1. The document discusses a plan presented by Gustavo Vélez to members of Congress recommending the establishment of a Federal Fiscal Control Board to oversee Puerto Rico's finances and implement structural economic reforms. 2. The plan recommends that the board be limited to reorganizing public finances, implementing fiscal and government reforms, and increasing transparency. It also calls for an organized debt restructuring process and reforms to the pension systems and economic development policies. 3. Vélez acknowledges asking Congress for oversight is not ideal but argues local politicians have failed to enact real solutions and a federal board could help transition Puerto Rico to better governance.

1. ECONOMIC REPORT
In This Issue
 Puerto Rico’s Eco-
nomic Freedom Index
 Tourism Soars in
FY2015 and the Visi-
tor’s profile
 Car sales continue to
decrease
 House Prices remain
low
 Retail Sales in 2015
decrease
Editorial by Gustavo Vélez
A Plan taken to Congress
This week I had the opportunity to visit staffer from Rep. Bishop, Rep. Young, Rep.
Duffy, and others. I made the trip to Washington DC in the hopes of providing them with
the needed literature for the implementation of the Federal Fiscal Control Board.
The Reason
In recent weeks, as the fiscal crisis worsens, the possibility that Congress will legislate a
Fiscal Control Board to legislate over Puerto Rico, increases. Also, wide popular sup-
ports increase as Puerto Ricans (U.S. citizens) finally understood that both political par-
ties are not willing to bear the political costs of the structural reforms demanded by any
real solution. The Federal Fiscal Control Board must address these two issues, if not
the crisis will be recurring. If indeed a Federal Board is legislated, I recommended that
addresses the following issues:
The Plan
1. Federal Fiscal Board: The commonwealth need strong oversight but a Federal
Board has to be limited to implement the reorganization of Puerto Rico’s public finances
and the structural reforms, such as government reorganization, fiscal reforms and finan-
cial transparency.
2. Chapter 9: A sustainable economic recovery program requires an organized
debt restructuring process.
3. Pensions and Retirement Systems: The Employee Retirement System and the
Teacher’s Retirement System are close to insolvency, causing a social crisis affecting
over 200,000 retirees.
4. Economic development program: Puerto Rico needs to articulate a new eco-
nomic development project to revitalize the ability we once had to create wealth, jobs
and opportunities for all.
5. Political relationship with the United States: Puerto Rico and the United States
must have a serious conversation and the commitment to reorganize the current rela-
tionship, and move to "non-territorial" formulas to provide the country the tools to govern
with dignity and chose the right course for their economy.
As a Puerto Rican I am not proud to ask for an external mechanism like the Federal
Control Board to solve our fiscal and economic problems, but local politicians have dis-
qualified themselves to be part of a real solution. A Federal Fiscal Control Board is not
the end of Puerto Rico, but a transition to a better way of doing things, I think that we all
deserve that.
Inteligencia Económica • info@economiapr.com • 787-420-3380 Vol. 2 Ed. III
For the complete report
provided by Gustavo
Vélez to Congress
please enter:

