UNITED STATES DISTRICT COURT

DISTRICT OF PUERTO RICO

In re:

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO 

RICO,

as representative of

THE COMMONWEALTH OF PUERTO 

RICO, et al.

Debtors.

PROMESA TITLE III

Case No. 17-BK-3283-LTS

(Jointly Administered)

In re:

THE FINANCIAL OVERSIGHT AND 

MANAGEMENT BOARD FOR PUERTO 

RICO,

as representative of

THE PUERTO RICO ELECTRIC POWER 

AUTHORITY,

Debtor.

PROMESA TITLE III

Case No. 17-BK-4780-LTS

(Jointly Administered)

This Court Filing Relates Only to PREPA 

and Shall be Filed Only in Case No. 17-

BK-4780-LTS and Main Docket 17-BK3283-LTS

EXPERT REPORT OF SEBASTIAN EDWARDS

APRIL 28, 2023 

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TABLE OF CONTENTS

I. INTRODUCTION ..................................................................................................................1

A. Assignment ....................................................................................................................1

B. Qualifications.................................................................................................................2

II. SUMMARY OF OPINIONS..................................................................................................4

III. BACKGROUND ....................................................................................................................8

IV. THE GNP PROJECTION UNDERLYING THE PLAN OF ADJUSTMENT 

IS FUNDAMENTALLY FLAWED AND BIASED DOWNWARD....................................9

A. The Economic Outlook Model.....................................................................................10

1. Construction of the GNP Trendline .......................................................... 13

2. Structural Reforms.................................................................................... 17

3. Fiscal Policy.............................................................................................. 19

B. The EOM Predicts an Unprecedented Recession Worse than Anything 

Observed in Modern History .......................................................................................23

C. The EOM’s Modeling Framework is Unsuited for Projecting Puerto 

Rico’s GNP, and its Inputs are Unreliable...................................................................27

1. The EOM’s Regression-based Approach is Ill-Suited for 

Puerto Rico’s Long-Term Forecast........................................................... 27

2. The EOM Entirely Omits a Key Driver of Economic 

Growth: Labor........................................................................................... 31

D. The EOM Makes Multiple Unreasonably Pessimistic Assumptions...........................32

1. The EOM Assumes a Declining Capital Stock......................................... 33

2. There is No Basis for the EOM’s Assumption that 

Expected Infrastructure Reform Provides No Benefit.............................. 40

E. Relevant Economic Indicators Strongly Suggest that Puerto Rico is 

well into Recovery from the Decline that Started in 2006 ...........................................42

F. The GNP Projection Underlying the Plan of Adjustment Fails to 

Account for Certain Growth-Generating Fiscal Policies Contained in 

the EOM.......................................................................................................................48

V. A SOLOW GROWTH MODEL IS BETTER SUITED TO MODELING 

PUERTO RICO’S FUTURE GNP AND PREDICTS A HIGHER AND 

MORE REASONABLE FUTURE TRAJECTORY ............................................................50

A. The Solow Growth Model Description........................................................................51

B. The Solow Growth Model with Reasonable Assumptions Projects a 

Higher Future Path for Puerto Rico’s GNP .................................................................54

1. SGM Specification.................................................................................... 55

2. SGM Parameters....................................................................................... 56

3. GNP Projection ......................................................................................... 66

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VI. AN UNJUSTIFIABLY LARGE HAIRCUT ON PREPA BONDS MAY 

HARM PREPA IN THE LONG RUN BY INCREASING ITS COST OF 

CAPITAL GOING FORWARD...........................................................................................69

A. Unduly Large Debt Reductions Can Cause Reputational Damage and 

Impair Future Borrowing .............................................................................................69

B. The Commonwealth’s Influence Over PREPA’s Policies May Impact 

Market Perceptions About the Ability to Recover Loans............................................73

VII. THE COMMONWEALTH’S SUBSIDIZATION POLICIES CREATE 

MARKET DISTORTIONS WITH NEGATIVE CONSEQUENCES .................................74

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I. INTRODUCTION

A. Assignment

1. I have been engaged to submit this report by Counsel for the Ad Hoc Group,

1

Syncora Guarantee, Inc., Assured Guaranty Corp., and Assured Guaranty Municipal Corp. 

(collectively, “Bondholders”) in connection with the Puerto Rico Electric Power Authority 

(“PREPA”) bankruptcy. I have been asked to evaluate certain methodologies, macroeconomic 

assumptions, and inputs that underlie the electricity load projections used in PREPA’s Plan of 

Adjustment (as defined below). These projections drive, in part, the amount of future revenues 

that the Financial Oversight and Management Board (“FOMB” or the “Board”) proposes to 

make available to fund creditor recoveries. 

2. The FOMB’s proposed sum of revenues available for creditor recoveries uses, as 

an input, a projection of PREPA’s electricity demand (or “load”) that ties back to a load forecast 

in PREPA’s 2022 Certified PREPA Fiscal Plan. That load forecast, in turn, relies on 

macroeconomic projections in the 2022 Commonwealth Fiscal Plan certified by the FOMB.

2 I 

have not been asked to opine on any PREPA Fiscal Plan or Commonwealth Fiscal Plan, as such, 

but rather whether the projections underlying the Plan of Adjustment are reasonable and credible. 

1

 The AdHoc Group includes BlackRock Financial Management, Inc., Franklin Advisers, Inc., GoldenTree Asset 

Management LP, Invesco Advisers, Inc., Nuveen Asset Management, LLC, Taconic Capital Advisors L.P., and 

Whitebox Advisors LLC.

2

 See 2022 Certified Fiscal Plan for the Puerto Rico Electric Power Authority, dated June 28, 2022 (henceforth, 

“2022 PREPA Fiscal Plan”) and 2022 Fiscal Plan for Puerto Rico as Certified by the Financial Oversight and 

Management Board, dated January 27, 2022 (henceforth, “2022 Commonwealth Fiscal Plan”). I understand that, 

on April 3, 2023, the FOMB certified a new 2023 Fiscal Plan for Puerto Rico. Because the operative 2022 

PREPA Fiscal Plan relies on the economic projections in the 2022 Commonwealth Fiscal Plan, I have at this time 

confined myself to an analysis of that plan. I reserve the right to consider future fiscal plans as necessary, 

including but not limited to in response to any new certified PREPA Fiscal Plan or any new or amended Plan of 

Adjustment that relies on it.

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I also have been asked to review and evaluate, from an economic perspective, the effect of the 

Plan of Adjustment and certain PREPA subsidies on PREPA’s future borrowing conditions. 

B. Qualifications

1. I am a Professor of Business Economics at the Anderson Graduate School of 

Management and the Henry Ford II Chair in International Management at the University of 

California, Los Angeles. I received a Ph.D. in economics from the University of Chicago in 

1981, an M.A. in economics from the University of Chicago in 1978, and Licenciado Economica 

(Licentiate in Economics) and Ingeniero Comercial (Commercial Engineering) degrees from 

Universidad Catolica in Chile in 1975.

2. I am an expert in international debt markets, and have extensive experience related 

to government borrowing in developing, middle-income economies, and advanced economies. 

From 1993 to 1996, I was the Chief Economist for the Latin America and Caribbean Region at the

World Bank. From 2001 to 2003, I was the President of the Latin American and Caribbean 

Economic Association. I have served as a consultant to many multinational institutions, including 

the International Monetary Fund, the World Bank, the Inter-American Development Bank, the 

Organization for Economic Cooperation and Development, and the U.S. Agency on International 

Development. I have also served as a consultant on economic issues, including issues related to 

sovereign debt, to several governments, including Costa Rica, Guatemala, Mexico, Argentina, 

Chile, Colombia, New Zealand, Iceland, Indonesia, Tanzania, and Nicaragua. These assignments 

began in the late 1980s and have continued until the present. Between 2012 and 2021, I was the 

Senior Associate Dean of Global Initiatives and Director of the Center for Global Management at 

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the Anderson Graduate School of Management. I am a Research Associate and served as CoDirector of the Africa Project at the National Bureau of Economic Research (“NBER”). 

3. In my classes, I cover episodes related to debt default and restructuring. I have 

written extensively on these issues as well. My book, American Default, addresses President 

Roosevelt’s response to the Great Depression as one of the most important debt restructurings by 

an advanced economy. Among other topics, my scholarship has included the analysis of issues 

related to sovereign debt sustainability and the probability of debt restructuring. 

4. I have significant expertise and experience in developing economic projections. 

Most of my teaching focuses on macroeconomics, including topics specifically related to 

aggregate income and growth, and some of my most highly cited academic work is related to 

models and analyses of economic growth. Additionally, one of my key responsibilities at the 

World Bank was to oversee the projection of growth paths for a large group of Latin American 

countries. To develop these projections, our team also needed to forecast growth in the major 

advanced economies, because their performance affects emerging markets’ exports. I have also 

performed economic evaluations of projects related to electric power in Costa Rica and Chile.

5. My research interests include emerging markets, currency crises, capital markets, 

Latin America, social conditions, income distribution, poverty, monetary policy, and the Federal 

Reserve. I have authored numerous academic articles on international distressed debt, rate 

adjustment, and recovery, which have appeared in leading academic journals, including 

American Economic Review, Quarterly Journal of Economics, Review of Economics and 

Statistics, Journal of International Economics, and Journal of Development Economics, among 

many others.

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6. I have served as an expert witness in several cases involving exchange rates, 

international securities, international taxation, credit events, international investment disputes, 

and other economic and financial issues related to developing and emerging countries. A copy of 

my CV, together with a list of the trial and deposition testimony I have given in the past four

years, is attached as Appendix A. 

7. I am compensated at the rate of $1,000 per hour for my time. In carrying out my 

assignment, I have directed and supervised employees of Analysis Group, Inc., an economic 

consulting firm, though the views and conclusions in this report are mine. Neither my 

compensation nor that of Analysis Group is contingent upon my findings, the testimony I may 

give, or the outcome of this litigation.

8. In performing the research and analysis for my report, I considered the documents 

and data listed in Appendix B and/or cited in this report and exhibits. 

9. My opinions and the basis for my opinions are contained in the remainder of this 

narrative. I may revise, supplement, or expand my opinions, if necessary, based on review and 

analysis of information provided to me subsequent to the submission of this report.

II. SUMMARY OF OPINIONS

10. An important input into the Board’s projection of the amount of PREPA’s future 

revenues that are available to fund creditor recoveries under the Plan of Adjustment is its 

projection of electricity load from now until FY2051. And a key input into its electricity-load 

projection is, in turn, a projection of the growth in Puerto Rico’s real Gross National Product 

(“GNP”) in each year from now until FY2051. It follows that, for the Board’s load projection 

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(and therefore its available-net-revenue projection) to be reliable, its projection of GNP growth 

likewise must be reliable.

11. The Board’s GNP projection, however, is not at all reliable, for a host of reasons. 

First and foremost, the model that the Board uses to predict growth in GNP predicts an economic 

decline that it expects to persist for nearly the next three decades. Extending Puerto Rico’s GNP 

trajectory from its initial downturn in FY2006 in this manner would generate an economic 

decline unprecedented in modern history. Such a sustained economic decline is all the more 

improbable in light of Puerto Rico’s recently observed economic recovery. The sheer 

implausibility of the Board’s predicted result undermines confidence in its model. 

12. The Board’s dire prediction of Puerto Rico’s economic failure is a product of its 

linear regression model, which is unsuited to the task of projecting long-term economic growth. 

Based upon historical data, the Board’s linear regression attempts to estimate statistical 

relationships between certain observed macroeconomic factors and past GNP growth. It then 

uses those estimated relationships to predict future GNP. Thus, a premise of the regression 

exercise is that, to the extent there was a mathematical correlation in the past between, for 

example, changes in oil prices and GNP growth, that same mathematical correlation can be 

expected to continue long into the future.

13. Prevailing academic scholarship warns against the use of a linear regression to 

estimate future economic growth, however, and particularly over long time horizons such as the 

one considered by the Board. That is because, among other things, there generally is no basis to 

assume that the observed statistical relationship among variables will persist beyond the 

historical period under observation. In this case, the Board’s linear regression-based forecast is 

especially subject to error, because Puerto Rico is undergoing a significant rebuilding of its 

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infrastructure, and has begun enacting transformational economic policy changes, with the 

specific objective of making the future economic trajectory different from the historical one. 

14. The linear regression at issue here is further flawed because it omits any 

consideration of the impact of labor—which is a key driver of economic growth—on future GNP 

figures. It also relies upon unreasonably pessimistic assumptions about the future path of one of 

the key inputs that it does consider—capital stock. Contrary to the economic evidence, it 

assumes a long-term decline in capital stock in Puerto Rico that, were it actually to occur, would 

be an extreme outlier and similar only to the experience of countries suffering from economic 

collapse. The Board’s GNP projection also assumes, contrary to available evidence, that 

expected infrastructure reform will have zero effect on future economic growth. Finally, the 

Board’s projection of GNP that is used to project load, excludes without explanation the impact 

of COVID-19, including relief payments, despite that its own model estimates those payments to 

have a positive effect and to generate economic growth. 

15. In sum, through a combination of flawed economic modeling and unreasonably 

pessimistic assumptions about the impact of reconstruction and reforms, the Board generates a

prediction that Puerto Rico’s economy will languish in economic decline and never recover. If 

that happens, it will be unique in modern economic history. In my opinion, that is not a realistic 

outcome. 

16. The accepted methodology for projecting long-term economic growth is to 

estimate what is known as “Potential Output” by relying upon the Solow Growth Model. The

Solow Growth Model identifies three primary drivers of growth: capital, labor and “total factor 

productivity” (which represents advances in production and efficiency in an economy), and 

models them to interact in meaningful ways that reflect basic economic principles. Unlike the 

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Board’s regression model, the Solow Growth Model develops economic growth projections from 

the bottom up, by evaluating the key inputs that drive economic growth.

17. I have estimated Puerto Rico’s long-term economic growth using the Solow 

Growth Model and relying upon standard methods from the economic literature and updated 

data. I replaced the Board’s most pessimistic and unreasonable assumptions with realistic but 

conservative assumptions, even where more optimistic modeling choices are supported by 

economic evidence. Aside from that, for ease of comparison, I have adopted the Board’s 

assumptions, including its modeling of the impact of various fiscal spending policies, without 

any changes. As my projection shows, based on appropriate modeling and more realistic 

assumptions, Puerto Rico’s GNP is likely to continue on its current path of recovery and 

economic growth and finish the projection period, in FY2051, significantly higher than as 

predicted by the Board’s model. 

