.3 -5.0 469.1 18.2
SUT 0 329.8 329.8 343.1 -13.3
Foreign Act. 154 757.9 770.7 12.8 773.1 -2.4
Alcoholic Beverages 94.9 101.4 6.6 97 4.4
Motor Vehicles 111.7 79.9 -31.9 97.3 -17.4
• Relying on the SUT increase but are 13.3% under estimates.
• Over 20% of total revenues come from foreign corporations (Act.154)
• Treasury Secretary announced revenue estimates for FY 2016 were
revised from $9.8 billion to $9.292 billion, a $508 million reduction.
20. External Trade in Goods - Exports
Jan Feb Mar Apr May Jun Jul Aug Sep Oct
2014 $5,088, $5,474, $5,423, $5,809, $5,738, $6,297, $5,183, $6,033, $5,295, $6,511,
2015 $5,922, $6,586, $6,253, $5,469, $6,537, $5,166, $5,738, $4,941, $6,392, $6,850,
$-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
Exports
Source: Export and Commerce
20
Exports: $63.4 billon (FY2015)
• United States
• Belgium
• Netherlands
• Spain
• Austria
Top 10 exports from Puerto Rico are from
chemical manufacturing including
medicaments, appliances, and others.
21. External Trade in Goods - Imports
Source: Export and Commerce
21
Jan Feb Mar Apr May Jun Jul Aug Sep Oct
2014 $3,363, $3,172, $3,457, $3,436, $3,696, $3,805, $3,533, $3,821, $4,213, $3,818,
2015 $3,275, $3,519, $3,502, $3,888, $3,691, $3,526, $3,552, $3,892, $3,476, $3,614,
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
$4,000,000
$4,500,000
Imports
Imports: $43.2 billon (FY2015)
• United States
• Ireland
• Singapore
• Brazil
• Japan
22. Consumption
Retail sales, car sales, energy consumption, among others.
These indicators provide an important economic pulse for Puerto Rico’s economy
since over 80% of the island's economy is based on consumption.
22
23. Retail Sales – nominal prices
Jan-Aug 2014 Jan-Aug 2015 Dif.
Department Sales $3,868,253,660 $3,940,313,634 1.86%
Supermarkets 3,561,772,411 3,591,894,952 0.85%
Vehicle motor sales 2,248,070,651 2,202,957,815 -2.01%
Gas Stations 4,205,311,916 3,868,659,911 -8.01%
Restaurants 2,704,075,545 2,748,218,569 1.63%
Pharmacies 2,559,076,717 2,516,883,721 -1.65%
Total $25,057,049,018 $24,844,781,704 -0.85%
Source: Commerce Department
• Auto sales decreased in 2014 and plummeted in 2015.
• Oil prices decreased gas station sales over -8%.
• The sample for Department Stores include: Almacenes Topituka, Tienda
La Isla, Tienda Rimals, Costco Wholesale, JC Penney, Kmart, Marshalls,
Sam's, Sears, y Walmart.
24. Vehicle Sales
Ene Feb Mar Abr May Jun Jul Ago Sep Oct Nov Dic
2013 7,932 7,904 8,262 7,566 7,736 9,279 8,036 8,789 7,257 8,093 8,906 10,799
2014 7,461 7,164 8,658 6,433 7,224 7,820 6,328 7,027 6,672 6,499 7,381 9,533
2015 6,353 6,430 7,079 5,616 6,546 7,685 5,661 6,101 6,326 7,302 7,061
0
2,000
4,000
6,000
8,000
10,000
12,000
Auto sales in Puerto Rico
Source: GUIA
Car sales drops were reported in 19 of
the past 20 months The only increase
was October 2015 due to a sale of
fleets.
-12.5%
-13.1%
5.9%
8.7%
-15.0% -10.0% -5.0% 0.0% 5.0% 10.0%
American
Japanese
Korean
European
Car sales - models
European cars with double-
digit sales: the Mini,
Mercedes and Land Rover.Toyota, the top-selling brand in
Puerto Rico decreased sales
by 10.2%.
2015 will close the year with the lowest figures since 2009.
24
25. Trends in durable goods
-8.3%
-6.2%
9.7%
-8.0%
11.2%
2.8%
-3.7%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
Vehicles New housing
properties
Used housing
properties
Cement Furiture Jewelry Electronics
Sales for different durable products
Source: Commerce Department / GUIA, GDB sales for vehicles and cement from Jan-Nov / OCIF Jan-Sept
Average market value for properties decrease 0.1%
Delinquency rate was 3% in 2003, increased to 22% in 2011 and
is now 13%
Property executions totaled 4,271, a 16.3% increase from last
year and the largest number recorded.