2. Puerto Rico lands 31st place in
Economic Freedom Index
On Monday, former Gov. Luis Fortuño, alongside economists Gustavo Vélez and
Carlos Colón de Armas announced the position occupied by Puerto Rico in the Eco-
nomic Freedom Index developed by the Center for Economic Renewal, Growth and
Excellence (CRECE, by its Spanish acronym), a foundation established by Fortuño
in 2014. The focus Is to determine the island’s position in the same index published
annually by the The Heritage Foundation and the Wall Street Journal.
Puerto Rico occupied the 31st place with an overall
average of 71, classifies as “mostly free”.
During the conference, Fortuño stated that public policy in Puerto Rico has to
emphasize three basic pillars: individual freedom, personal responsibility and
opportunity.
The index evaluates countries in four broad policy areas
that affect economic freedom: rule of law; limited govern-
ment; regulatory efficiency; and open markets. There are
10 specific categories: property rights, freedom from cor-
ruption, fiscal freedom, government spending, business
freedom, labor freedom, monetary freedom, trade free-
dom, investment freedom, and financial freedom. Scores
in these categories are averaged to create an overall
score.
Puerto Rico gets a rating of 71, or classified as “mostly
free,” placing it 31st, just below. On property rights, the
island is rated 70; in freedom of corruption 63; fiscal free-
dom, 61; government spending, 77, business freedom,
63; labor freedom, 79; monetary freedom, 77; free trade,
80 investment freedom, 70; and financial freedom, 70.
Three categories stood out for their low scores: fiscal freedom, business freedom, and free of corruption. These re-
sults reveal significant problems of lack of economic freedom which in turn hinder economic growth of the island.
1. Fiscal Freedom: According to the Tax Foundation, Puerto Rico currently has the third highest tax rate for corpo-
rations in the world of 39%, compared to the world average of 22.9%. That figure puts the island at a disad-
vantage compared with other markets more attractive for business.
2. Freedom for Business: In Puerto Rico it is required about 20 procedures and 165 days to obtain a business per-
mit., a very poor performance.
3. Free of Corruption: Although Puerto Rico receives good grades thanks to its systems audits, the lack of transpar-
ency in the process of government decision-making results in a low total score. The situation is exacerbated by
political favoritism and bribery to law enforcement officials.
According to the 2016 Index of Economic Freedom by the Heritage Foundation and The Wall Street Journal, the world
average score of 60.7 is the highest recorded in the 22-year history of the index.
The most free countries included: Hong Kong, Singapore, New Zealand, Switzerland, Australia, Canada, Chile, Ire-
land, Estonia, and United Kingdom. The least free included: North Korea, Cuba, Venezuela, Zimbabwe, Turkmeni-
stan, Eritrea, Rep. of Congo, Iran, Equatorial Guinea, and Argentina.

3. Source: Federal Housing Administration (FHA)
Puerto Rico’s housing market still struggling
Puerto Rico’s housing market is showing some signs of improvement, after years or house price de-
clines during the severity of the crisis in 2009 and 2010. During the year to end-Q3 2015, the season-
ally-adjusted purchase-only house price index rose by 3.97% (4.51% inflation-adjusted), in sharp con-
trast with the annual decline of 5.7% a year earlier, according to the Federal Housing Finance Agency
(FHFA). On a quarterly basis, house prices increased 2.76% (1.88% inflation-adjusted) in Q3 2015.
Luxury homes increase in sales
The segment with increase in sales is luxury properties, these saw an increase of 105% sales growth
between 2013 and 2014. These increase in sales come after Puerto Rico was declared a tax haven
for wealthy Americans who wanted to take advantage of the tax benefits under Act 22 of 2012. These
individuals are high-end with great investment who are not affected by the local economic crisis.
Foreclosures increase
While luxury homes are increasing their sales, the average Puerto Rican can’t pay their house and
are undergoing record breaking foreclosures. The island has lost over 10% of its population in the
past decade and many families leave their houses for the mainland in hopes of a better quality of life
and employment. f Puerto Rico were a state, it would currently rank second in the U.S. for homes in
foreclosure, according to RealtyTrac. It only lags behind New Jersey. Banks in the islandhave the
burden of unpaid mortgages due to the large number of foreclosed properties.
During 2014, residential construction activity plummeted, both in number and in value, by 31.8% and
20%, respectively. Then in the first five months of 2015, the number of new dwelling units plunged
again by 18% to 661 units from the same period last year, according to the Puerto Rico Planning
Board.