18. Separately, I consider whether a reduction (or “haircut”) on bondholders’ 

recovery of the size contemplated in the Plan of Adjustment may impair PREPA’s future access 

to credit markets on reasonable terms. Academic studies have shown that, in the sovereign debt 

context, haircuts on sovereign debt that are “inexcusable” result in reputational damage to the 

sovereign. A haircut is inexcusable if the amount is not justified by macroeconomic 

circumstances. If PREPA is capable of substantial or even full repayment of the PREPA bonds, 

then the haircut proposed by the Plan of Adjustment would be inexcusable. In that event, the 

“market punishment” dynamic observed in the sovereign debt context may occur here as well. 

The result could be that PREPA would face a higher cost of capital once it emerges from 

bankruptcy, and may even be excluded for a time from the capital markets.

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19. The Commonwealth has a history of interfering with PREPA servicing its debt, 

including (i) refusal to pay its overdue balances to PREPA; (ii) refusing to allow PREPA to 

increase rates to cover costs; (iii) involvement in management and personnel appointments; and 

(iv) sanctioning subsidies that reduce PREPA’s revenues. These interferences have limited the

revenues that PREPA has available to repay its debts. I conclude that market perceptions of the 

Commonwealth’s political interference in PREPA’s management and policies could also result 

in higher future borrowing costs. That is because lenders would demand a higher rate of return to 

compensate them for the higher risk associated with their loans. 

III. BACKGROUND

20. On December 16, 2022, the FOMB proposed a Title III Plan of Adjustment of 

PREPA, which was amended most recently (as of this report) on March 1, 2023 (the “Plan of 

Adjustment”).3 The Plan of Adjustment, and its background, are described in a Disclosure 

Statement amended most recently on March 1, 2023 (the “Disclosure Statement”).4 

21. The Plan of Adjustment proposes issuance of two new series of bonds to 

restructure PREPA’s debt.

5

 Payment for these bonds will come from revenues generated through 

a combination of volumetric and connection charges that differ based on customer classes 

3 “Puerto Rico’s Debt Restructuring Process,” Financial Oversight and Management Board for Puerto Rico. 

Accessed April 18, 2023, <https://oversightboard.pr.gov/debt/>.

4 See Disclosure Statement for Modified Second Amended Title III Plan of Adjustment of the Puerto Rico Electric 

Power Authority, dated March 1, 2023, and accompanying exhibits (henceforth, “Disclosure Statement”).

5 The new bonds include Series A and Series B bonds. The Series A bonds are for Fuel Line Lenders and would be 

issued in a principal amount corresponding to 84 percent of their claims. Fuel Line Lenders refers to lenders that 

provided financing to PREPA for the purchase of fuel (Disclosure Statement, p. 8 and p. 2, fn. 7). The Series B 

bonds are further divided in Series B-1 and B-2 Bonds. Series B-1 Bonds are current interest bonds with a six 

percent semi-annual interest rate and have the principal amount of $4.63 billion. Series B-2 Bonds are convertible 

capital appreciation bonds with a 6.75 percent annual interest rate and an original principal value of 

approximately $400 million (Disclosure Statement, at pp. 35-37).

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(“Legacy Charge”). The Plan of Adjustment postulates that, under various legal and economic 

scenarios, the highest recovery available to creditors from the debt restructuring is approximately 

66 percent.6

 

22. I understand that load projections for residential, commercial, industrial, and other

customers are inputs into calculating the amount of PREPA’s future revenues available for debt 

service. I understand further that these load projections use as inputs certain macroeconomic 

variables, including real GNP.

7

 The GNP projection that serves as an input into residential and 

industrial load projections is generated by what the Board calls the Economic Outlook Model 

(“EOM”), which is described in the 2022 Commonwealth Fiscal Plan.8

IV. THE GNP PROJECTION UNDERLYING THE PLAN OF ADJUSTMENT IS 

FUNDAMENTALLY FLAWED AND BIASED DOWNWARD

23. In this section, I review the methodology, assumptions, and inputs underlying the 

EOM, and explain my conclusion that the EOM is an inappropriate framework for long-term 

GNP projections. The EOM also omits key factors relevant to GNP growth, and makes

unjustifiably pessimistic assumptions about inputs that it does include. I show that these 

modeling choices generate a projection that the Puerto Rico economy will experience an

economic contraction that will persist for nearly three decades. That projection is implausible, 

6

 Disclosure Statement, Exhibit K, at p. 10.

7 Real GNP is an aggregate measure of economic output that is reported in dollars from a specific year—it is the 

product of the quantities of all goods produced in a given year and their prices from a previously determined 

“base year.” The need to fix prices arises from the fact that GNP is measured in dollars, so that changes in GNP 

from one year to the next result from a combination of changes in the quantities of goods that are produced and 

the prices of those goods. Thus, real GNP isolates the changes due to quantities by keeping the prices fixed over 

time. Nominal GNP is measured in current prices and does not isolate changes in quantities from changes in 

prices. (See, e.g., Mankiw, N.G., Principles of Macroeconomics (6th Edition). (Mason: Thompson South-Western 

Cengage, 2012), at pp. 201-204.) Throughout this report, GNP refers to real GNP.

8

 2022 Commonwealth Fiscal Plan, at p. 32 (“The baseline economic outlook model [..] forecasts real gross 

national product (GNP) growth”).

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and it is not supportable by the available data or accepted principles of macroeconomic 

modeling. The projected, ever-downward trajectory for Puerto Rico’s economy is contradicted 

by recent economic trends. Indeed, if Puerto Rico’s economic future played out through 

FY20519 as the EOM predicts, then its economic performance starting in FY2006 would be 

worse than any economic decline, in any country with a sufficiently long history of data for 

comparison, observed in modern history. 

24. The FOMB produced only a subset of the backup materials for the EOM and, as a 

result, my analysis is limited to the review of those materials that were available.

10 I reserve the 

right to update my analysis in response to any additional materials that are made available after 

this report is submitted.

A. The Economic Outlook Model 

25. The EOM begins its forecast in FY2018. That is, FY2018 is the first year for 

which the Board projects a GNP figure, despite the fact that at the time of the 2022 

Commonwealth Fiscal Plan’s publication, data through FY2020 was available. The EOM 

replaces projected values for FY2018-FY2019 with actual data from the 2020 Statistical 

9 FY refers to Fiscal Year, which is counted from July 1 to June 30, and is the unit of time for the EOM’s 

projection.

10 Examples of gaps in the backup materials include the codes and data to generate the coefficients in the linear 

regression discussed in Section IV.A.1.a and the backup for generating the assumptions of the model inputs 

discussed in Section IV.A.1.b. These materials are necessary for evaluating the reliability and robustness of the 

EOM’s estimated model parameters. I understand the Board provided certain components of the regression 

backup one day before this report was filed and I have not yet reviewed those materials. In addition, backup 

materials for certain assumptions related to fiscal policy modeling were not available to me, such as the backup 

for certain parameters related to the Cyclical Reversal (“distribution of fiscal policy cyclical unwinding (years)”

in Row 43 of Sheet “Macro Forecast” of the “January 2022 Fiscal Plan Model Certified (Dataroom) .xlsx”

workbook) and the COVID-19 income adjustment (in Rows 205-206 of Sheet “Macro Forecast” of the “January 

2022 Fiscal Plan Model Certified (Dataroom) .xlsx” workbook)) discussed in Section IV.A.3. Without more 

detailed information on these items, I am unable to evaluate the underlying assumptions for the EOM’s modeling 

of fiscal policy. 

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11 

Appendix when reporting its outputs, but it continues to rely on the projected values (not the 

actual data) for those fiscal years as inputs for purposes of generating its underlying trendline, 

which I describe below. Moreover, the EOM does not use actual data for FY2020 that was 

available at the time of the 2022 Commonwealth Fiscal Plan’s publication. Thus, the first year 

that a projected value is used is in FY2020, effectively. 

26. The EOM generates a projection for Puerto Rico’s GNP for FY2020–FY2051 in 

three steps, which are illustrated in Exhibit 1. 

Exhibit 1: EOM Real GNP Projections FY2020–FY205111

11 Note: Puerto Rico’s real GNP is reported in constant 1954 dollars. Source: 2022 Certified Commonwealth Fiscal 

Plan Excel Workbook (“January 2022 Fiscal Plan Model Certified (Dataroom) .xlsx”, Sheet “Macro Forecast”, 

Rows 15, 20-22, 25, 261, 264).

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12 

27. First, the EOM projects a trendline12 based on estimates of the historical 

relationship between GNP growth and several other variables, together with assumptions about 

the future paths of those variables. As shown by the blue line in Exhibit 1, the projected 

trendline predicts a steady long-term decline. Second, the EOM revises that trendline by adding 

an estimated impact of various planned structural reforms that aim to generate economic growth

(see the green line in Exhibit 1).

13 Third, the EOM purports to layer onto that revised trendline 

the further effect of various fiscal policies, including disaster relief funding, tax credits, spending 

reductions, and government efficiency measures. According to the EOM, these fiscal policies 

will be stimulative in the short-run and briefly generate growth, but over time will become 

contractionary and contribute to a long-term decline during most of the three-decade projection 

period. The red line in Exhibit 1 incorporates fiscal policies and is the final resulting GNP 

projection in the EOM. 

28. In the sections below, I discuss each of these three steps in more detail. I then 

explain how certain pessimistic assumptions regarding future investment and capital stock 

depreciation contribute to generating an improbable decline in future GNP. This decline is 

amplified by significant omissions from the EOM, including the assumption that infrastructure 

reform will provide no benefit to the economy.

12 The EOM projects GNP growth rates and then applies them to FY2019 GNP to generate GNP levels. The 

trendline is also projected in growth rates and can be similarly translated into levels.

13 2022 Commonwealth Fiscal Plan, at p. 26 (“The Oversight Board has stressed for the past five years that 

returning to economic growth requires structural reforms to enhance the reliability of power; improve educational 

outcomes, labor market participation and labor productivity; enhance the ease of doing business on the Island;

and generate more effective returns on capital investments and infrastructure. All of this aims to strengthen Puerto 

Rico’s competitiveness in the global marketplace, attract new private capital, create jobs, and ultimately improve 

life for residents of the Island.”).

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13 

1. Construction of the GNP Trendline

29. The EOM begins by extrapolating GNP growth more than 30 years into the future 

based on a statistical technique called a “linear regression.” A linear regression assumes that the 

historical relationship during a particular period of time between one variable (the “dependent 

variable”) and a set of other variables (the “independent variables”) is linear and, given that 

assumption, estimates how changes in the values of the independent variables relate to, or 

“correlate” with, changes in the dependent variable during that time period.14 The premise of the 

exercise is that the linear relationship between the independent variables and the dependent 

variable will carry on into the future. 

30. The EOM’s linear regression uses historical data from FY1965 to FY2017 to 

establish statistical relationships between the independent variables and the dependent variable 

of the regression model.

15 In this case, the dependent variable is historical GNP growth and the 

independent variables are summarized in Exhibit 2. 

14 See, e.g., Stock, J.H., and M.W. Watson., “Linear Regression with One Regressor,” Introduction to Econometrics 

(Third Edition). (Pearson: New York, 2015). A linear relationship means that the change in the dependent 

variable from a one-unit change in the independent variable is the same, regardless of the size of the independent 

variable. Non-linear models, in contrast, allow for the change in the dependent variable from a one-unit change in 

the independent variable to differ with the size of the independent variable. For example, if it is assumed that 

height (dependent variable) and age (independent variable) form a linear relationship, then increasing age by one 

year will have a constant impact on height, regardless of age. A nonlinear relationship may find that the increase 

in height is large for early years and zero after adulthood. 

15 Certain backup materials for the EOM’s regression results were produced by the FOMB only one day before this 

report was filed, but given the late production, I have not yet reviewed the materials. The 2022 Commonwealth 

Fiscal Plan, however, suggests that the regression results are based on this time period. (2022 Commonwealth 

Fiscal Plan, at p. 32: “The baseline economic outlook model, which forecasts real gross national product (GNP) 

growth, primarily relies on a comprehensive dataset of the Puerto Rican economy from 1965 to 2017.”). Although 

data through FY2020 was available at the time the 2022 Commonwealth Fiscal Plan was published, it is not used 

in the model estimation (the 2020 Statistical Appendix, dated March 30, 2021, contained preliminary estimates of 

FY2020 real GNP (Table 3)).

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14 

Exhibit 2: Independent Variables and Estimated Coefficients in the EOM Regression16

Independent Variable Coefficient

Past Values of GNP Growth

Previous Year’s GNP Growth 0.42% 

Structural Break in 2006 × Previous Year’s GNP Growth -0.28%

U.S. Economy 

U.S. GDP Growth 0.60%

Previous Year’s U.S. GDP Growth 0.39% 

Capital Stock

Capital Growth 0.43% 

Previous Year’s Capital Growth -0.21% 

Additional Control Variables

Change in World Oil Prices -0.0086% 

Change in Net Federal Transfer Payments 0.011% 

Storm Intensity -0.0015% 

Constant -0.023% 

31. Exhibit 2 also provides the coefficients for each of the independent variables that 

result from the linear regression model estimation.17 These coefficients represent the magnitude 

of the change in the dependent variable (GNP growth) in response to a one-unit change in a 

given independent variable. For example, a one percent increase in U.S. real GDP growth is 

estimated to correspond to a 0.6 percent increase in Puerto Rico’s real GNP. 

16 Notes: [1] Storm Intensity is defined as the damage caused by storms as a percentage of GNP. [2] Statistical 

significance of estimated coefficients is unknown because standard errors are not available. [3] Percent sign is 

included for exposition in the table. Source: 2022 Certified Commonwealth Fiscal Plan Excel Workbook 

(“January 2022 Fiscal Plan Model Certified (Dataroom) .xlsx”, Sheet “Macro Forecast”, Rows 149-158, Column 

D). 

17 Economists typically consider whether a variable’s coefficient is statistically significantly different from zero 

when evaluating its relevance and importance in a regression (see, e.g., Stock, J.H., and M.W. Watson, “Review 

of Statistics” Introduction to Econometrics (Third Edition). (Pearson: New York, 2015)). Because the 2022

Commonwealth Fiscal Plan Workbook contains only the coefficients and not the standard errors for those 

coefficients, I am unable to perform these tests and verify whether they are statistically significantly different 

from zero. (See 2022 Certified Commonwealth Fiscal Plan Excel Workbook (“January 2022 Fiscal Plan Model 

Certified (Dataroom) .xlsx”), Sheet “Macro Forecast,” Cells D149-D158.)

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Exhibit Page 17 of 118
15 

32. As shown in Exhibit 2, the EOM’s regression contains four broad categories of 

independent variables. First, Puerto Rico’s GNP growth in the previous year is modeled to have 

an impact on its GNP growth in the current year. The previous year’s GNP growth has a positive 

coefficient, which implies that if GNP contracted by one percent in the previous year, then GNP 

growth in the current year will be 0.42 percent lower. That is a statistical observation that the 

GNP growth variable is somewhat “persistent,” meaning that changes in GNP in one year are 

correlated with GNP changes in the same direction in the next year. 

