Cuba & Puerto Rico: “From the Same Bird, Two ‘Broken’ Wings” Eugenio J. Alemán, Ph.D. Director and Senior Economist February 2018
Cuba & Puerto Rico
Cuba & Puerto Rico: From the Same Bird, Two ‘Broken’ Wings
Economics
• Cuba got its independence from Spain after the Spanish-American war in 1898 • Puerto Rico was kept as a territory of the United States • From there, the history of both islands took very different paths • On March 2, 1917, the Jones–Shafroth Act was signed, collectively making Puerto Ricans United States citizens without rescinding their Puerto Rican citizenship. • By the mid-1900s Puerto Rico established what they called the “Estado Libre Asociado,” which included the writing of a constitution • Throughout history, the economy of Cuba followed the volatile patterns of price of sugar, its main export product • The Puerto Rican economy got help from the U.S. to industrialize • The dictatorship of Fulgencio Batista finally collapsed on January 1st, 1959 to a “revolution” headed by Fidel Castro • Several years after the revolution triumphed, Fidel Castro established an alliance with communist USSR • Puerto Rico enjoyed a fast industrialization process and strong economic growth fueled by large U.S. government subsidies for American firms that opened production facilities in Puerto Rico • Strains in U.S. fiscal numbers produced several changes on the subsidies over the years until the subsidies were eliminated in 1995 with a 10 year draw down window that ended in 2005. The Puerto Rican economy entered into a depression in 2006 • Since then, instead of adjusting to the new economic and fiscal reality, the Puerto Rican government has been financing its expenses through the issuance of debt in the U.S. municipal market • After the collapse of the USSR Cuba has been helped by the Venezuelan dictatorship • However, the collapse in oil prices since 2014 has put strain to those economic subsidies 2
Puerto Rico • Infrastructure • • • •
Buildings Roads Water and Sewer Electricity
• Food • Employment & Wages •
Economy adjusting though quantity rather than prices
• Internet
Economic Activity Index
The Puerto Rican economic depression was followed by the collapse after hurricane Maria
Source: GDB and Wells Fargo Securities
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Consumer Price Index
Economic depression but prices are still growing after a deflation in 2016 and early 2017
Source: U.S. Department of Labor and Wells Fargo Securities
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Nonfarm Employment
Employment continues to fall, mirroring the economic depression
Source: U.S. Department of Labor and Wells Fargo Securities
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Unemployment Rate
The rate of unemployment has been coming down perhaps though less participation as well as out-migration
Source: U.S. Department of Labor and Wells Fargo Securities
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Manufacturing and Non-Manufacturing Employment
While employment in manufacturing has been severely affected by the elimination of the 936 laws services employment has also tanked
Source: U.S. Department of Labor and Wells Fargo Securities
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Population
Population growth is in reverse with no expected end in sight
Source: Census and Wells Fargo Securities
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Employment “Growth� by Sector
No sector of employment has been immune to the demise of the economy
Source: U.S. Department of Labor and Wells Fargo Securities
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Manufacturing Employment
Almost 100 thousand manufacturing jobs have been lost since 1990
Source: U.S. Department of Labor and Wells Fargo Securities
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Government Employment
After trying to keep government employment stable the Great Recession and the lack of financing trounced the government ability to keep its payrolls intact
Source: U.S. Department of Labor and Wells Fargo Securities
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Total Nonfarm Employment
After peaking before the Great Recession at 1.05 million, employment is down about 200 thousand
Source: U.S. Department of Labor and Wells Fargo Securities
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Cuba • Infrastructure • • • •
Buildings Roads Water and Sewer Electricity
• Food • • • • •
Rice Black beans Pork Lettuce, tomato (some times) Everything is scarce (of course!)
• Employment & Wages • •
Exploitation by the state Two economies (Cuban Peso, CUC)
• Internet •
Meet me at the plaza!
Cuba
Cuba’s infrastructure is collapsing
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Cuba
Cuba’s infrastructure is collapsing
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Cuba
Cuba’s infrastructure is collapsing
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Cuba
Cuba’s intelligence services are probably hard at work!
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Cuba
Cuba’s intelligence services are probably hard at work!
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Cuba
Cuba’s infrastructure is collapsing
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Cuba
Cuba’s infrastructure is collapsing
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Cuba
Cuba’s infrastructure is collapsing
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Cuba
Cuba’s food supply is suffering from “capitalistic” pressures
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Wells Fargo Securities Economics Group Global Head of Research, Economics & Strategy
Economists
Diane Schumaker-Krieg ………………… ….diane.schumaker@wellsfargo.com Global Head of Research, Economics & Strategy ……
sarah.house@wellsfargo.com
Michael A. Brown, Economist michael.a.brown@wellsfargo.com Jamie Feik, Economist
Chief Economist John E. Silvia
Sarah House, Economist
jamie.feik@wellsfargo.com
Erik Nelson, Currency Strategist
erik.f.nelson@wellsfargo.com
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Senior Economists
Michael Pugliese, Economic Analyst Harry Pershing, Economic Analyst Hank Carmichael, Economic Analyst Ariana Vaisey, Economic Analyst Abigail Kinnaman, Economic Analyst Shannon Seery, Economic Analyst
Mark Vitner, Senior Economist mark.vitner@wellsfargo.com Jay H. Bryson, Global Economist
…jay.bryson@wellsfargo.com
Sam Bullard, Senior Economistsam.bullard@wellsfargo.com Nick Bennenbroek, Currency Strategist nicholas.bennenbroek@wellsfargo.com Eugenio J. Alemán, Senior Economist Azhar Iqbal, Econometrician
eugenio.j.aleman@wellsfargo.com
azhar.iqbal@wellsfargo.com
Tim Quinlan, Senior Economist
tim.quinlan@wellsfargo.com
Eric J. Viloria, Currency Strategist
eric.viloria@wellsfargo.com
michael.d.pugliese@wellsfargo.com harry.pershing@wellsfargo.com john.h.carmichael@wellsfargo.com ariana.b.vaisey@wellsfargo.com abigail.kinnaman@wellsfargo.com shannon.seery@wellsfargo.com
Administrative Assistants Donna LaFleur, Executive Assistant
donna.lafleur@wellsfargo.com
Dawne Howes, Administrative Assistant dawne.howes@wellsfargo.com
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