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Puerto Rico’s Fiscal and Economic Turnaround
Luis G. Fortuño, Governor of Puerto Rico
March 2012
Goals What we faced… What we accomplished…
Implementation of the
Fiscal Stabilization Plan
There was no money to pay our first payroll
$756 million in unpaid checks to suppliers Monumental deficit of $ 3,306 billion or 44%
of revenues Lack of credibility and transparency with
the investment community and rating agencies
Full payment to suppliers
Successful implementation of financing plan to reduce inherited deficits.
Almost 20% reduction in government spending. Cut deficit by 81%, to 7% of revenues.
Improve Puerto Rico’s
Credit Rating
Puerto Rico's credit was at its lowest level in history, just above junk status
Improvement in credit rating:
Moody’s: from Baa3 to Baa1 (two notches)
S&P: from BBB- to BBB (First credit rating upgrade by S&P in the US since 2009)
Fitch: inaugural rating of BBB+
Save our Retirement
Our Retirement System has less than 8.5 cents per dollar obligation
A system that was going to run out of liquid
assets by 2014
We will increased employer contribution from 9.275% to 20.525% by year 2021
Injected $162.5 million on capital
appreciation bonds with maturity value of over $1.5 billion
Additional measures have been taken to increase life of System past 2022 (i.e. reduction of personal loans to members)
Fiscal Achievements (2009-2011)
2
3
Improving fiscal and economic landscape by reforming
budget practices
$9,684 $9,684$9,077
$8,488$8,541$8,862
$8,359
$7,583
FY 2006 FY 2007 FY 2008 FY 2009
2.1%2.7%
1.9% 0.5%
-1.2% -2.9%-4.0% -3.8%
-1.0%
0.7%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Negative Economic
Growth(GNP Growth)
Source: Government’s Budget Reports, OMB, Treasury Department, and Planning Board.
Projected Actual Projected Actual Projected Actual Projected Actual
Revenues Deficit Expenses
$10,890
$3,306 Deficit
$7,583
FY 2009Inherited
Deficit(in millions of $)
Projected
Revenues vs.
ActualRevenues
Estimate Projection
4
2000 2001 2002 2003 2005 2006 2007 2010 2011
BBB-
BBB
Negative
OutlookA
A-BBB
Negative
Outlook
Negative
Outlook
BBBCredit
Watch
Positive
Outlook
Stable
Outlook
2000 2001 2004 2006 2007 2010 2011
Baa1
Positive
Outlook Stable
Outlook Negative
Outlook
Baa2
Baa3
A3Negative
Outlook
Inaugural rating : BBB+ Stable Outlook
Credit
Watch
Baa1
Major credit rating agencies have recognized our fiscal
progress with positive ratings
45.2%37.4%
29.3%23.6%
18.0% 14.9%7.1% 5.9%
Nevada New Jersey California Minnesota Conecticut Florida Puerto Rico Michigan
43.6%36.8% 36.7%
22.2% 19.9% 18.8% 15.1%8.5%
Puerto Rico Arizona California Florida Nevada New Jersey Illinois Michigan
Source: Center on Budget and Policy Priorities & The Bond Buyer
We have achieved unparalleled fiscal improvement, reducing
our deficit dramatically
5
$610
million
$3,306
billion
Goals What we faced… What we accomplished…
Implementation of
Public-Private Partnerships (P3)
Lack of sustainable plan for the development of infrastructure
Limited lending capacity from the
government to promote infrastructure projects
“Schools for the 21st Century: 100 schools (at least 1 per municipality)
PR-22 – Toll Road Concession – DONE (private investment of more than $1.5 billion
Airport Concession - due in 2012
Comprehensive Tax Reform
Tax code, with effective top rate of
41%, was stifling job creation and
entrepreneurship
Implemented the largest tax cuts in Puerto Rico history
New, simplified tax code provides dramatic reduction in tax rates across the board, both individual and corporate. Average rates reduced 50% for individuals, 30% for corporations.
General Fund Net Revenues have increased during FY2011, due to the “Positive Revenue” effects of the Tax Reform
Revamp sluggishhousing sector
Unprecedented increase in housing
inventory
Successfully implemented Housing Initiative from Sept. 2010-Dec. 2012 that dramatically reduced housing inventories in both existing and new housing units
Initiative cuts property, capital gains taxes for buyers, sellers and investors.
2011 vs. 2010 increase: New Homes Sales: 59.8%
Existing Homes Sales : 26.5%
Economic Development Achievements (2009-2011)
6
Results – Economic Indicators point to positive
growth
The results of Puerto Rico’s fiscal and economic policies are clear.
Puerto Rico is experiencing the first positive growth in six years,
including increased job creation, a sharp rise in home sales, an
increase in consumer confidence reflected in climbing retail and
auto sales, surging tourism numbers, record exports and new
business creation, and tax reform that is generating results.