33. Still in the same category, the other independent variable is also the previous 

year’s GNP growth, but this time interacted with a “structural break” variable that purportedly 

captures a change in the persistence of GNP growth after 2006.18 The Board does not explain 

why it assumes such a structural break, starting in 2006, in the relationship between GNP growth 

and previous year’s GNP growth, and data is not available to me to evaluate whether there is 

statistical evidence within the EOM’s linear regression to support that assumption.19 In any case, 

the coefficient calculated for this independent variable reflects that, starting in 2006, a one 

percent decline in GNP results in a 0.14 percent decline (rather than an 0.42 percent decline) in 

GNP in the following year.

20

34. The second category of independent variables shown in Exhibit 2 is meant to 

account for the impact of the U.S. economy on Puerto Rico’s GNP. The regression includes both 

18 See 2022 Certified Commonwealth Fiscal Plan Excel Workbook (“January 2022 Fiscal Plan Model Certified 

(Dataroom) .xlsx”), Sheet “Macro Forecast,” Cell AQ176 (“No structural changes after 2006”).

19 I understand the Board provided certain components of the regression backup one day before this report was filed

and I have not yet reviewed those materials.

20 The structural break term is equal to zero in all years before and including 2006 and then becomes one for all 

remaining years. Therefore, the coefficient on GNP growth is 0.42 – 0.28 × “structural break.” Because the 

structural break term equals zero before and including 2006, the coefficient on prior-year real GNP growth is 0.42

(i.e., 0.42 - 0.28 × 0 = 0.14) in those years, and after 2006, the structural break term becomes one so that the 

coefficient becomes 0.14 (i.e., 0.42 - 0.28 × 1 = 0.14).

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Exhibit Page 18 of 118
16 

current year U.S. GDP growth and the previous year’s value, and models that a one percent 

increase in U.S. GDP increases Puerto Rico’s GNP by 0.6 percent that same year and another 

0.39 percent the following year.

35. The third category of independent variables shown in Exhibit 2 includes growth 

in Puerto Rico’s capital stock in the current and previous years. Capital stock refers to “the stock 

of equipment and structures that are used to produce goods and services” in an economy.21 The 

coefficients associated with capital stock growth imply that a one percent increase in the capital 

stock increases GNP by 0.43 percent within the same year and reduces GNP by 0.21 percent the 

following year. 

36. Finally, the fourth category of variables shown in Exhibit 2 is a group of 

additional factors that the model finds to have a correlation with Puerto Rico’s GNP growth in 

the same year. The change in world oil prices has a negative coefficient, so that a one percent 

increase in world oil prices brings Puerto Rico’s GNP growth down by 0.01 percent in that year. 

The change in net federal transfer payments refers to the increase or decrease in the difference 

between transfers received and payments made to the federal government (for various programs 

such as, e.g., Unemployment Insurance, Medicare, and Social Security).

22 The growth of net 

federal transfer payments has a positive coefficient, so that a one percent growth in net federal 

transfer payments increases GNP by 0.01 percent. The storm intensity variable is constructed 

using estimates of damage, caused by hurricanes and the negative coefficient implies the higher 

21 See, e.g., Mankiw, N.G., Principles of Macroeconomics (6th Edition). (Mason: Thompson South-Western 

Cengage, 2012), at p. 241.

22 See, e.g., Statistical Appendix of the Economic Report for the Governor and Legislative Assembly, 2020, at 

Table 21.

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Exhibit Page 19 of 118
17 

the damage the more severe the resulting contraction in GNP.

23 This category also includes a 

constant term, which represents a baseline of Puerto Rico’s GNP growth: if there is no change in 

any of the other independent variables, Puerto Rico’s GNP growth declines by 0.023 percent. 

37. The EOM then uses the linear regression to predict a future GNP trendline. To 

project GNP growth starting in FY2018,24 the EOM forecasts each of the independent variables 

listed in Exhibit 2 and then multiplies them by the corresponding coefficients. That is, in each 

year in the projection from FY2018 to FY2051, GNP growth is calculated as the sum of each

independent variable’s forecast for that year multiplied by the corresponding coefficient (shown 

in Exhibit 2). The output of this exercise is a series of growth rates that generate the unmodified 

version of the EOM’s projected future GNP trendline, as depicted by the blue line in Exhibit 1.

25

The unmodified trendline predicts that, starting in FY2023, Puerto Rico will have negative GNP 

growth, year-after-year, through FY2051, for a cumulative decline in real GNP of 24 percent—a 

remarkable contraction in Puerto Rico’s economy in less than three decades. 

2. Structural Reforms

38. The 2022 Commonwealth Fiscal Plan describes five sets of structural reforms: 

(i) “Human capital and welfare reform” aims to incentivize participation in the labor force 

through tax incentives and offer programs that make the labor force more productive26; (ii) “K23 The storm intensity variable is calculated as the ratio of the damage from storms to nominal GNP. The coefficient 

is negative so that a storm that generates damage equal to one percent of nominal GNP decreases real GNP 

growth by 0.002 percent.

24 The 2022 Commonwealth Fiscal Plan mentions a “pre-hurricane trendline of Puerto Rico” in the description of 

the EOM (at p. 32), suggesting that the FY2017 cutoff intentionally ignores post-hurricane data.

25 Even though the linear regression projection starts in FY2018, to obtain the trendline, the growth rates projected 

by the linear regression are applied to real GNP starting in FY2019 because that is the last actual data point

produced in the EOM.

26 2022 Commonwealth Fiscal Plan, at Chapter 7.

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18 

12 education reform” includes various curriculum reforms and targeted investments to improve 

outcomes in schools and raise the quality of public schools27; (iii) “Ease of doing business 

reforms” overhauls various government procedures such as permit applications and tax 

collection, among other initiatives, to make Puerto Rico more business-friendly and spur 

growth28; (iv) “Power sector reform” aims to improve energy provision through better regulation 

and investment in renewable power generation29; and (v) “Infrastructure reform” will restructure 

management of transit assets and improve investment in the transportation network so that 

commute times decrease and the movement of people, goods, and services becomes more 

efficient.

30

39. The EOM revises the unmodified projected trendline, discussed in the previous 

section, to account for incremental GNP growth rates in future years from the anticipated 

economic effects of these planned structural reforms. Exhibit 3 shows the incremental projected 

GNP growth beyond that unmodified trendline that is associated with these five reforms. 

27 2022 Commonwealth Fiscal Plan, at Chapter 8.

28 2022 Commonwealth Fiscal Plan, at Chapter 9.

29 2022 Commonwealth Fiscal Plan, at Chapter 10.

30 2022 Commonwealth Fiscal Plan, at Chapter 11.

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19 

Exhibit 3: Cumulative Impact of Structural Policy Measures on Puerto Rico’s GNP

FY2018–FY205131

3. Fiscal Policy

40. The EOM also adjusts the GNP trendline to account for the anticipated impact of 

various proposed new fiscal policies. Each of these policies is modeled based on the dollar 

amount of government spending (or savings) that they represent. To reflect the effect of these 

31 Notes: [1] Human Capital and Welfare Reform refers to reforms “that will improve the well-being and selfsufficiency of all Puerto Rico residents, increase the quality and competitiveness of the workforce, enable 

investment, and facilitate the economic modernization of the Island.” [2] PPPs/Energy Reform refers to reforms 

“that will improve the availability, reliability, and affordability of energy for families and businesses.” [3] Doing 

Business Reform refers to reforms “that will improve conditions for economic activity and business vitality, 

attracting new investment and creating jobs.” [4] Infrastructure Reform refers to reforms “that will improve the 

flow of goods, services, information, and people across the Island.” Assumed to have no impact on GNP. [5] 

Education reform refers to reforms “that will position all students to succeed in school and upon graduation by 

raising the quality of the Island’s public schools.” Sources: [A] 2022 Certified Commonwealth Fiscal Plan Excel 

Workbook (“January 2022 Fiscal Plan Model Certified (Dataroom) .xlsx”, Sheet “Macro Forecast”, rows 132-

136). [B] 2022 Commonwealth Fiscal Plan, at p. 77.

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Exhibit Page 22 of 118
20 

positive or negative dollar amounts on GNP, the EOM applies a “fiscal multiplier.” A fiscal 

multiplier represents a measure of the amount by which government spending is assumed to have 

a multiplicative effect on the economy.

32 In the EOM, the fiscal multiplier is set to 1.34, so that 

$1 of fiscal spending increases GNP by $1.34.33 

41. With the exception of some portions of certain federal contributions (Earned 

Income Tax Credit, the Child Tax Credit, and the Supplemental Nutritional Assistance Program), 

which are modeled to have a permanent effect on GNP,34 the other fiscal policies accounted for 

by the EOM are assumed to have only a temporary effect. For those fiscal policies, the EOM 

reverses the policy’s effect on GNP growth over the next five years, using a mechanism it refers 

to as a “Cyclical Reversal.”35 For example, if a certain fiscal policy is modeled to boost the GNP 

growth rate by ten percent in year one, then a Cyclical Reversal would follow that up with 

approximately two percent declines in the GNP growth rate in each of the following five years.

42. In addition to the specific tax credits and assistance program mentioned above, 

the broad categories of fiscal policies considered by the EOM include spending associated with 

anticipated disaster relief funding (excluding some that flows into capital stock),

36 planned fiscal 

32 For example, when the government makes a purchase from a firm, the workers at that firm may receive additional 

earnings that they themselves spend on consumer goods. The producers of those consumer goods then gain extra 

earnings that they spend, and so on. (See, e.g., Mankiw, N.G., Principles of Macroeconomics (6th Edition). 

(Mason: Thompson South-Western Cengage, 2012), at p. 472).

33 2022 Certified Commonwealth Fiscal Plan Excel Workbook (“January 2022 Fiscal Plan Model Certified 

(Dataroom) .xlsx”), Sheet “Macro Forecast,” D144.

34 2022 Commonwealth Fiscal Plan, at pp. 30-31, and 2022 Certified Commonwealth Fiscal Plan Excel Workbook 

(“January 2022 Fiscal Plan Model Certified (Dataroom) .xlsx”), Sheet “Macro Forecast,” Cells M246, N246.

35 2022 Commonwealth Fiscal Plan, at p. 44 and 2022 Certified Commonwealth Fiscal Plan Excel Workbook 

(“January 2022 Fiscal Plan Model Certified (Dataroom) .xlsx”), Sheet “Macro Forecast,” Rows 43, 45.

36 Amounts from Disaster Relief Funding that flow into capital stock do not constitute the funds’ initial balance. 

Rates of pass-through are applied to the different types of Disaster Relief Funding to account for amounts 

directed to consumption. As a result, a portion of the Disaster Relief Funding ends-up flowing into capital stock, 

e.g., 84.5% of funding used to construct and repair utilities, 76.5% of funding employed to construct and repair 

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21 

measures aimed to make government more efficient,37 and income support during the COVID-19 

pandemic.38 

Exhibit 4: Fiscal Policies with Permanent Effect on GNP FY2022–FY202339

residential, commercial, school buildings, and programs and services. (See 2022 Commonwealth Fiscal Plan, at p.

38).

37 Planned fiscal measures include the net effect of revenue measures and expense measures. Revenue measures 

represent the increase in tax revenues and expense measures include the cost savings. The EOM considers the 

combined net impact of revenue and expense measures. That is, an increase in expenses (meaning, additional 

government spending) is modeled to have a positive impact on GNP, whereas an increase in revenues (meaning, 

additional taxes collected) is modeled to have a negative impact on GNP. See 2022 Commonwealth Fiscal Plan, 

at p. 44.

38 The impact of COVID-19 is modeled to purportedly account for both lost income due to unemployment and 

federal government income support rolled out during the pandemic. See 2022 Commonwealth Fiscal Plan, at p. 

35 (“The approach accounts for two primary factors, which are outlined below: (i) lost income from an enduring 

spike in unemployment, and (ii) the relative amount of income that will be replaced by extraordinary Federal 

Government support.”).

39 Notes: [1] The above fiscal policy measures only have a permanent impact on growth (i.e., not subject to cyclical 

reversals) for years 2022 and 2023. [2] The above fiscal policy measures are subjected to the 2022 

Commonwealth Fiscal Plan’s fiscal multiplier of 1.34.

Source: 2022 Certified Commonwealth Fiscal Plan Excel Workbook (January 2022 Fiscal Plan Model Certified 

(Dataroom) .xlsx”, Sheet “Macro Forecast”, Rows 15, 222, 231, 235, 244). 

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22 

43. The dollar amounts corresponding to fiscal policies that have a permanent effect 

on GNP are shown in Exhibit 4 for the two years in which they occur and those that have a 

temporary effect are shown in Exhibit 5. Some of the COVID-19 subsidy relief received over 

FY2020-2023 is modeled to be spent immediately and some of it is modeled to be saved and 

spent in later years.

40 The effect on GNP of those policies, together with the Cyclical Reversal is 

shown by the red line in Exhibit 1. 

Exhibit 5: Fiscal Policies with Temporary Effect on GNP FY2019–FY205141

40 2022 Commonwealth Fiscal Plan, at p. 43 (“[T]he 2022 Fiscal Plan estimates that around 60% of income support 

funding will be spent over the FY2020-FY2023 period. The remaining 40% of funds is projected to be saved 

and/or used to pay down debt, and then is spent over a 30-year period according to the long-term consumption 

smoothing concept.”).

41 Notes: [1] Fiscal Measures refers to the year-over-year change in the net impact of fiscal measures undertaken by 

the Puerto Rican government. [2] Other refers to annual spending on the CTC, or Child Tax Credit. [3] The above 

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23 

B. The EOM Predicts an Unprecedented Recession Worse than Anything 

Observed in Modern History

44. Before considering the multiple respects in which the Board’s EOM is unsuited to 

the task of projecting long-term economic growth, it is helpful to have in mind, as context, the 

actual path it predicts for Puerto Rico as shown in Exhibit 6. 

Exhibit 6: Historical and Projected Real GNP in Puerto Rico FY2000–FY205142

elements are subjected to the 2022 Commonwealth Fiscal Plan’s fiscal multiplier of 1.34. [4] Disaster Relief 

Funding is calculated as the sum of Net Impact of Relief Spending to Capital Stock and Net Impact of Relief

Spending external of Capital Stock, minus COVID-19 Relief and CTC annual spending (both of which are 

already included in the latter).

Source: 2022 Certified Commonwealth Fiscal Plan Excel Workbook (“January 2022 Fiscal Plan Model Certified 

(Dataroom) .xlsx,” Sheet “Macro Forecast,” Rows 120, 122, 124, 209, 230). 

