Buen dia don Roberto
Monday, November 17, 2008
Friday, November 14, 2008
What caused the recession in Puerto Rico?
Many would argue that the partial closing of the government due to a budget crisis was in part the impetus that plunged us into a recession. I would say that that is partly true. We were already on the road to a recession due to the two wars which began after 911. That in fact had a snow-balling effect on everything else here on the island as well as in other countries throughout the world. For now I will focus on Puerto Rico.
One of the first things to be affected was the price hikes in all areas. Everything started going up. First the gasoline which in turn caused higher prices in transported goods, which in turn caused higher production cost, etc., etc.
Next came the increase in basic services such as water and electricity. The electricity saw the largest increase in that it rose 150% if not more. One might say that that is a little high but bear in mind that businesses pay a different rate so their electric bill went up even higher. Now you begin to see the snowballing effect.
Next came the implementation of the infamous IVU better known as a sales tax. For the most part Puerto Rico had never had a sales tax on the consumer level. This caused an economic shock wave throughout the island. I can attest to this personally from an artisans perspective as for the first time many would have to register with the government and become in effect an extension of the government in the role of sales tax collectors. The government then instituted a policing force to check on all artisans and vendors to make sure they had their permits. This imposed hardships for many and many simply shut down their small businesses. One has to bear in mind that many of these individuals were on the economic fringes of society and were in fact just scraping together a living .
Long before the two wars began the industrial incentive law was scrapped. This law, which the industrial sector fought to keep gave businesses a ten year tax break during which they did not have to pay certain taxes. Once that shelter was gone so too did the businesses go. I recall that one businessman once told me that another way that many businesses had of getting around the ten year period was simply to change the company name and start all over again. I cannot attest to this since I have no idea as to how true it might be but it sounds right.
Another factor that influenced the departure of many businesses was foreign labor, in particularly cheap foreign labor! Why pay $6.00 to produce something when you can pay $1.00 or less elsewhere? Little by little businesses started leaving the island for Middle Eastern or Far Eastern countries. Many who lived here will recall that many unscrupulous companies simply packed up over-night and left without a word to their employees. Whole communities were left without livelihoods or compensation since many of these companies did not pay any sort of severance pay or compensation of any sort and I would not put it past them if they did not pay any social security either.
Puerto Rico had once been a lucrative place to do business in part because of its tax incentives, its cheap labor and its relationship as a commonwealth of the U.S. Now those things have changed. Those juicy tax incentives are gone. The cheap labor market has shifted to the Middle and Far East where one could get a laborer to work for half a buck.
I believe that one of the biggest problems here on the island is that there are politicians who put their interest before those of the island.
If you look around you will be astonished at the degree of land development that is currently taking place. The building of whole communities at exorbitant prices that the average Puerto Rican cannot afford. I am talking of homes in the $450,000.00+ category! I ask myself many times who are these communities being built for? Obviously it is not for the average Puerto Rican! Then for whom? Have the politicians instituted some get rich quick scheme that the people are unaware of? What of the land? At the rate in which these developers are going they will have covered the island in cement in less than a couple of decades, then what?
There are a number in the incoming new administration who say that our economy is better than that of the U.S. If that is so then it is news to us all. How is it possible since a large portion of our economy is dependent on the U.S.? I am looking at the situation from the trenches, on the street level and I see no such thing. On the contrary, I see things getting worse on a daily basis. I see the elderly who must leave many things behind on the supermarket counters because they no longer have enough to live on. I see people getting deeper and deeper into debt simply to survive. So if the economy is that much better than in the U.S. I would like to know where because obviously it is not seen from the peoples point of view.
El Bohemio
One of the first things to be affected was the price hikes in all areas. Everything started going up. First the gasoline which in turn caused higher prices in transported goods, which in turn caused higher production cost, etc., etc.
Next came the increase in basic services such as water and electricity. The electricity saw the largest increase in that it rose 150% if not more. One might say that that is a little high but bear in mind that businesses pay a different rate so their electric bill went up even higher. Now you begin to see the snowballing effect.
Next came the implementation of the infamous IVU better known as a sales tax. For the most part Puerto Rico had never had a sales tax on the consumer level. This caused an economic shock wave throughout the island. I can attest to this personally from an artisans perspective as for the first time many would have to register with the government and become in effect an extension of the government in the role of sales tax collectors. The government then instituted a policing force to check on all artisans and vendors to make sure they had their permits. This imposed hardships for many and many simply shut down their small businesses. One has to bear in mind that many of these individuals were on the economic fringes of society and were in fact just scraping together a living .
Long before the two wars began the industrial incentive law was scrapped. This law, which the industrial sector fought to keep gave businesses a ten year tax break during which they did not have to pay certain taxes. Once that shelter was gone so too did the businesses go. I recall that one businessman once told me that another way that many businesses had of getting around the ten year period was simply to change the company name and start all over again. I cannot attest to this since I have no idea as to how true it might be but it sounds right.
Another factor that influenced the departure of many businesses was foreign labor, in particularly cheap foreign labor! Why pay $6.00 to produce something when you can pay $1.00 or less elsewhere? Little by little businesses started leaving the island for Middle Eastern or Far Eastern countries. Many who lived here will recall that many unscrupulous companies simply packed up over-night and left without a word to their employees. Whole communities were left without livelihoods or compensation since many of these companies did not pay any sort of severance pay or compensation of any sort and I would not put it past them if they did not pay any social security either.
Puerto Rico had once been a lucrative place to do business in part because of its tax incentives, its cheap labor and its relationship as a commonwealth of the U.S. Now those things have changed. Those juicy tax incentives are gone. The cheap labor market has shifted to the Middle and Far East where one could get a laborer to work for half a buck.
I believe that one of the biggest problems here on the island is that there are politicians who put their interest before those of the island.
If you look around you will be astonished at the degree of land development that is currently taking place. The building of whole communities at exorbitant prices that the average Puerto Rican cannot afford. I am talking of homes in the $450,000.00+ category! I ask myself many times who are these communities being built for? Obviously it is not for the average Puerto Rican! Then for whom? Have the politicians instituted some get rich quick scheme that the people are unaware of? What of the land? At the rate in which these developers are going they will have covered the island in cement in less than a couple of decades, then what?
There are a number in the incoming new administration who say that our economy is better than that of the U.S. If that is so then it is news to us all. How is it possible since a large portion of our economy is dependent on the U.S.? I am looking at the situation from the trenches, on the street level and I see no such thing. On the contrary, I see things getting worse on a daily basis. I see the elderly who must leave many things behind on the supermarket counters because they no longer have enough to live on. I see people getting deeper and deeper into debt simply to survive. So if the economy is that much better than in the U.S. I would like to know where because obviously it is not seen from the peoples point of view.
El Bohemio
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