Total employment number in December 2011 increased by 28,000
when compared to the same period in 2010
1,191
1,170
1,153
1,127
1,1391,143
1,117
1,1061,1051,103
1,1181,1171,125
1,113
1,0961,0941,089
1,0811,085
1,0681,075
1,083
1,0941,0971,0901,087
1,0661,057
1,0611,062
1,084
1,062
1,051
1,0801,077
1,090
1,118
-3.6%
-8.8%
-6.9%
-7.8%
-5.7%
-7.0%
-5.5%
-4.9%
-2.9%
-5.4%
-2.9%
-3.4%
-2.1% -1.8%
-3.1%
-2.3%
-2.7%
-2.6%
-0.1%
-2.2%
-0.3%
-1.6%
-0.6%
2.6%
-10%
-8%
-6%
-4%
-2%
0%
2%
De
c-0
8
Ja
n-0
9
Fe
b-0
9
Mar-
09
Ap
r-09
May-0
9
Ju
n-0
9
Ju
l-09
Au
g-0
9
Se
p-0
9
Oct-
09
No
v-0
9
De
c-0
9
Ja
n-1
0
Fe
b-1
0
Mar-
10
Ap
r-10
May-1
0
Ju
n-1
0
Ju
l-10
Au
g-1
0
Se
p-1
0
Oct-
10
No
v-1
0
De
c-1
0
Ja
n-1
1
Fe
b-1
1
Mar-
11
Ap
r-11
May-1
1
Ju
n-1
1
Ju
l-11
Au
g-1
1
Se
p-1
1
Oct-
11
No
v-1
1
De
c-1
1
Source: Department of Labor
% Year-Over-Year Change Total Employment
((Household Survey)
8
The Housing Initiative enacted in 2010 has jumpstarted
Puerto Rico’s residential real estate market
9
-5.8%
59.8%
US Puerto Rico
1.8%
26.5%
US Puerto Rico
From September 2010 -
November 2011 Overall Year-
over-Year Change
Source: Housing Finance Authority* Gradual incentive reduction subject to approval of “Housing Stimulus Act Transition Program
From September 2010 -
November 2011 Overall Year-
over-Year Change
In 2011, Puerto Rico experienced the highest hotel occupancy
ever on record
10
Hotel Occupancy Rate
67.5%
68.1%
69.6%
CY 2009 CY 2010 CY 2011
Average Daily Rate (ADR)
$ 190.50
$ 165.05 $ 163.17
$170.75
CY 2008 CY 2009 CY 2010 CY 2011
Chart Title
-1.1%
-13.4%
+4.6%
Source: Puerto Rico Tourism Company
2011 also showed an increase in cruise ship passenger arrivals
11
Cruise Ship Passengers (Homeport)
319,918
388,912 398,023
CY 2009 CY 2010 CY 2011
Source: Puerto Rico Ports Authority
Consumer confidence levels are increasing
Source: Puerto Rico Trade and Export Company
12
$34,453 $34,858
$28,788
CY 2009 CY 2010 CY 2011 (Jan-Oct)
1.54%
2%
2.7%
$35,555*
76,477
89,74591,052
CY 2009 CY 2010 CY 2011
17.3%1.5%
Recent export data shows a robust improvement since 2009
Source: Puerto Rico Planning Board
13
During fiscal year 2011, exports have increased by 5.2% when compared to fiscal year 2010, while
imports have increased by 9.5%
+5.2% +9.5%
$55,175
$55,080
$56,543
$60,119$60,011
$63,954
$60,807
$61,657
$64,876
$50,000
$52,000
$54,000
$56,000
$58,000
$60,000
$62,000
$64,000
$66,000
2003 2004 2005 2006 2007 2008 2009 2010 2011
$33,750
$38,898
$38,905
$42,630
$45,266
$44,928
$40,651
$40,810
$44,671
$30,000
$32,000
$34,000
$36,000
$38,000
$40,000
$42,000
$44,000
$46,000
$48,000
2003 2004 2005 2006 2007 2008 2009 2010 2011
A total of 14,716 new corporations were created in calendar year
2011, reflecting a 14% increase compared to 2010
Source: Puerto Rico Department of State
14
13,731 13,628
12,071
12,866 12,911
14,716
CY 2006 CY 2007 CY 2008 CY 2009 CY 2010 CY 2011
-0.8%
(-103) +14.0%
(+1,805)
+0.3%
(+45)+6.6%
(+795)-11.4%
(-1,557)
15
The most comprehensive tax reform in the history of Puerto
Rico is generating the intended results
In spite of decreased Individual Tax Collections, General Fund Net Revenues have increased during the first 11 months of CY 2011, mainly due to the
“Positive Revenue” effects of the Tax Reform
January – November
General Fund Net Revenues
$6,918
$7,724
2010 2011
January – NovemberIndividual Tax Collections
$2,489
$1,789
2010 2011
(in $ millions) (in $ millions)
Puerto Rico’s Fiscal and Economic Turnaround
Luis G. Fortuño, Governor of Puerto Rico
March 2012