42 Sources: [A] Statistical Appendix of the Economic Report for the Governor and Legislative Assembly, 2009-

2021, Table 3. [B] 2022 Certified Commonwealth Fiscal Plan Excel Workbook (“January 2022 Fiscal Plan Model 

Certified (Dataroom) .xlsx”, Sheet “Macro Forecast,” Row 25).

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Exhibit Page 26 of 118
24 

45. In particular, the EOM forecasts an economic decline that continues indefinitely 

and from which Puerto Rico never recovers (during the long forecast period, at least). To put this 

forecast into context, I studied worldwide historical recessions since 1960 and compared 

individual countries’ subsequent experiences to the EOM’s projections for Puerto Rico. My 

analysis shows that the EOM’s predictions of a sustained decline in the Puerto Rico economy is 

inconsistent with the recovery experienced by every country and territory in the world following 

an economic downturn between 1960 and 2021.

46. According to Puerto Rico’s Statistical Appendix, Puerto Rico’s real GNP began 

declining in FY2006, and as of FY2021 had experienced a cumulative decline of 22 percent.43

The World Bank maintains a database of historical economic indicators containing data for most 

countries worldwide back to 1960.44 I reviewed the World Bank’s database for all instances, 

since 1960, in which countries or territories experienced a cumulative decline in real GDP that 

was at least as large as Puerto Rico’s cumulative decline in real GNP. According to the data, 

between 1960 and 2021, 68 out of 216 countries or territories experienced a cumulative drop in 

real GDP of 22 percent or more between any two years in a 30-year time span. 

47. Exhibit 7 presents real GDP trajectories for these 68 countries starting with the 

first year of decline. Each series carries through to the latest available year of data, and is 

indexed to the first year of the decline. Exhibit 7 also shows Puerto Rico’s historical real GNP 

from FY2006 to FY2019 followed by the EOM’s forecasted real GNP from FY2020 through 

FY2051. As the exhibit shows, the overall trend forecasted by the EOM would result in a long 

43 Statistical Appendix of the Economic Report for the Governor and Legislative Assembly, 1989-2021, Table 3.

44 “World Development Indicators,” The World Bank, 2023. Accessed April 20, 2023, 

<http://data.worldbank.org/data-catalog/world-development-indicators>.

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Exhibit Page 27 of 118
25 

decline well below the observed historical trends of nearly all other countries.45 The fact that the 

EOM’s forecast for Puerto Rico’s economic future is such a clear outlier, compared to the postdecline economic trajectories historically experienced by the rest of the world, suggests that it is 

unreasonably pessimistic. 

45 The few countries that do not show relatively quick recoveries have substantially different circumstances than 

Puerto Rico. Syria’s initial decline in GDP corresponds with the start of ongoing civil war (see “Why has the 

Syrian war lasted 11 years?,” BBC News, March 15, 2022. Accessed April 20, 2023, 

<https://www.bbc.com/news/world-middle-east-35806229>). The Northern Mariana Islands have a much smaller 

population than Puerto Rico (less than 50 thousand inhabitants), and their economy is much less diverse, with 

about 50% of workers employed in tourism. (see “Northern Mariana Islands,” Gregorio Sablan. Accessed April 

20, 2023 <https://sablan.house.gov/our-district>). Ukraine experienced economic declines following the breakup 

of the USSR, and economic reforms were stalled due to “a large voting bloc that [was] strongly suspicious of 

further retreat of government from the economy,” and by Ukrainian oligarchs that “enjoy government-sanctioned 

monopolies” (See Dean, J., “Ukraine: Europe’s Forgotten Economy.” Challenge, 43, 6, 2000: 93-108, pp. 102-

103). Kiribati consists of 33 islands “scattered over a vast area of ocean” in the central Pacific (about 1,800 

miles), and the population is much smaller than Puerto Rico (less than 125 thousand) (See “Kiribati,” Britannica.

Accessed April 19, 2023, <https://www.britannica.com/place/Kiribati>). Georgia’s economic decline involved its 

transition from a Soviet republic and a civil war (See “Assessment of Development Results - Georgia,” United 

Nations Development Programme. Accessed April 20, 2023,

<https://www.oecd.org/countries/georgia/47861316.pdf>, p. 5).

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26 

Exhibit 7: Countries with Historical Decline in Real GDP Comparable to Puerto Rico’s 

Real GNP Decline Since FY200646

46 Notes: [1] The solid red line is Puerto Rico’s Real GNP according to the Statistical Appendix, and the dashed red 

line is the forecasted GNP from the 2022 Commonwealth Fiscal Plan. All other lines show the GDP (constant 

2015 U.S. Dollars) for countries according to the World Bank. [2] Puerto Rico experienced a 22.03 percent 

decline in its Real GNP between 2006 and 2021. Countries listed here have experienced a decline of over 22.03 

percent between any two years in a 30-year time span between 1960 and 2021. “Year 0” represents the first year 

of decline. For example, for Puerto Rico, “Year 0” is 2006. [3] 45 out of the 68 countries shown here (excluding 

Puerto Rico) had a last reported value greater than their Year 0 value. Of the 23 countries with a lower last 

reported value, only 11 have 10 years of data after Year 0. [4] Labeled countries have their Year 0 listed in 

parentheses. [5] Puerto Rico values from the 2022 Commonwealth Fiscal Plan and Statistical Appendix 

correspond to fiscal years. Values for other countries from the World Bank correspond to calendar years. 

Sources: [A] “World Development Indicators,” The World Bank, 2023. Accessed April 20, 2023, 

<http://data.worldbank.org/data-catalog/world-development-indicators>. [B] Statistical Appendix of the 

Economic Report for the Governor and Legislative Assembly, 1989-2021. [C] 2022 Certified Commonwealth 

Fiscal Plan Excel Workbook (“January 2022 Fiscal Plan Model Certified (Dataroom) .xlsx,” Sheet “Macro 

Forecast,” Row 25).

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Exhibit Page 29 of 118
27 

C. The EOM’s Modeling Framework is Unsuited for Projecting Puerto Rico’s 

GNP, and its Inputs are Unreliable

48. There is a well-established methodology in the field of macroeconomics for 

analyzing and projecting long-term growth in an economy. It comprises a bottom-up approach 

that is based upon the productive capacity of an economy, taking into account its capital, labor 

and productivity. The EOM either ignores, or departs from, this accepted methodology, which 

leads to unreliable results. In this section, I demonstrate that the methodology represented by the 

EOM is not suited for projecting Puerto Rico’s long-term GNP growth.

1. The EOM’s Regression-based Approach is Ill-Suited for Puerto Rico’s 

Long-Term Forecast

49. As discussed above, the EOM relies on a linear regression model to project a 

trendline over 33 years into the future. Generally speaking, it does that by (i) drawing statistical 

relationships between a set of independent variables, on the one hand, and actual historical GNP, 

on the other hand; (ii) predicting future values of the independent variables; and then 

(iii) assuming that observed historical correlation between the independent variables and GNP 

will persist, unchanged, for the next three decades. 

50. But the academic literature consistently warns that using a linear regression-based

model for the purposes of such forecasting is “dangerous” in general,47 and is especially so for 

47 Mansfield, E., Statistics for Business and Economics (Third Edition). (W. W. Norton & Company, Inc.: New 

York, 1980), at pp. 474–475 (“[R]egressions are sometimes used to forecast values... This procedure, known as 

extrapolation, is dangerous because the available data provide no evidence that the true regression is linear 

beyond the range of the sample data.”). Chatfield, C., Time-Series Forecasting. (Chapman & Hall/CRC: Boca 

Raton, 2000), at Section 1.3 (“[Time-series] forecasts can even go horribly wrong in the short-term when there is 

a sudden change or ‘structural break’ in the data.”). Armstrong, J.S., “Extrapolation for Time-Series and CrossSectional Data,” Armstrong, J.S. (ed.), Principles of Forecasting: A Handbook for Researchers and Practitioners. 

(Kluwer Academic Publishers: Norwell, 2001), at p. 17 (“The assumption underlying extrapolation is that things 

will continue as they have. When this assumption has no basis, large errors are likely.”).

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Exhibit Page 30 of 118
28 

long-term forecasts, where the assumption of a constant linear relationship over many years “gets 

very shaky.”48 Yet, as discussed in Section IV.A.1, this exercise of “extrapolation” is exactly the 

method the EOM uses to generate the trendline that is the basis for the GNP projection 

underlying the Plan of Adjustment. 

51. Using the coefficients estimated by a regression model over a historical time 

period to forecast over a future time period relies on two implicit assumptions. First, it assumes 

that the coefficients at issue are “estimated precisely” and are “stable,” such that although they 

were “estimated on one set of data [they] can be reliably used to make forecasts using other 

data.”49 If the selected coefficients are either incorrect or unstable, the forecast likewise will be 

unreliable. By modeling a structural break (see Section IV.A.2), the EOM’s linear regression 

assumes itself that its coefficients are not stable over time. Second, relying on a linear regression 

in this context assumes that “things will continue to move [in the future] as they have in the 

past.”50 As I discuss below, were it ever appropriate to rely on a linear regression to project 

growth in GNP, there must, at a minimum, be a sound basis for these two assumptions. In this 

case, however, neither of these two assumptions is reasonable in the context of a long-term 

economic projection for Puerto Rico. 

48 See, e.g., Ott, R. L., and Longnecker, M., An Introduction to Statistical Methods and Data Analysis (Sixth 

Edition). (Brooks/Cole: Belmont, 2010), at p. 596 (“Extrapolation...is often temping and always dangerous... It 

is based on the assumption of a linear relation, and that assumption gets very shaky for large extrapolations.”). 

See also Armstrong, J.S., “Extrapolation for Time-Series and Cross-Sectional Data,” Armstrong, J.S. (ed.), 

Principles of Forecasting: A Handbook for Researchers and Practitioners. (Kluwer Academic Publishers: 

Norwell, 2001), at p. 16 (“[Time-series regression] extrapolation is based on an assumption that things will 

continue to move as they have in the past. This assumption is more appropriate for short-term than for long-term 

forecasting.”).

49 Stock, J.H., and M.W. Watson, “Review of Statistics” Introduction to Econometrics (Third Edition). (Pearson: 

New York, 2015), at p. 332.

50 Armstrong, J.S., “Extrapolation for Time-Series and Cross-Sectional Data,” Armstrong, J.S. (ed.), Principles of 

Forecasting: A Handbook for Researchers and Practitioners. (Kluwer Academic Publishers: Norwell, 2001), at 

p. 16 (“[Time-series regression] extrapolation is based on an assumption that things will continue to move as they 

have in the past. This assumption is more appropriate for short-term than for long-term forecasting.”).

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Exhibit Page 31 of 118
29 

52. First, I have not reviewed the backup data supporting EOM’s linear regression 

model (that I understand was produced one day before this report was filed), and so I cannot 

comment on the precision of its coefficient estimates. However, as I explain in the following 

section, the chosen coefficients likely suffer from statistical bias because the EOM omits labor, 

an important factor of production, among its independent variables. Moreover, the reliability of 

the coefficients is further undermined by the fact that the historical data used to estimate them is 

itself unreliable. 

53. The unreliability of the data arises from the outdated accounting practices used by 

Puerto Rico’s Planning Board to measure Puerto Rico’s GNP and other econometric indicators.51

The U.S. Bureau of Economic Analysis (“BEA”), which calculates U.S. real GDP, has stated that 

Puerto Rico’s GDP calculation uses outdated methods and does not conform to international 

standards.52 Likewise, according to the U.S. Government Accountability Office (“GAO”), Puerto 

Rico’s Planning Board “uses outdated methods to calculate GDP, which results in unreliable 

data [...].”53 

51 The Planning Board publishes these economic series in a Statistical Appendix to an annual Economic Report to 

the Governor and the Legislative Assembly. (See “Statistical Appendix to the Economic Report to the Governor,” 

Puerto Rico Planning Board. Accessed April 25, 2023, <https://jp.pr.gov/apendice-estadistico-del-informeeconomico-a-la-gobernador>).

52 “Evaluation and Improvement of Puerto Rico’s National Economic Accounts,” Bureau of Economic Analysis, 

September 2011. Accessed April 19, 2023, <https://jp.pr.gov/wp-content/uploads/2021/09/Evaluation-andImprovement-of-Puerto-Ricos-National-Economic-Accounts-September-2011.pdf>, at pp. 2–5.

53 “Report by the President’s Task Force on Puerto Rico’s Status – Executive Summary,” March 2011, emphasis 

added. Accessed April 19, 2023, 

<https://obamawhitehouse.archives.gov/sites/default/files/uploads/Puerto_Rico_Task_Force_ExecSummary.pdf>,

at pp. 90–91; “Evaluation and Improvement of Puerto Rico’s National Economic Accounts,” Bureau of Economic 

Analysis, September 2011. Accessed April 19, 2023, <https://jp.pr.gov/wp-content/uploads/2021/09/Evaluationand-Improvement-of-Puerto-Ricos-National-Economic-Accounts-September-2011.pdf>, at pp. 4–5. “Puerto Rico 

- Limited Federal Data Hinder Analysis of Economic Condition and DOL’s 2016 Overtime Rule,” United States 

Government Accountability Office, June 2018. Accessed April 19, 2023, <https://www.gao.gov/assets/gao-18-

483.pdf>, at p. 1.

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30 

54. Further, a report from a bipartisan U.S. Congress task force explicitly identified 

potential flaws with Puerto Rico’s historical GNP data, noting that it “supports BEA’s efforts to 

help the government of Puerto Rico modernize its economic statistics programs, including the 

methods used to measure the island’s GDP (and GNP).”54 As shown in Exhibit 2, the previous 

year’s GNP growth is one of the independent variables used in the EOM’s regression, so any 

errors in the data generated by these oft-criticized, outdated practices have a direct effect on the 

reliability of the model’s coefficients and resulting projections.

55

55. Second, a bare minimum requirement for a regression to produce an accurate 

projection is a solid basis for assuming that the future will be similar to the past. But that 

assumption is not supportable here. Puerto Rico is undertaking significant structural reforms that 

are specifically intended to improve the island’s economic trajectory. The 2022 Commonwealth 

Fiscal Plan notes that these “transformational structural reforms” are intended to “change the 

nature of Puerto Rico’s economic development trajectory and provide the residents of the Island 

with a better and more prosperous future,” such that making these reforms will “transform the 

Island’s trajectory.”56

56. Therefore, it is unreasonable to assume that Puerto Rico’s economic future will 

behave like its past and doing so renders the EOM’s projections unreliable. In fact, the EOM’s 

54 Specifically, the BEA notes that GDP is valuable to modernize and track because it is not susceptible to the issue 

of production outside of the island and is therefore generally more appropriate for short-term analysis of the 

Puerto Rican economy. “Congressional Task Force on Economic Growth in Puerto Rico – Report to the House 

and Senate,” United States Congress, December 20, 2016, emphasis added. Accessed April 19, 2023, 

<https://www.finance.senate.gov/imo/media/doc/Bipartisan%20Congressional%20Task%20Force%20on%20Eco

nomic%20Growth%20in%20Puerto%20Rico%20Releases%20Final%20Report.pdf?platform=hootsuite> 

(emphasis added.)

