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  • Writer's pictureThe San Juan Daily Star

Economist: Temporary gov’t closure will have temporary effect

Juan A. Castañer, senior economic advisor at Estudios Técnicos Inc.

By The Star Staff

Any government closure will have its effects, whether it is state, municipal or the federal government. The U.S. government appeared headed for a temporary shutdown this week with Republican lawmakers in the House of Representatives showing no signs of progress in negotiations to keep the government funded beyond Saturday.

Where Puerto Rico is concerned, it seems the effects of a shutdown this time around won’t be any different from the other 20 or so times government closures have occurred. Even though some 4 million federal employees in the mainland United States and on the island will stop receiving their salaries, it won’t be something permanent.

The impact on the overall economy will reduce growth by 0.2% every week that the closure is extended, although it will recover once the government reopens and employees start to receive their salaries and payments; therefore the impact will be much reduced, according to San Juan consulting firm Estudios Técnicos Inc. (ETI).

“In terms of Puerto Rico, some projects that are using funds based on FEMA funds or CDBG-DR [Community Development Block Grant Disaster Recovery] and CDBG-MIT [Community Development Block Grant Disaster Mitigation] [will be affected], but the impact would be very minimal and it would not be permanent,” said Juan A. Castañer, the senior economic advisor at ETI.

The previous federal government closure was in December 2018-January 2019. At 34 days it was the longest on record. Most temporary courses, which are mostly caused by political differences between the two governing parties, only last a few days. As of 2018-2019, there had been a little more than 20 closures from both Democratic and Republican administrations over the previous 50 years.

Even when government closures are temporary, “they don’t stop feeling like an economic impact,” Castañer said earlier this week. “[... F]ederal employees are laid off temporarily, and stop receiving their salaries during that time, which inevitably impacts personal spending and the payment of financial responsibilities.”

“In Puerto Rico there are 14,000 active federal employees,” the ETI economist noted. “Federal contractors will also be affected because they won’t be receiving their payments for their services. The great majority of the federal government would in fact be working throughout the closure though, because only 27% of federal spending is considered discretionary, requiring annual approval by Congress. This includes Medicare, Social Security, Medicaid and nutritional assistance [SNAP and the island version, known as PAN by its Spanish acronym]; their disbursements will not be affected.”

Earlier this week, Moody’s Investors warned that if the closure occurs, it would be evaluated as negative by the credit agency, although the closure would not affect the payment of the debt.

Another consideration to take into account is regarding the actions of the Federal Reserve in terms of increases in its base interest rate.

“If the closure occurs, it is estimated that the impact would be to maintain the current rate for the next meeting, due to lack of the necessary economic information, since it would not be collected or published, possibly it would not be available for the next few months, September and October,” Castañer said.

“In short, the closure is not the entire federal government,” he said. “There are important items for Puerto Rico that are not affected in any way and, if there are negative impacts, they will be recovered.”

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