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  • Writer's pictureThe San Juan Daily Star

Center for a New Economy lays out topics to stay alert to in 2022

By The Star Staff

The Center for a New Economy (CNE) on Thursday provided in its yearly review a list of topics to watch for in 2022.

The first is the pandemic. The SARS-CoV-2 virus has consistently confounded some of the brightest scientific minds since it was first identified two years ago.

“It is also true, though, that our knowledge about the virus has grown exponentially during that time. In addition, we also have a better clinical understanding of the disease’s progression and have developed vaccines as well as new treatments for COVID-19,” the CNE said. “Nonetheless, we still have a ways to go before we can claim that COVID-19 is just another disease we can live with, like the flu.”

This is particularly true in the global South, where vaccination rates are still pitifully low, the think tank added.

The second topic is Puerto Rico’s debt restructuring. After five years of litigation and negotiation, U.S. District Court Judge Laura Taylor Swain has confirmed a plan of adjustment for the debt of Puerto Rico’s central government.

“The proposed Plan of Adjustment is not perfect and it has been the subject of significant criticism. But it does offer some debt relief and lifts the bankruptcy cloud from Puerto Rico, which should be a net positive for people looking at potential investment in Puerto Rico,” the CNE said.

“We believe that both the best case scenario put forward by the FOMB [Financial Oversight and Management Board for Puerto Rico] and the worst case scenario favored by those who oppose the Plan are unlikely to occur. In real life, it is likely some things will be in our favor and others against,” the CNE noted. “The difficulty lies in forecasting which variables will go which way. What we do know, is that everything depends on jumpstarting economic growth and that depends, in the short term, on the Hurricane Maria reconstruction process and, over the long term, on developing and implementing an economic growth plan for Puerto Rico.”

The third topic, then, is Hurricane Maria reconstruction. Some difficult decisions regarding what gets rebuilt and what not and about energy generation technologies still lie ahead, the think tank pointed out. In this sense, the CNE said, some of the most difficult questions in the reconstruction process are not technical but rather political in nature, as different groups vie to push their own vision (based on their own interests) of how the reconstruction should play out.

The fourth topic is the midterm elections. The entire U.S. House of Representatives and about a third of the Senate are up for reelection this fall. Most analysts and polls forecast that Republicans will gain control of at least one congressional chamber, if not both. If that scenario is realized, any pending federal legislation extending or increasing federal spending in Puerto Rico, for example, extending SSI benefits to Puerto Rico or increasing the federal share (FMAP) of Medicaid costs, could be in jeopardy. In addition, under a Republican majority, Puerto Rico could even face the revocation of budgetary authority for certain programs or the reduction of funds already appropriated for certain uses.

The fifth topic is inflation. The CNE noted that consumer prices are increasing at a rate not seen in 40 years. This is due, in part, to the success of economic support measures in propping up demand when the COVID-19 pandemic struck. Central bankers provided huge amounts of liquidity to financial markets. Governments borrowed on a scale unseen since the Second World War. In the United States alone, budget deficits exceeded 12% of gross domestic product (GDP) in both 2020 and 2021, the CNE noted.

“All this stimulus prevented demand from plunging,” the think tank said. “Supply has been a different story, as the pandemic disrupted production worldwide. Supply chain bottlenecks and scrambled logistic networks led to unprecedented backlogs and delays, even as demand for physical goods increased relative to demand for services as people sheltered in place. Hence the price increases.”

In addition, firms in the developed world face a labor shortage, as workers, for reasons not yet fully understood, don’t return to work — there are 3.6 million fewer people working in the United States today than in February 2020, the CNE noted.

“Economists disagree (big surprise here) as to whether this recent inflationary trend is a temporary or permanent phenomenon,” the think tank said.

The sixth topic is the return of geopolitics. As 2022 begins, Russia is threatening to invade Ukraine, China is taking an increasingly assertive position in the South China Sea, and North Korea has tested new missiles.

“In addition, illiberal autocratic forces seem to be on the rise around the world. The strength of these movements will be tested in general elections in Brazil, France, Hungary, and in the midterms in the United States,” the CNE said. “At the same time, China is increasingly confident that its system is superior at promoting stability, growth, and innovation, especially in contrast with a divided and dysfunctional United States. Any intensification of the rivalry between China and the U.S. will affect us, as Puerto Rico’s future, for better or worse, is tied to the United States.”

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