In Puerto Rico there is no assumption of a quick return to the markets, but there is an assumption that a period of fairly intense austerity won’t drag down growth. In Greece the IMF initially made the mistake of thinking that Greece would be able to return to market borrowing quickly, and the mistake of predicting that massive austerity wouldn’t have a big negative impact on output. To be blunt, the board’s baseline runs the risk of repeating some of the IMF’s initial mistakes in Greece-though the drama may play out more slowly. But projecting a big short-term payoff from such reforms that fully offsets the drag from large scale austerity is dangerous-the available precedents suggests that such supply side reforms cannot offset the demand impact of fiscal consolidation. Labor law all strike me as necessary even if the labor market reform will be painful. As a result of these technical assumptions (big and fairly rapid payoff from structural labor market reforms that, a quick payoff from reforms to an electrical system which unquestionably needs fundamental changes and no second round impacts of austerity) Puerto Rico is forecast to run a primary surplus of around 2 percent of GNP in 2023 ($1.4 billion) and sustain that kind of surplus for several years. Has the details of the fiscal side of the fiscal plan). And that increase in revenue is strong enough to more than offset a forecasted fall in the revenue Puerto Rico is able to collect through a special tax that it now imposes on the “offshore” (for tax purposes) pharmaceutical manufacturing sector (I do give the board credit for forcing Puerto Rico to incorporate a fall in this revenue in its forecast-though in a sense the combination of Maria and tax reform has forced the board’s hand as Act 154 revenue is now falling). The strong projected increase in growth in fiscal 2021, 20 avoids any second round impacts of austerity: revenues go up, not down even with all the fiscal tightening thanks to the projected increase in nominal and real GNP. Facebook Twitter LinkedIn Email Share Share. (See the difference between the previous board forecast for growth in the out years in ). Remember that before Maria trend growth was negative 1 percent per annum, so getting positive 2 percent growth in the face of austerity takes a really big assumed payoff from reform.
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