55 For example, even a 0.1 percent estimation error that changes a 2.1 percent growth rate to 2.0 percent would 

imply a 5.7 percent difference in cumulative growth over a 31-year projection period.

56 2022 Commonwealth Fiscal Plan, at p. 342 (emphasis added).

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31 

failure to acknowledge the changes that structural reforms and disaster relief funding (“DRF”)

will bring to the behavior of Puerto Rico’s economy is an example of a modeling error discussed 

in Robert Lucas, Jr.’s seminal paper on constructing macroeconomic models, for which he 

received the Nobel Prize in Economics in 1995. The “Lucas Critique” argues that regression 

models like this are flawed because the nature of an economy changes in response to economic 

policies.

57 

57. True, the EOM adjusts its trendline to take account of the estimated impact of 

these structural reforms, as I described in Section IV.A.2. But those adjustments do not resolve 

the problem with more generally assuming linear stability over three decades of anticipated 

economic reform. Importantly, the trendline adjustments have no impact on the underlying 

predictions of a stable, statistical relationships among independent variables and GNP growth 

that are reflected by the coefficients shown in Exhibit 2. 

2. The EOM Entirely Omits a Key Driver of Economic Growth: Labor

58. GNP, which measures aggregate economic output—the total value of all goods 

and services produced in an economy—is determined by (i) the quantity of economic inputs and 

(ii) the economy’s ability to transform those inputs into outputs.58 The ability to transform inputs 

into outputs depends on the available production technology, which economists refer to as the 

“production function.”59 The inputs that enter the production function are called “factors of 

production” and “the two most important factors of production are capital and labor.”60 As 

57 Lucas, R.E., “Econometric Policy Evaluation: A Critique,” Carnegie-Rochester Conference Series on Public 

Policy, 1, 1976:19-46.

58 See, e.g., Mankiw, N.G., Macroeconomics (7th Edition). (Worth Publishers: New York,2010), at p. 47.

59 See, e.g., Mankiw, N.G., Macroeconomics (7th Edition). (Worth Publishers: New York, 2010), at p. 48.

60 See, e.g., Mankiw, N.G., Macroeconomics (7th Edition). (Worth Publishers: New York, 2010), at p. 47.

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32 

shown in Exhibit 2, the EOM’s linear regression does not include labor as an independent 

variable in its regression model, and, therefore, it necessarily ignores labor in its projection of the 

GNP trendline. 

59. Not accounting for one of the key drivers of economic growth renders the EOM’s 

forecast unreliable. In addition, excluding this relevant factor of production can lead to a serious 

statistical problem. If omitted variables (such as labor) are correlated with the independent 

variables that are included in a regression model, then the coefficients estimated in the 

regression model will suffer from “omitted variable bias.” That means that the size of the 

estimated effects of the included variables on GNP are likely to be different than their true 

effects.

61 If the coefficients are biased, then the projection based on those coefficients would not 

even reflect the true relationship based on historical data.62

60. For all of these reasons, I conclude that the EOM’s use of a linear regression to 

estimate Puerto Rico’s future growth in GNP through FY2051 is unreliable.

D. The EOM Makes Multiple Unreasonably Pessimistic Assumptions

61. In addition to the flawed modeling framework used by the EOM, several key

assumptions that go into the model are unreasonably pessimistic and not supported by data. In 

this section, I discuss how the EOM engineers the capital stock, one of its key inputs, to decline 

over time, and how it does not incorporate the growth impact of a specific productivity-boosting 

structural reform.

61 See., e.g., Wooldridge, J.M., Introductory Econometrics: A Modern Approach (5th Edition). (Mason: SouthWestern, Cengage Learning, 2013), at pp. 88-90.

62 I was not able to perform any sensitivity or robustness analysis on the EOM’s linear regression model because 

backup materials were not produced. I understand the Board produced certain backup materials related to the 

regression one day before this report was filed. I have not yet reviewed those materials.

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33 

1. The EOM Assumes a Declining Capital Stock

62. Of the “two most important factors of production” presented in Section IV.B.1, 

the EOM includes only one: capital stock. However, as shown in Exhibit 8, according to the 

EOM, after a steep drop in FY2018 to account for the damage from Hurricane Maria, the capital 

stock starts to recover, but then reverses trend and enters a long-term decline so that not only is 

Puerto Rico’s capital stock in FY2044 below its pre-hurricane value, but it declines another 

seven percent by FY2051. 

Exhibit 8: EOM Historical and Projected Capital Stock FY2016–FY205163

63 Source: 2022 Certified Commonwealth Fiscal Plan Excel Workbook (“January 2022 Fiscal Plan Model Certified 

(Dataroom) .xlsx”, Sheet “Macro Forecast”, Rows 15 and 189).

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34 

63. This type of stagnant growth followed by a long-term decline, were it actually to 

occur as forecast, would be unprecedented. In fact, however, the projected decline is driven by 

unreasonably pessimistic assumptions about investment and depreciation rates. 

Exhibit 9: Historical Path of Capital Stock for Countries that Ever 

Experienced a Decline in their Capital Stock64

64 Notes: [1] The solid red line is Puerto Rico’s historical capital stock and the dashed red line is Puerto Rico’s 

forecasted capital stock as given in the 2022 Commonwealth Fiscal Plan. All other lines show historic capital 

stock for countries that ever witnessed a decline in their capital stock. [2] Year 0 corresponds to the first year of 

maximum decline for each country. For Puerto Rico, Year 0 is 2016 corresponding to the first year of available 

data in the 2022 Commonwealth Fiscal Plan. [3] Labeled countries have their Year 0 listed in parentheses. [4] 124 

out of the 160 countries shown here (excluding Puerto Rico) had a last reported value greater than their Year 0 

value. Of the 36 countries with a lower last reported value, only 8 have 10 years of data after Year 0. [5] Puerto 

Rico values from the 2022 Commonwealth Fiscal Plan correspond to fiscal years. Values for other countries from 

the World Bank correspond to calendar years. Sources: [A] Feenstra, R.C. et al., “The Next Generation of the 

Penn World Table,” American Economic Review, 105, 10, 2015: 3150-3182. [B] 2022 Certified Commonwealth 

Fiscal Plan Excel Workbook (“January 2022 Fiscal Plan Model Certified (Dataroom) .xlsx,” Sheet “Macro 

Forecast,” Row 189).

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35 

64. To put in context the EOM’s assumed trajectory for capital stock, I analyzed 

historical capital stock trajectories for the period 1950-2019 across 180 countries. Exhibit 9

shows the historical path of capital stock for the 160 countries from that data that ever 

experienced a decline in capital stock between any two years in a 30-year time span. All capital 

stocks are indexed to 100 in the first year of decline so that they are comparable. 

65. The EOM’s projection of Puerto Rico’s capital stock is shown in red, and it is an 

obvious outlier. In fact, with the exception of Nigeria, no country has ever started to recover 

from an initial decline in capital stock and then reversed trend into a steady decline for so long.65 

66. The EOM divides total capital stock into two series—“capital stock, unrelated to 

storm” and “capital stock funded by reconstruction”—that are projected separately and then 

combined to produce “real capital stock after reconstruction spending.”66 The two main drivers 

of projected capital stock are the EOM’s assumptions about investment (which increases capital 

stock) and depreciation (which decreases it). The EOM assumes the same depreciation rate for 

both series of capital stock. That depreciation rate starts at 6.36 percent in FY2018 and increases 

linearly to 7.96 percent in FY2051. The EOM also reduces capital stock, by $3.9 billion in 

65 Other countries with a relatively long decline in their capital stock had faced significant political turmoil and yet 

their decline was shorter than the one projected for Puerto Rico. For instance, Nigeria’s capital stock began 

declining in 1985. This decline in one of Africa’s largest and most populous countries followed a political coup 

that overthrew the government in 1983, and then again in 1985, and caused political instability through 1999. 

Moldova’s capital stock declined between 1990 and 2011. The beginning of the decline in Moldova’s capital 

stock happened at the same time that the country unilaterally declared independence from the Soviet Union, 

leading to militant fighting and instability. (“Nigeria profile – Timeline,” BBC, February 18, 2019. Accessed 

April 19, 2023, < https://www.bbc.com/news/world-africa-13951696>; “Moldova country profile,” BBC,

February 20. Accessed April 19, 2023, < https://www.bbc.com/news/world-europe-17601580>)

66 2022 Certified Commonwealth Fiscal Plan Excel Workbook (“January 2022 Fiscal Plan Model Certified 

(Dataroom) .xlsx”), Sheet “Macro Forecast,” Cells C183, C186, and C189.

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36 

FY2018 and $158 million in FY2020, to capture the effect of damage caused by natural 

disasters.67

67. Investment in capital stock related to reconstruction is based on contributions 

from disaster relief funding, which comes from various sources (e.g., Federal Emergency 

Management Agency, Community Development Block Grant Program, Infrastructure Investment 

and Jobs Act) and is put toward rebuilding buildings and utilities that were damaged in 

hurricanes and earthquakes in FY2018-FY2020.68 Exhibit 10 shows the amount that is added to 

capital stock funded by reconstruction in each year. Contributions peak in FY2027 and decline to 

zero by FY2036.

67 2022 Certified Commonwealth Fiscal Plan Excel Workbook (“January 2022 Fiscal Plan Model Certified 

(Dataroom) .xlsx”), Sheet “Macro Forecast,” Cells I181, K181.

68 To contribute as investment in capital stock, the amounts from Disaster Relief Funding are deducted from a share 

of the funds (pass-through rates) that impact the economy through consumption of goods and services. The EOM 

assumes different pass-through rates for different types of funding. E.g., a 15.5% pass-through rate is assumed on 

$26,749M of funding used to construct and repair utilities, 23.5% on $32,349M of funding used to construct and 

repair residential, commercial, and school building, 23.5% on $21,878$M of funding directed towards programs 

and services. (See 2022 Certified Commonwealth Fiscal Plan Excel Workbook (“January 2022 Fiscal Plan Model 

Certified (Dataroom) .xlsx”), Sheet “DRF & Infrastructure,” Cells D16, D17, and D19) and 2022 Commonwealth 

Fiscal Plan, at p. 38).

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37 

Exhibit 10: Projected Impact of Investment in Reconstruction on 

Capital Stock FY2016–FY205169

68. Annual investment in the other capital stock (“unrelated to storm”) is fixed at the 

FY2017 value of $1.2 billion70 for the entire projection period FY2018-FY2051. I find no 

reasonable basis for that long-term, zero-growth assumption. Zero growth in future investment is 

inconsistent with Puerto Rico’s historical experience, which shows that investment grew at an 

average annual rate of 2.8 percent since 1965.71 Additionally, it is inconsistent with “ease of 

doing business reforms” that aim to attract new investments in Puerto Rico, as discussed in 

69 Source: 2022 Certified Commonwealth Fiscal Plan Excel Workbook (“January 2022 Fiscal Plan Model Certified 

(Dataroom) .xlsx”, Sheet “Macro Forecast”, Row 185).

70 The projected investment is below the actual value in FY2017 because the EOM relies on an outdated vintage of 

the Statistical Appendix.

71 Investment surged in FY2018 following Hurricane Maria. Excluding this surge, the average annual growth rate of 

investment from FY1965 to FY2017 was 2.3 percent.

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Section IV.A.2. Exhibit 11 shows historical investment as a solid line and the EOM’s fixed

projection of future investment as a dashed line.

Exhibit 11: Historical and Projected Capital Stock FY 1965–FY205172

69. Even as the EOM assumes zero growth in new investment after 2017, the amount 

of capital stock that it removes through depreciation grows over time because of an increasing 

depreciation-rate assumption. The EOM purports to rely on a study by the International 

Monetary Fund that reports depreciation rates for high-income countries in 1960 and 2016, and 

72 Notes: [1] The average annual growth rate of Gross Domestic Investment during the period of 1965 to 2021 is 2.8 

percent. [2] The Fiscal Plan forecasts Puerto Rico’s Gross Fixed Capital Formation to be constant at 1168.5 

million (in 1954 USD) from 2018 to 2051. Sources: [A] Statistical Appendix of the Economic Report for the 

Governor and Legislative Assembly, 1975-2021, Table 3. [B] 2022 Certified Commonwealth Fiscal Plan Excel 

Workbook (“January 2022 Fiscal Plan Model Certified (Dataroom) .xlsx,” Sheet “Macro Forecast,” Row 182).

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39 

assumes that the rates increased continuously over that time period, “from 2.5 percent in 1960 to 

4.55 percent in 2016, and from 4.25 percent to 7 percent for government and private assets, 

respectively.”73 The EOM projects forward linearly that same assumed trend of increasing 

depreciation rates through FY2049.74

70. Increasing rates of depreciation are associated with a transition from more basic 

technology, which depreciates more slowly, to more advanced technology, which tends to 

depreciate more rapidly.

75 For example, a concrete structure can last close to a century whereas 

computers have a lifespan of only a few years. So as an economy becomes more advanced and 

newer technologies (e.g., computers and software) form a larger share of its capital stock, the 

depreciation rate of the overall capital stock will tend to rise.

76 

71. However, the EOM applies the same increasing depreciation rate to the series of

capital stock funded by disaster relief funding as for all other capital stock. But I would expect 

the depreciation rate of capital stock funded by DRF to be lower than the depreciation rate that 

applies to other capital stock. First, according to the EOM, these are public assets, which have a 

lower depreciation rate, and second, this capital stock consists of buildings and utilities, which 

are slower-depreciating assets than, for example, computers and software. Furthermore, an 

increasing depreciation rate assumption for capital stock funded by DRF is inappropriate 

73 “Estimating Public, Private, and PPP Capital Stocks,” IMF Fiscal Affairs Department, May 2021. Accessed April 

21, 2023, <https://infrastructuregovern.imf.org/content/dam/PIMA/KnowledgeHub/dataset/InvestmentandCapitalStockDatabaseUserManualandFAQ_May2021.pdf>, at p. 4.

74 The EOM then uses the FY2049 depreciation rates in FY2050-FY2051.

75 Kamps, C., “New Estimates of Government Net Capital Stocks for 22 OECD Countries, 1960-2001,” IMF Staff 

Papers, 53, 1, 2006, at pp. 130-131.

