Hedge Funds Can’t Hide the Real Picture in Puerto Rico – Financial Times (Aug. 25, 2014)

Sir, As part of a desperate exit strategy, firms speculating in Puerto Rico bonds have ample reason to talk up the island’s economic prospects (“Hedge funds spark review of Puerto Rico economy”, August 21). But the fantastic assertion that the “country’s [sic] GNP may have grown by between 3 and 11 per cent in real terms since 2005” defies even the most generous interpretation of the island’s economic data.

Since 2005 the US territory has lost over 210,000 jobs. Unemployment has increased from 10.6 per cent to 13.1 per cent, mitigated mostly by a labour force participation rate that has shrunk from 49.8 per cent to 42.4 per cent.

Whatever the shortcomings of gross national product (or gross domestic product) to measure market output, trying to add extra percentage points to Puerto Rico’s economy cannot hide the real picture. If these firms are now trapped in a hopeless short-term trade, it would be wise that they refocus their efforts.

By convincing local policy makers to scrap the failed growth model based on tax-exempt manufacturing and offshore finance, and focus instead on tourism and entertainment, these hedge funds may, over a longer term, recover their investment and even make a profit.

David R Martin, Atlanta, GA, US


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