4. Tourism soars
in FY2015
In Fiscal Year 2015
(FY2015) 5.45 million
people visited the island,
a 13.2% growth, the third
consecutive increase and
highest since 1988.
In 2009 tourism reported
the weakest numbers in
visitors coming to PR.
Visitor’s expenditures
were up by 11.1%, total-
ing $3.8 billion, a record
driven by an increase of
25% in expenditures on
cruise passengers.
Visitor’s profile
The survey can draw the
profile of the average visi-
tor. It is a woman residing
in the IS between the ag-
es of 45 to 54, who comer
on vacation or to visit rel-
atives or friends staying
in San Juan with a level
of income between
$40,000 to $59,000. Dur-
ing the visit is mainly ded-
icated to go shopping,
and enjoying the island’s
restaurants.
The information was provid-
ed by the tourism Company
and the Planning Board.
Car Unit sales—Source: GUIA
Car sales drop 8.2% in February
Car sales for the month of February 2016 totaled 6,152, 278 units less than
Feb 2014, a 4.3% drop. This is the second worst month of February in sales
in record, according to GUIA.
The industry remains in negative terrain
Aggregate figures for January and February totaled 11,734, a loss of 1,050
units (8.2%) compared to Jan-Feb 2015. This is the 25th month, of the last
27, with drop in sales.
Accumulated figures (Year-To-Date) for:
 American brans cars decreased by 151 units (6.8%). All models de-
creased except Chrysler which increased sales by 2.9%.
 Japanese brand cars decreased by 765 units (10.2%). Scion, Nissan,
and Honda increased their sales while Toyota, who holds the largest
market share dropped by 10.9% in sales.
 Korean brand cars decreased 4.4% (101 units). Hyundai models de-
creased 8.1% while Kia models increased 0.6%.
 European brand cars decreased sales by 4.3%. Audi and Mercedes re-
ported the largest increase in sales with 31.3%, and 12.4%, respectively.
Jan-Feb
2015
Jan-Feb
2016
Dif.
Market
Share 2015
Market
Share 2016
American 2,225 2,074 -151 17.40% 17.70%
Japanese 7,489 6,724 -765 58.60% 57.30%
Korean 2,307 2,206 -101 18.00% 18.80%
European 763 730 -33 6.00% 6.20%

5. Consumer Price Index—Source: Department of Labor
Prices will likely increase due to VAT change
The Consumer Price Index (CPI) for the month of January was 115.994, a 0.1% increase compared to December
2015, and a 0.6% increase compared to January 2015. The increase compared year-over-year is the first in over
13 months. In 2015 inflation was reduced by 0.8%, the first decrease in six years, but January 2016 proved that
inflation will likely go up this year.
Major categories with increase include Food & Beverage (3.2%), Apparel (2.6%), Medical Care (3.4%), and Edu-
cation & Communication (3.2%). Sub-indexes
represented in the chart below are important
due to their high or low impacts in the overall
average. Food away from home increased
6.4%, this is mainly restaurants, and Apparel
and some others had increases due to the in-
crease in the Sales Tax from 7% to 11.5%.
Medical Care continues to average an increase
of more than 3.2% yearly. This is mainly due to
its sub index of medical care commodities which
include medications, equipment, and others.
While these commodities increase drastically in
prices, services related to medical care de-
creased their prices.
The Value Added Tax (VAT), which was now
pushed to June, will likely increase prices while
businesses grow accustomed to the new tax. Ser-
vices will also increase prices due to the B2B tax.

6. Contact Us
Give us a call for more
information about our ser-
vices and products.
Inteligencia Económica
B5 calle Tabonuco Suite
216 PMB 109
Guaynabo, PR 00968
(787) 420-3380
info@economiapr.com
Visit us on the web at
www.economiapr.com
Gustavo Vélez
President
Chantal Benet
Economist
Retail sales decrease in 2015
Retail Sales for the month of December totaled $3.63 billion, a $36million
decrease (-1.0%) compared to December 2014. Out of the major catego-
ries, Department Stores (-3.33%), New & used car sales (-1.25%), and
Gas Stations (-5.38%), reported decrease in sales. Department stores
could be due to the increase in prices because of the increase in the
Sales Tax. Gas station decreases is due to the oil prices hitting record low
numbers.
Gas station sales and car sales plummet
In aggregate figures, 2015 closed the year with a total $37.85 billion in
retail sales, a –1.42% decrease compared to 2014. The decrease in sales
was dragged down by gas stations (oil prices) and new and use vehicle
sales which the industry has been suffering for the past two years.
Department Stores managed to increase slightly in sales, while Super-
markets and Restaurants comfortably increased their sales.
If the VAT is implemented this year sales in department will likely de-
crease, new and used car sales will likely to decrease this year during the
ongoing crises and there is no short term increase in oil prices so gas sta-
tion sales will also decrease.
Source: COMEX—Retail Sales 2015