76 “Estimating Public, Private, and PPP Capital Stocks,” IMF Fiscal Affairs Department, May 2021. Accessed April 

21, 2023, <https://infrastructuregovern.imf.org/content/dam/PIMA/KnowledgeHub/dataset/InvestmentandCapitalStockDatabaseUserManualandFAQ_May2021.pdf>, at p. 8.

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40 

because, rather than newer technologies forming a larger share of this capital stock over time, it 

will remain composed of buildings and utilities, year after year.77 

72. To summarize, the EOM assumes (without adequate basis) that the investment 

dollars to increase capital stock remain constant while the dollars subtracted from that capital 

stock through depreciation continuously increase. Those two assumptions, especially in 

combination, yield a declining capital stock over the long-term. I find no economic evidence to

support these two assumptions, either individually or taken together. The resulting net effect of 

capital-stock investments, on the one hand, and depreciation and damage on the other hand, are 

shown in Exhibit 8. Capital stock experiences a sharp decline in FY2018, grows until FY2032, 

and then declines for the remainder of the projection period. Again, that forecasted trajectory of 

declining capital stock would be virtually unprecedented.

2. There is No Basis for the EOM’s Assumption that Expected Infrastructure 

Reform Provides No Benefit

73. The EOM’s second unreasonably pessimistic assumption is that anticipated 

infrastructure reform in Puerto Rico will have no effect on economic growth. As discussed in 

Section IV.A.2, the EOM includes five structural reforms: Ease of Doing Business, Power 

Sector, Human Capital and Welfare, Education, and Infrastructure and Capital Investment. 

However, as shown in Exhibit 3, the EOM includes the incremental growth from only four of 

these five reforms, and fails to account for any growth driven by infrastructure reform, which 

77 The EOM takes the extreme position of continuing to increase the depreciation rate of capital stock funded by 

DRF post-FY2023, even after no additional investment is added and the share of quickly depreciating assets 

cannot change. See 2022 Certified Commonwealth Fiscal Plan Excel Workbook (“January 2022 Fiscal Plan 

Model Certified (Dataroom) .xlsx,” Sheet “Macro Forecast,” Rows 185 and 187).

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41 

aims to revitalize Puerto Rico’s transportation sector.

78 Although the 2022 Commonwealth

Fiscal Plan notes that Infrastructure Reform “will improve the flow of goods, services, 

information, and people across the Island,”79 the EOM nevertheless assumes—without 

explanation—that this reform will contribute absolutely nothing to economic growth.80 But in 

fact, any infrastructure improvement will generate long-lasting efficiency gains that will resonate 

through the entire economy given the vital role of transportation to business development and 

prosperity. 

74. Economic theory and empirical research show that public investments in 

infrastructure will add to economic growth, not just by increasing productivity,81 but also by 

encouraging firms to invest (a mechanism known as “crowding-in”) and thus further increasing 

growth.82 The EOM omits both the general productivity boost from planned infrastructure

improvements and this additional crowding-in effect. And it does so even though both positive 

78 2022 Commonwealth Fiscal Plan, at Chapter 11.

79 2022 Commonwealth Fiscal Plan, p. 77.

80 2022 Certified Commonwealth Fiscal Plan Excel Workbook (“January 2022 Fiscal Plan Model Certified 

(Dataroom) .xlsx,” Sheet “Baseline Assumptions,” Rows 54 and 62.

81 See, e.g., Farhadi, M., “Transport infrastructure and long-run economic growth in OECD countries,”

Transportation Research Part A: Policy and Practice, 74, 2015: 73-90 (“[A] 10% increase in the share of the

transportation infrastructure expenditure increases the labour productivity of the OECD countries by 0.14 

percentage point”). See also Khanna, R., and Chandan Sharma., “Does infrastructure stimulate total factor 

productivity? A dynamic heterogeneous panel analysis for Indian manufacturing industries,” The Quarterly 

Review of Economics and Finance, 79, 2021: 59-73 (“[An] aggregate measure of infrastructure stock suggests 

that 1 percent increase in the infrastructure measure results in TFP growth by 0.16 percentage points.”).

82 Friedman, B.M., “Crowding Out or Crowding In? Economic Consequences of Financing Government 

Deficits,” Brookings Papers on Economic Activity, 1978, 3, 1978: 642-654; Eden, M. and A. Kraay, “‘Crowding 

in’ and the Returns to Government Investment in Low-Income Countries,” The World Bank, Policy Research 

Working Paper, 2014, <https://doi.org/10.1596/1813-9450-6781> (“[A]n additional dollar of government 

investment causes private investment to increase by around 2 dollars, and output by around 1.5 dollars.”).

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42 

effects are described in the 2022 Commonwealth Fiscal Plan.83 I find no basis in the economic 

evidence for this assumption. 

E. Relevant Economic Indicators Strongly Suggest that Puerto Rico is well into 

Recovery from the Decline that Started in 2006 

75. It is apparent from the general downward trend of the EOM’s projection (see 

Exhibit 6) that the EOM projects Puerto Rico’s economy to decline year after year through 

2051. Although the EOM shows a temporary rise in GNP in the short-term, it assumes that 

Puerto Rico will never recover from the economic downturn that began in 2006. In this section, I 

demonstrate that recent historical trends in various economic indicators do not support this 

hypothesis. 

76. The beginning of Puerto Rico’s economic decline in 2006 coincided with the 

phasing out of Section 936 of the U.S. tax code, which had provided tax exemptions for certain 

U.S. corporations with business operations in Puerto Rico.84 Manufacturing of pharmaceuticals 

and other “high-profit, easily transportable items” were encouraged by this tax provision to 

locate and expand operations in Puerto Rico.85 Shortly after its phase-out, Puerto Rico was also 

hit by the 2008 global financial crisis. A significant economic decline ensued, but more recent 

evidence points to a strong recovery that is well underway.

83 2022 Commonwealth Fiscal Plan, at p. 154 (“A well-performing [transportation] system can increase workers’ 

access to jobs and businesses’ access to customers, unlocking the productive potential of residents and firms, 

thereby increasing economic output and inviting further private investment,” (emphasis added.)

84 2022 Commonwealth Fiscal Plan, at p. 19. 

85 Bram, J. et al., “Trends and Developments in the Economy of Puerto Rico,” Federal Reserve Bank of New York, 

Current Issues in Economics and Finance Second District Highlights, 14, 2, 2008, at p. 3.

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43 

77. For example, Exhibit 12 shows the Economic Activity Index published by Puerto 

Rico’s Economic Development Bank, and which in recent years has reversed trends despite 

major hurricanes, earthquakes, and a pandemic. 86

Exhibit 12: Economic Activity Index, January 2000–January 202287

78. Exhibit 13 shows unemployment, which has been steadily declining for over a 

decade and is currently near all-time lows. 

86 The Economic Activity Index is a monthly economic indicator that is highly correlated with Puerto Rico’s real 

GNP. See “The Puerto Rico Economic Activity Index (EDB-EAI),” March 30, 2023. Accessed on April 25, 2023,

<https://www.bde.pr.gov/BDE/PREDDOCS/EDB-EAI.pdf>.

87 Source: “The Puerto Rico Economic Activity Index (EDB-EAI),” March 30, 2023. Accessed on April 25, 2023,

<https://www.bde.pr.gov/BDE/PREDDOCS/EDB-EAI.pdf>.

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44 

Exhibit 13: Monthly Unemployment Rate, January 2000–February 202388

79. Importantly, part of the improvement in the labor market has been due to a 

growing labor force participation rate since 2015 (Exhibit 14), which signals an important 

structural recovery in the labor market. 

88 Note: Monthly Unemployment Rate for Puerto Rico from FRED is missing data for March and April of 2020. 

Source: “Unemployment Rate in Puerto Rico [PRUR],” U.S. Bureau of Labor Statistics and FRED, Federal 

Reserve Bank of St. Louis. Accessed April 24, 2023, <https://fred.stlouisfed.org/series/PRUR>.

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45 

Exhibit 14: Labor Force Participation Rate, Puerto Rico 2000–201989

80. Exhibit 15 shows Puerto Rico’s Housing Price Index, which reveals that price 

declines that started during the global financial crisis have reversed course several years ago and 

began to increase.

89 Note: The labor force participation rate corresponds to the population between the ages of 15 and 64 and is 

estimated by the International Labour Organization (ILO). Source: “World Development Indicators,” The World 

Bank, 2023. Accessed April 20, 2023, <http://data.worldbank.org/data-catalog/world-development-indicators>.

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Exhibit Page 48 of 118
46 

Exhibit 15: Quarterly Housing Price Index in Puerto Rico 2000–202290

81. Lastly, even manufacturing employment has reversed its prior downward-sloping 

trend over the last several years (see Exhibit 16), which is inconsistent with the hypothesis that 

the 17-year-old repeal of Section 936 continues to affect manufacturing.

90 Note: The Housing Price Index is estimated using sales prices and appraisal data, and it is not seasonally 

adjusted. Source: “House Price Index Datasets,” Federal Housing Finance Agency, 2023. Accessed April 21, 

2023, <https://www.fhfa.gov/DataTools/Downloads/Pages/House-Price-Index-Datasets.aspx>.

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47 

Exhibit 16: Manufacturing Employment, Puerto Rico 2000–202291

82. These observations are consistent with a recent report from the New York Federal 

Reserve, which notes that Puerto Rico’s economic downturn ended in 2017. “Since then, the 

economy has been growing interrupted only briefly by a steep drop early in the pandemic [from 

which] the economy bounced back strongly.”92 The report also notes that “as of mid-2022, 

private-sector employment was at a fifteen-year high” and Puerto Rico “has made great progress 

91 Note: Reported annual values are calculated by taking the average of manufacturing employment across all 

months of a given year. Source: “Puerto Rico Economy at a Glance,” U.S. Bureau of Labor Statistics, 

Manufacturing Excel Workbook (“SeriesReport-20230418200059_ddd172.xlsx,” Sheet “BLS Data Series”, Rows 

13-36). Accessed April 21, 2023, <https://www.bls.gov/eag/eag.pr.htm#eag_pr.f.3>.

92 “Puerto Rico Economic Indicators,” New York Federal Reserve, April 19, 2023. Accessed April 20, 2023, 

<https://www.newyorkfed.org/medialibrary/media/research/regional_economy/charts/Regional_PuertoRico> at p. 

1.

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48 

in resolving and rebounding from its extensive fiscal crisis.”93 Moreover, a recent presentation 

from the Puerto Rico Fiscal Agency and Financial Advisory Authority (AFAAF) highlighted 

Puerto Rico’s strong fiscal position and higher-than-expected revenue collections.94 Government 

officials also recognize these changing trends.

95

83. The economic indicators discussed above demonstrate that Puerto Rico is on the 

upswing of a recovery, rather than on a continued path of decline. 

F. The GNP Projection Underlying the Plan of Adjustment Fails to Account for

Certain Growth-Generating Fiscal Policies Contained in the EOM

84. I understand that the load projection that forms the basis for the Plan of 

Adjustment is based on an even lower GNP projection than the already-understated one that I 

have discussed above.96 Exhibit 17 shows, on the same graph, the EOM’s GNP projection (solid 

red line) and the even lower GNP projection relied upon by the Plan of Adjustment (dashed red 

line). 

93 “Puerto Rico Economic Indicators,” New York Federal Reserve, April 19, 2023. Accessed April 20, 2023, 

<https://www.newyorkfed.org/medialibrary/media/research/regional_economy/charts/Regional_PuertoRico> at p. 

1.

94 See Marrero, O.J. “Investor Presentation Fiscal & Economic Progress Update,” Presentation at JP Morgan High 

Yield Conference, March 7, 2023, at p. 9 (“Since filing for Title III in 2017 Commonwealth cash levels have 

improved significantly, driven by General Fund revenue outperformance, expense measures and the moratorium 

on debt service payments, despite Hurricanes Irma and Maria, the 2019 and 2020 earthquakes and the COVID 19 

pandemic.”) and p. 13 (“General Fund Net Revenues have grown at a 6.5% CAGR from FY 2017 through FY 

2022 despite numerous catastrophes that have plagued the island over this time. Increased compliance in SUT, 

PIT and CIT have driven revenues to the highest ever in Puerto Rico.”).

95 See Full Committee Meeting to Examine the State of the U.S. Territories,” Written Submission, U.S. Senate 

Committee on Energy and Natural Resources, Government of Puerto Rico, February 9, 2023. Accessed April 27, 

2023, <https://www.energy.senate.gov/services/files/A1843597-5C10-4578-B100-2261CDE0649A> at p. 1 (Gov. 

Pierluisi proclaimed that Puerto Rico “has entered a new era of economic progress and optimism,” and noted that 

“all economic indicators have consistently been on the rise during the past two years.”).

96 The GNP data used in the load projection underlying the Plan of Adjustment (See Tierney Expert Report, 

Appendix C) corresponds to the GNP data in Row 264 of the “Macro Forecast” Sheet in the 2022 Certified 

Commonwealth Fiscal Plan Excel Workbook (“January 2022 Fiscal Plan Model Certified (Dataroom) .xlsx”).

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49 

Exhibit 17: Projections of Real GNP from the EOM Model FY2021–FY205197

85. The 2022 Commonwealth Fiscal Plan explains that the lower projection omits the 

EOM’s modeling of both the income loss and the unemployment-insurance benefits related to 

COVID-19, which have a net positive effect on GNP, as shown by the solid line.

98 Neither the 

2022 Commonwealth Fiscal Plan, the 2022 PREPA Fiscal Plan, nor the Plan of Adjustment or its 

97 Note: The EOM model’s real GNP projection without income adjustments is used by PREB (Puerto Rico Energy 

Bureau) for load forecasting. Source: 2022 Certified Commonwealth Fiscal Plan Excel Workbook (“January 

2022 Fiscal Plan Model Certified (Dataroom) .xlsx,” Sheet “Macro Forecast,” Rows 25 and 264).

98 See 2022 Commonwealth Fiscal Plan, at p. 32 (“While economic activity was severely reduced, extraordinary 

unemployment insurance and other direct transfer programs more than offset the estimated income loss due to 

less activity. As a result, personal income has temporarily increased on a net basis. The 2021 Fiscal Plan 

incorporated a real growth series that was adjusted for these short-term income effects for the purposes of 

forecasting tax receipts. The increased level of income is associated with higher levels of consumption and 

income tax collection in the short-term. The 2022 Fiscal Plan maintains this adjustment.”). See also, Letter from 

Proskauer, In re: The Financial Oversight and Management Board For Puerto Rico, as Representative of Puerto 

Rico Electric Power Authority, No. 17-04780-LTS, dated April 17, 2023 (“Row 261 is produced by removing the 

net income effects from the COVID-era federal income support programs, which are explained on page 32 of the 

2022 Fiscal Plan, and re-calculating the GNP growth series.”). I provide the values of both of these data series in 

Appendix C.