26. Trends in non-durable goods
0.85%
0.45%
-4.38%
1.63%
-8.01%
-1.65%
-10.00%
-8.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
Supermarkets Men's clothing Women's
clothing
Restaurants Gas station
sales
Pharmacies
Sales for different non-durable products
Source: Commerce Department
28. Cement Sales
736.0
1083.5
1,358.7
939
0.0
200.0
400.0
600.0
800.0
1000.0
1200.0
1400.0
1600.0
Cement sales and production
(Jan 2014 to Nov 2015)
Production Sales
Source: GDB
28
• Cement sales in November totaled 939 million bags, the lowest figure in
decades.
• Cement sales were affected by the collapse of the housing construction
market and the lack of resources by the government to invest in public works.
Before the economic crisis in 2006, more than 40 million bags were sold.
• Between January and November production fell 14%. In 2014, production fell
1.9%, after two years of increase figures.
30. Overall Consumption
Source: Commerce and Export Company (Jan-Aug) / GUIA / PREPA / GDB
-0.85%
1.86%
0.85%
-8.30%
-0.95%
1.27%
-2.61%
-7.98%
-10.00%
-8.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
Retail Sales Department
Stores
Supermarkets Vehicle Sales Electric
Energy
Consumption
Residential
EE
Consumption
Commercial
EE
Consumption
Ccement
Sales
Consumption in different sectors
(Jan-Nov 2015)
31. Factors affect consumption
1. Consumer confidence: Consumer confidence is an economic indicator that
measures the degree of optimism that consumers feel about the overall state
of the economy and their personal financial situation. The increase to 11.5% of
the Sales and Use Tax (SUT) affects consumers perception at the time of
purchase. Although inflation showed that prices have remained stagnant
compared to the previous years, consumers may perceive increased prices
and prefer not to make purchases of durable goods (such as cars, houses,
furniture, etc.) avoiding long term payments.
2. Population: It is no secret that the population in Puerto Rico continues to
decline. It is estimated that an average of 3,500 people leave the island
monthly. In 2014 net migration was a loss of 64,000 people, representing more
than $ 1.100 billion lost in potential consumption to be on the island.
3. Increased poverty: The number of people to be reflected Island. In 2000 the
population over 65 years and over was 11.2%, while the poverty rate was
44.6%. The poverty rate in 2014 was 45.2% and almost 15% of the population
is over 65 years old.
31
33. Total Assets
Source: Commissioner of Financial Institutions
$101,479 $98,581 $95,898
$89,631
$75,474
$70,789
$66,868 $63,599 $60,383 $57,150
$6,714 $6,879
$6,613
$6,948 $6,770
$7,203 $6,970
$7,543
$8,242
$7,850
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q3
Commercial Banks
Total Assets / Total Capital
(millions)
Total Assets Total Capital
33
Total assets fell $44.33 billion in the last decade, representing a 43.7% loss.
While assets continue to decrease, total capital managed not to follow the
trend. When the recession began in Puerto Rico in 2006 and the financial
crisis in 2008 in the U.S., commercial banks in Puerto Rico started to adopt
policies preventing a harsher economic trend.
34. Total Deposits
55,499 57,098
61,308
64,635
59,997
48,419 48,254 49,060 48,014 46,025
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Total deposits in commercial banks
(millions de $)
34
Source: Commissioner of Financial Institutions
Total deposits fell over $16.2 billion during the height of the recession, a
25.1% loss. In a decade long recession deposits fell $18.6 billion.
35. Total Loans
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
70,000,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q3
Total loans in commercial banks
Real Estate Commercial Individuals Leases Other Loans
$38.1 B
35
Source: Commissioner of Financial Institutions
The value of loans in bank portfolios, which has been declining since 2009,
fell to $38.1 billion in the second quarter of 2015, down 9.4%, according to
the Office of the Commissioner of Financial Institutions. The loans have
been two quarters below $40 billion, after it reached a record level of $ 63.4
billion in 2008.
$62.7 B
36. Total Commercial Loans
36
Source: Commissioner of Financial Institutions
• Commercial Loans made up an average of 16% of all loans in the past decade. But
from 2004 to 2010, commercial loans made up 17.7% of all loans, this dropped to
14.3% from 2010 to 2015. This is the second largest group of loans after residential
mortgages.
• Delinquency rates in commercial loans increased from low 1.5% in 2005 to a high
8.6% in 2010, during the bank consolidation period, and remain in between 4% and
7% since then.
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Commercial Loans 13,663,00 15,805,10 13,426,50 12,653,55 11,669,44 10,171,07 11,464,40 8,887,560 9,279,520 7,340,813 6,337,111
Delinquency Rate 1.45% 1.97% 3.51% 6.08% 7.43% 8.59% 6.15% 4.79% 2.45% 7.03%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
10.00%
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
Total Commercial Loans and Delinquency Rates
(millions)
Bank consolidation and height of the
recession. Since then, a 37.7% loss
37. For more economic reports, data bases
or news articles, please access:
37