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50 

Disclosure Statement provide any explanation why these growth-generating contributions to the 

GNP forecast should be omitted from projections underlying the Plan of Adjustment.

V. A SOLOW GROWTH MODEL IS BETTER SUITED TO MODELING PUERTO 

RICO’S FUTURE GNP AND PREDICTS A HIGHER AND MORE 

REASONABLE FUTURE TRAJECTORY

86. I explain above (Section IV.C) why the linear regression methodology used by the 

EOM to project a future GNP trend line is both contrary to accepted methodology and unsuited 

to the task. In this section, I present the Solow Growth Model (“SGM”), which is an economic 

model that is commonly used for long-term economic projections and that does not suffer from 

the flaws affecting the EOM’s framework. At a high level, the SGM projects a future path of 

GNP based on the productive capacity of an economy, i.e., how much output the economy can 

generate based on future available inputs. Such a future path of GNP is referred to as “Potential 

Output” and is similar to what the EOM’s trendline (discussed in Section IV.A.1) attempts to 

capture. Indeed, the EOM’s backup materials refer to the trendline growth rate as “Potential

GNP growth.”99

87. The SGM directly incorporates productivity-boosting structural reforms into the 

estimate of Potential Output, rather than adding them in afterward, as the EOM attempts to do. 

As explained below, directly incorporating Puerto Rico’s structural reforms into a model of its 

Potential Output captures additional economic gains because higher output generates more 

capital stock, which in turn contributes to even higher output (and so on). 

99 2022 Certified Commonwealth Fiscal Plan Excel Workbook (“January 2022 Fiscal Plan Model Certified 

(Dataroom) .xlsx”), Sheet “Macro Forecast,” Cell C140, emphasis added.

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51 

88. The SGM is a supply-side model and does not incorporate the short-term

fluctuations captured by various fiscal policies (see Section IV.A.3) that affect aggregate demand 

and can push output above or below its “potential.” These types of policies are typically 

quantified using more complex simulation models with heavier data requirements, but for the 

purpose of exposition and ease of comparison, I adopt the EOM’s modeling assumptions and 

estimated impact of the fiscal policies (as described in Section IV.A.3). My adoption of these 

modeling choices facilitates a comparable forecast that includes the same considerations 

(including short-term impacts of fiscal policies). It does not imply that I believe these modeling 

choices to be reasonable—I have not received sufficient information at this time to be able to 

form an opinion on the EOM’s modeling of fiscal policies. 

89. As discussed below, the assumptions I make for inputs into the SGM are 

conservative and, to the extent possible, rely on descriptions and calculations within the 2022 

Commonwealth Fiscal Plan and the EOM. Combined with these assumptions, the SGM predicts 

a significantly more optimistic future trajectory for GNP compared to the one generated by the 

EOM. 

A. The Solow Growth Model Description

90. The Solow Growth Model is a well-established and widely accepted methodology 

and the “starting point” for analyzing long-run growth.100 This SGM methodology was 

developed by Robert Solow, who won the Nobel Prize in 1987101 for his contributions to

100 Romer, D., “The Solow Growth Model,” Advanced Macroeconomics (4th Edition). (McGraw-Hill: New York, 

2012), at p. 8 (“The Solow model is the starting point for almost all analyses of growth.”).

101 “The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1987,” The Nobel Prize, 21 

October, 1987. Accessed April 20, 2023, <https://www.nobelprize.org/prizes/economic-sciences/1987/pressrelease/>.

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52 

studying long-term economic growth.102 Since that time, it has become the workhorse for 

analysis of growth and continues to serve as both the standard model used in economic research 

and for economic analysis by various reputable organizations around the world, including the 

Congressional Budget Office, the World Bank, and Goldman Sachs.103 

91. The SGM identifies three primary drivers of long-run economic growth: capital, 

labor, and total factor productivity (“TFP”).104 Labor refers to the size of the human labor force 

that is able and willing to work.105 Capital refers to tools, machines, and other equipment used by 

the workers to generate output. TFP represents advances in productivity and a population’s 

understanding of the best ways to produce goods and services. Advancements in TFP can arise 

from various developments such as new tools and inventions (e.g., light bulbs), or improvements 

in company organization (e.g., the use of assembly lines in the production of vehicles).106 These 

drivers of growth are modeled to interact in a dynamic system where, for example, an increase in 

102 Solow, R.M., “A Contribution to the Theory of Economic Growth,” The Quarterly Journal of Economics, 70, 1, 

1956: 65-94, at pp. 65–94.

103 See “Long Term Growth Model (LTGM v4.3) - Model Description,” The World Bank. Accessed April 24, 2023, 

at p. 1 <>. See also, Shackleton, R., “Estimating and Projecting Potential Output Using CBO’s Forecasting 

Growth Model,” Congressional Budget Office, Working Paper, 3, 2018, at p. 6. See also, Wilson, D., “Dreaming 

with BRICs: The Path to 2050,” Goldman Sachs Global Economics Paper No: 99, 2003 at p. 18.

104 Caselli, F., “Accounting for Cross-Country Income Differences,” Aghion, P. and S. N. Durlauf (ed.), Handbook 

of Economic Growth (Volume 1A). (Elsevier: North Holland, 2005), at p. 5; See also Acemoglu, D., “The Solow 

Growth Model”, Introduction to Modern Economic Growth. (Princeton University Press: Princeton, 2009), at p. 

28.

105 With more education and training, workers become more efficient. Subsequent versions of Solow-based growth 

models also incorporate the level of education, or “human capital,” of the population. (See e.g., Caselli, F., 

“Accounting for Cross-Country Income Differences,” Aghion, P. and S. N. Durlauf (ed.), Handbook of Economic 

Growth (Volume 1A). (Elsevier: North Holland, 2005), at p. 5).

106 See, e.g., Mankiw, N.G., “Production and Growth,” Principles of Macroeconomics (6th Edition). (Mason: 

Thompson South-Western Cengage, 2012), at p. 240 (“A worker with only basic hand tools can make less 

furniture each week than a worker with sophisticated and specialized woodworking equipment.”), at p. 242 

(“Technological knowledge takes many forms. Some technology is common knowledge—after one person uses 

it, everyone becomes aware of it. For example, once Henry Ford successfully introduced production in assembly 

lines, other carmakers quickly followed suit.”).

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53 

TFP generates more output, which in turn creates more investment that then spurs growth in the 

capital stock.

92. The SGM is used to project future GNP, based upon the interaction between these

fundamental drivers of growth in a “production function.” The production function describes the 

relationship between the quantity of inputs and the quantity of output from production.107 In the 

following paragraphs, I summarize how an economy’s evolution is modeled in the SGM. 

93. At a high level, in the SGM, an economy evolves in the following way. First, 

given some level of output, or GNP, a portion is saved for investment and the remainder is 

consumed by the population. The amount saved for investment is used to increase capital, which 

also decreases each period due to depreciation.108 The outcome of these opposing forces—

investment and depreciation—generates the amount of capital available for production in the 

next period.

94. Labor is the number of workers available in any given period and is determined 

by several factors. Starting with the total population, the number of workers captures individuals 

that are actively participating in the labor market. The effectiveness of any number of workers 

may be augmented by gains from education, or human capital, as workers with higher education 

or more training are generally more productive.

109

107 Romer, D., “The Solow Growth Model,” Advanced Macroeconomics (4th Edition). (McGraw-Hill: New York, 

2012), at p. 10.

108 In an open economy, domestic savings may be supplemented by foreign investment, which is how, for example, 

disaster relief funding can be captured in the model.

109 See e.g., Acemoglu, Daron. Introduction to Modern Economic Growth. (Princeton University Press: Princeton, 

2009), at pp. 359–363.

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54 

95. The last input, TFP, represents the efficiency with which labor and capital are 

used in the economy. In other words, TFP tells us how much output a given amount of labor and 

capital will produce. Historically, productivity gains from advancements in technology and 

general knowledge have been substantial, allowing economies to produce vastly more goods and 

services with the same amount of capital and labor. For example, farming was once a very laborintensive industry, employing a large portion of the population. Over time, advancements in 

knowledge (related to both mechanical technology as well as biotechnology) allowed the 

agricultural sector to drastically reduce its labor requirement while at the same time maintaining 

a high level of output.

110 In general, knowledge has grown and improved over time and this trend 

is expected to continue into the future. Moreover, knowledge improvements in one country are 

often transferrable to other countries, so the level of TFP within a country can continue to grow 

even if that country is not, itself, contributing to those advancements. 

96. Once calculated, the quantities of labor and capital are combined with TFP in the 

SGM to generate output for the next period. Part of that output is saved and invested, the 

remainder is consumed, and the process is repeated. 

B. The Solow Growth Model with Reasonable Assumptions Projects a Higher

Future Path for Puerto Rico’s GNP

97. Applying the SGM to Puerto Rico requires choosing a specific production 

function (“model specification”) and estimating all the relevant model parameters and future 

paths of the inputs (“model parameterization”). I describe each of these components below.

110 Mankiw, N.G., “Production and Growth,” Principles of Macroeconomics (6th Edition). (Mason: Thompson 

South-Western Cengage, 2012), at p. 242 (“A hundred years ago, most Americans worked on farms because farm 

technology required a high input of labor to feed the entire population. Today, thanks to advances in farming 

technology, a small fraction of the population can produce enough food to feed the entire country.”).

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1. SGM Specification

98. Since its development, there have been many modifications of the SGM in the 

academic literature, which incorporate various adaptations of the original version of the 

model.111 I use the version presented in the Handbook of Economic Growth and actively used by 

the World Bank and the Penn World Tables.

112 A richer data environment may warrant a more 

complex model, such as the one used by the U.S. Congressional Budget Office (CBO),

113 but 

given the data availability for Puerto Rico, the foundational SGM is most appropriate.

99. As mentioned above, to predict future output, the SGM relies on two equations

that summarize: (1) a mathematical representation of the production function and (2) a

mathematical representation of how capital stock changes over time (“the law of motion of 

capital”). The production function captures how workers utilize capital to produce output, as 

represented by the equation below:

GNP = TFP × Capital Stock(α) × (Human Capital Index × # Workers)

(1-α)

100. In this equation, “TFP” is a measure of the overall level of knowledge and 

technology in the economy; “Capital Stock” refers to the level of capital in the economy; “# 

Workers” is the subset of the population that is both of working age and part of the labor force; 

111 See, e.g., Romer, D., “The Solow Growth Model,” Advanced Macroeconomics (4th Edition). (McGraw-Hill: 

New York, 2012).

112 Caselli, F., “Accounting for Cross-Country Income Differences,” Aghion, P. and S. N. Durlauf (ed.), Handbook 

of Economic Growth (Volume 1A). (Elsevier: North Holland, 2005). Inklaar, R. and M. P. Timmer, “Capital, labor 

and TFP in PWT8.0.” University of Groningen, 2013. Pennings, S., “Long Term Growth Model (LTGM v4.3) -

Model Description,” The World Bank, May 12, 2020. Accessed April 24, 2023,

<https://thedocs.worldbank.org/en/doc/133191589476085869-0050022020/original/ModelOutlineV43.pdf>. See 

also, Hall, R.E., and C.I. Jones, “Why do some countries produce so much more output per worker than others?,” 

The Quarterly Journal of Economics, 114, 1, 1999: 83-116.

113 Shackleton, R., “Estimating and Projecting Potential Output Using CBO’s Forecasting Growth Model,”

Congressional Budget Office, Working Paper, 3, 2018.

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56 

“Human Capital Index” is an education-based measure of worker efficiency; and “α” and “1-α”

are the relative contributions of capital and labor, respectively, to the production process.

101. The second equation, the law of motion for capital, describes the dynamic 

evolution of the capital stock over time in response to both new investment as well as the

depreciation of existing capital:

Capital Stock (t) = Capital Stock (t -1) × (1 – Depreciation Rate (t)) + Investment (t)

102. In words, the amount of capital, or “Capital Stock,” available in the economy at 

any given time, t, is equal to the Capital Stock from the previous period (t -1), minus any 

depreciation of that capital, plus any new additions to the Capital Stock, or “Investment,” in the 

current period (t).

2. SGM Parameters

103. To make the SGM operational, the variables in the two equations described above 

need to be replaced with estimates of the values that they represent. I discuss how I obtain these 

estimates in the following paragraphs and include a summary in Exhibit 18. 

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57 

Exhibit 18: Summary of SGM Parameters114

Parameter Input Source

Capital Stock

[1] Initial Capital Stock 

(non-DRF) in FY2021 

$14,637.4 2022 Commonwealth Fiscal 

Plan

[2] Initial Capital Stock 

(DRF) in FY2021 

$796.1 2022 Commonwealth Fiscal 

Plan

[3] Investment (non-DRF) Investment rate starts at 27.3% in 

FY2021 and decreases linearly to 

23% in FY2026 and remains 

constant at 23%

Historical data on 

Investment to GNP ratio 

from Statistical Appendix

[4] Investment (DRF) Public + private reconstruction 

funding 

2022 Commonwealth Fiscal 

Plan

[5] Depreciation Rate (nonDRF)Increases from 6.5% in FY2021 to 

8.0% in FY2051 

2022 Commonwealth Fiscal 

Plan

[6] Depreciation Rate (DRF) Constant at 6.5% 2022 Commonwealth Fiscal 

Plan

Labor

[7] Total Population World Bank Projection for 

FY2021-FY2050 and the average 

5-year growth rate is used to 

extrapolate for FY2051 

World Bank

[8] Working-Age-toPopulation Ratio World Bank Projection for 

FY2021-FY2050 and the average 

5-year growth rate is used to 

extrapolate for FY2051 

World Bank

[9] Labor Force Participation 

Rate

Linearly increases from 50.3% in 

FY2021 to 57.3% in FY2051

World Bank for initial 

value; June 2018 

Commonwealth Fiscal Plan 

for LFPR growth rate 

assumption

[10] Human Capital Index WCDE projection of Average 

Years of Schooling and Returns to 

Schooling 

Wittgenstein Centre Human 

Capital Data Explorer; 

Psacharopoulos, G and 

Patrinos, H. (2002) 

[11] Labor Share of Output 78.8% Shackleton (2018); 2021 

Statistical Appendix

Total Factor Productivity (TFP)

[12] Initial TFP in FY2021 1.24 Solved for using initial 

parameters in FY2021

[13] Growth Rate of TFP Linearly increases from 0.5% in 

FY2022 to 1.0% in FY2051 

CBO, BRICs, WB models

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58 

104. Capital and labor have different weights (exponents, α and 1-α, respectively) 

representing their relative contributions to the production process. Economic theory suggests that 

these relative weights are equivalent to the relative shares of total income that go to each 

input.115 Thus, following the standard approach,116 I obtain the labor share of income (1-α) by 

estimating the portion of national income that goes to wages and salaries.117

105. The human capital index captures the “skills, education, competencies, and other 

productivity-enhancing characteristics embedded in labor” and it is calculated by using the 

“returns to education”—a measure of the impact on wages from additional years of schooling. I 

rely on the same sources as The Handbook of Economic Growth (and other organizations that use 

114 Sources: [A] 2022 Certified Commonwealth Fiscal Plan Excel Workbook (“January 2022 Fiscal Plan Model 

Certified (Dataroom) .xlsx,” Sheet “Macro Forecast,” Rows 183-186. [B] “Population estimates and projections,”

The World Bank, 2023. Accessed April 21, 2023, <https://databank.worldbank.org/source/population-estimatesand-projections>. [C] “World Development Indicators,” The World Bank, 2023. Accessed April 20, 2023, 

<http://data.worldbank.org/data-catalog/world-development-indicators>. [D] Statistical Appendix of the 

Economic Report for the Governor and Legislative Assembly, 1975-2021. [E] 2018 Fiscal Plan for Puerto Rico as 

Certified by the Financial Oversight and Management Board, dated June 29, 2018. [F] “Wittgenstein Centre 

Human Capital Data Explorer,” Wittgenstein Centre Demography and Global Human Capital, 2023. Accessed 

April 20, 2023, <http://dataexplorer.wittgensteincentre.org/wcde-v2/>. [G] Psacharopoulos, G., and H.A. 

Patrinos, “Returns to Investment in Education A Further Update,” Policy Research Working Paper, The World 

Bank, September 2002. [H] Shackleton, R., “Estimating and Projecting Potential Output Using CBO’s 

Forecasting Growth Model,” Congressional Budget Office, Working Paper, 3, 2018. [I] Wilson, D., “Dreaming 

with BRICs: The Path to 2050,” Goldman Sachs Global Economics Paper, 2003. [J] “Long Term Growth Model 

(LTGM v4.3) - Model Description,” The World Bank. Accessed April 24, 2023, 

<https://thedocs.worldbank.org/en/doc/133191589476085869-0050022020/original/ModelOutlineV43.pdf>.

115 See, e.g., Acemoglu, Daron. Introduction to Modern Economic Growth. (Princeton University Press: Princeton, 

2009).

116 See, e.g., Shackleton, R., “Estimating and Projecting Potential Output Using CBO’s Forecasting Growth Model,”

Congressional Budget Office, Working Paper, 3, 2018.

117 The labor share estimate is 78.8 percent, which is similar to labor share in the U.S. See, e.g., Acemoglu, Daron. 

Introduction to Modern Economic Growth. (Princeton University Press: Princeton, 2009), at p. 57.

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59 

this specific form of the model)

118 for estimates of the returns to education and the projections of 

the population’s average years of schooling.119 

106. I use the standard method to calculate the number of workers.

120 In this method, 

the number of workers represents the group of individuals that (i) can and (ii) do participate in 

the labor force. Starting with the total population, I use the working-age-to-population ratio 

(WATPR) to extract the number of workers that can participate in the labor force, i.e. excluding 

individuals that are generally considered too young to work (less than 15 years old) or of 

retirement-age (65 years old and older). Next, among individuals aged 15–64 (the “working-age 

population”), only those that actually participate in the labor market can be considered part of the 

labor force. Therefore, to get the number of workers, I apply the labor force participation rate 

(LFPR) to the working age population. 

118 See Hall, R. E., & C. I. Jones, “Why Do Some Countries Produce So Much More Output per Worker Than

others?,” The Quarterly Journal of Economics, 114, 1, 1999: 83-116, at p. 87 (“Human capital-augmented labor is 

given by [H = exp(φ(E)) × Labor]. In this specification, the function φ(E) reflects the efficiency of a unit of labor 

with E years of schooling relative to one with no schooling[.]”), and p. 89 (“[W]e assume that φ(E) is piecewise 

linear.”); Caselli, F., “Accounting for Cross-Country Income Differences,” Aghion, P. and S. N. Durlauf (ed.),

Handbook of Economic Growth (Volume 1A). (Elsevier: North Holland, 2005), p. 7 (“To construct human capital

. . . the average years of schooling in the population over 25 years old . . . is turned into a measure of [Qualityadjust labor] through the formula: [Quality-adjust labor = exp(φ(# of Years of Schooling)) × Labor], and the 

function [φ(# of Years of Schooling)] is piecewise linear”); Also see “Long Term Growth Model (LTGM v4.3) -

Model Description,” The World Bank. Accessed April 24, 2023, 

<https://thedocs.worldbank.org/en/doc/133191589476085869-0050022020/original/ModelOutlineV43.pdf>.

119 I obtain estimates for returns to education from Psacharopoulos, G., and H.A. Patrinos, “Returns to Investment in 

Education A Further Update,” Policy Research Working Paper, The World Bank, September 2002, at p. 14. For 

future average years of schooling, I obtain data from the Wittgenstein Center Data Explorer, which provides a 

“medium” projection of educational attainments for the population of individuals that are at least fifteen years 

old. See also “Wittgenstein Centre Human Capital Data Explorer,” Wittgenstein Centre Demography and Global 

Human Capital, 2023, Accessed April 20, 2023, <http://dataexplorer.wittgensteincentre.org/wcde-v2/>. The 

Wittgenstein Center provides projections under two other scenarios: “rapid” and “stalled” development, which, 

relative to the “medium” scenario, are associated with higher and lower educational attainments. Although the 

“rapid” scenario would not be an unreasonable assumption for Puerto Rico’s future based on the educational 

structural reforms discussed in Section [IV.A.2], I choose the more conservative “medium” scenario. The 

projection is provided at five-year increments through 2055 and I interpolate the data points to generate an annual 

series.

120 See “Long Term Growth Model (LTGM v4.3) - Model Description,” The World Bank. Accessed April 24, 2023,

<https://thedocs.worldbank.org/en/doc/133191589476085869-0050022020/original/ModelOutlineV43.pdf>, at p. 

1.

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60 

107. For the 15-64 age cohort, Puerto Rico’s LFPR was 50 percent in 2019, the most 

recent available estimate.

121 Puerto Rico’s LFPR is low relative to other countries. 

Exhibit 19: Puerto Rico’s LFPR Relative to 

Other Central American and Caribbean Countries122

Country Labor Force Participation Rate (LFPR)

Central America and the 

Caribbean Average 69.92%

1. Bahamas, The 81.46%

2. St. Lucia 79.14%

3. Barbados 77.73%

4. St. Vincent and the Grenadines 74.28%

5. Panama 72.16%

6. Virgin Islands (U.S.) 71.91%

7. Jamaica 71.38%

8. Costa Rica 71.15%

9. Dominican Republic 71.05%

10. Honduras 71.05%

11. Nicaragua 69.53%

12. Haiti 68.93%

13. Trinidad and Tobago 68.59%

14. Belize 67.71%

15. Guatemala 64.71%

16. Cuba 64.29%

17. El Salvador 63.15%

18. Puerto Rico 50.32%

121 “World Development Indicators,” The World Bank, 2023. Accessed April 20, 2023, 

<http://data.worldbank.org/data-catalog/world-development-indicators>.

122 Notes: [1] 2019 was used as it is the most recent year with data on labor force participation rate available in the 

World Bank Development Indicators database. [2] Data used is the Labor Force Participation Rate, total (% of 

total population ages 15-64) (modeled ILO estimate) as given by the World Bank. [3] Countries identified are 

those that are part of Central America and the Caribbean according to the Central Intelligence Agency World 

Factbook for which LFPR data is available for 2019 on the World Bank Development Indicators database. [4] 

The Average LFPR is calculated as the average of the LFPR of all countries listed. [5] The CIA lists Virgin 

Islands as part of Central America and the Caribbean, but the World Bank only has data on the part of it that is 

U.S. territory. Sources: [A] “World Development Indicators,” The World Bank, 2023. Accessed April 20, 2023, 

<http://data.worldbank.org/data-catalog/world-development-indicators>. [B] “The World Factbook — Central 

America and the Caribbean,” Central Intelligence Agency. Accessed April 21, 2023, <https://www.cia.gov/theworld-factbook/central-america-and-the-caribbean/>. 

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61 

108. Exhibit 19 shows Puerto Rico’s LFPR relative to that of other Central American 

and Caribbean countries. Puerto Rico’s LFPR is at the bottom of this list and, more generally, it 

ranks 168 out of 187 countries around the world for which data is available. Its LFPR is 18 

percentage points below the world average, 23 percentage points below the U.S., and, as shown 

in Exhibit 20, historically, there exists a substantial gap between male and female LFPR.

Economic evidence suggests that convergence of female LFPR to male LFPR can generate 

significant growth.123

123 See Ekrem, E., et al., “Female Labor Force Participation and Economic Growth: Theoretical and Empirical 

Evidence.” The Empirical Economics Letters, 15, 10, 2016: 985-991, at p. 989 (“[A] 1% increase in female share 

of workforce brings a 0.57% increase in GDP per capita.”); Thévenom, O., et al., “Effects of Reducing Gender 

Gaps in Education and Labor Force Participation on Economic Growth in the OECD.” OECD Social, 

Employment and Migration Working Papers, 138, 2012, at p. 40 (“[A] potential gain of 12% to the size of the 

total economy by 2030” is predicted through the convergence in male and female labor force participation rates.); 

Luci, A., “Female Labour Market Participation and Economic Growth.” International Journal of Innovation and 

Sustainable Development 4, 2-3, 2009: 97-108, at p. 3 (“Empirical investigations, for example by Klasen (1999), 

prove the positive impact of women’s labour market participation on growth suggested by theory.”).

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62 

Exhibit 20: Labor Force Participation Rate in Puerto Rico by Gender 1990–2019124

109. These statistics demonstrate that Puerto Rico has substantial growth potential 

from improvements in LFPR, a conclusion that is reflected throughout the 2022 Commonwealth 

Fiscal Plan.125 In addition, the 2022 Commonwealth Fiscal Plan describes specific reforms and 

provisions aimed at increasing LFPR and the 2023 Commonwealth Fiscal Plan attributes recent 

growth in LFPR to those policies.

126 To reflect the impact of these policies specifically targeting 

124 Notes: [1] The labor force participation rate series correspond to the population between the ages of 15 and 64 

and are estimated by the International Labor Organization (ILO). [2] As of 2019, the male labor force 

participation rate was 58.6 percent, while the female labor force participation rate stood at 42.6 percent, creating a 

16.0 percentage point gap between the two genders. [3] The latest available data for these series is from 2019. 

Source: “World Development Indicators,” The World Bank, 2023. Accessed April 24, 2023, 

<http://data.worldbank.org/data-catalog/world-development-indicators>.

125 See, e.g., 2022 Commonwealth Fiscal Plan, at pp. 81-82 (“In 2020 Puerto Rico’s formal labor force participation 

rate [for the 16 and older age cohort] was on average 40.2%, among the lowest in the world and far below U.S. 

and Caribbean averages,” and “Puerto Rico’s labor force participation rate has ranked in the bottom-20 of more 

than 200 global economies since at least 1990 and in the bottom-15 since 2009.”).

126 See, e.g., 2022 Commonwealth Fiscal Plan, at p. 47, describing one of the objectives of the Ease of Doing 

Business Reform (“Reduce occupational licensing requirements to facilitate labor force participation.”). See also, 

2022 Commonwealth Fiscal Plan, at p. 84 (“The ARP Act establishes that, in order to qualify for this additional 

funding, Puerto Rico must: increase the percentage of earned income which is allowed as a credit for each group 

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63 

LFPR, I allow LFPR to increase by 14 percent (to 57 percent) over 30 years (FY2022 to 

FY2051), which is half the increase that the 2022 Commonwealth Fiscal Plan sets as a target.

127

Despite evidence that LFPR has been increasing in the last few years, I conservatively set the 

LFPR for the start of the projection, in FY2022, to the 2019 value.128 To put this assumption into 

context, it implies that after nearly three decades, Puerto Rico’s LFPR would move up by only 

ten places from 168 to 157 out of 187 countries in the current worldwide ranking of LFPR. 

110. I rely on the World Bank’s projections of WATP, which is available through 

2050.129 To extend the forecast to 2051, I apply the average growth rate from the last five years. 

of recipients, in a manner designed to substantially increase labor force participation”). See also, 2022 

Commonwealth Fiscal Plan at p. 84 (“Previous Fiscal Plans established that to effectively enhance labor force 

participation and reduce poverty through increased EITC benefits, the Government must more comprehensively 

promote the program for tax year 2020 and beyond.”). See also, 2022 Commonwealth Fiscal Plan at p. 86 (“To 

further support labor force participation, the 2022 Fiscal Plan requires the Government to introduce a 

work/volunteer requirement for select adult NAP beneficiaries, with full implementation by the beginning of 

FY2024.”). See also, 2022 Commonwealth Fiscal Plan at p. 88 (“To facilitate increased labor force participation, 

the 2022 Fiscal Plan requires that the Government take steps to more effectively train residents on the knowledge 

and skills needed to contribute to the economy.”). See also, 2023 Commonwealth Fiscal Plan, Volume 1, at p. 15 

(“In addition, labor force participation, despite being below other U.S. states, continues to rise. This increase is 

likely related in part to the recent expansion of the EITC program in 2021.”). Both the 2022 and 2023 

Commonwealth Fiscal Plans incorporate a “provision requiring the Government refrain from enacting new 

legislation that negatively impacts labor market flexibility,” see 2023 Commonwealth Fiscal Plan, Volume 1, at p. 

73.

127 See 2022 Commonwealth Fiscal Plan, at p. 81 (“Puerto Rico has an opportunity to increase this [labor force 

participation] rate and must aspire to reach at least the rate of the lowest U.S. state (West Virginia, with 55%) [for 

the 15 years and older age cohort]...”). Similarly, The June 2018 Commonwealth Fiscal Plan, dated April 19, 

2018, sets as a target for FY2023 of 47 percent for the LFPR for the 15 and up age cohort. See p. 39 (“The 

Government should aim to increase the labor force participation rate to 47% and reduce the youth 

unemployment rate to 20.2% by FY2023. In both cases, these results would roughly halve the current gap 

between Puerto Rico and the lowest U.S. state (West Virginia),” (emphasis added.) The most recent LFPR for 

that cohort is 41 percent (see Statistical Appendix of the Economic Report for the Governor and Legislative 

Assembly, 2021, Table 32), so reaching the target corresponds to a six percentage point (or 14 percent) increase. 

Rather than arriving at this target by FY2023, I conservatively assume that it will occur over the full projection 

period.

128 More recent data for the 15 and older age cohort is available from the Statistical Appendix and reveals that the 

LFPR has increased from 2019 to 2021 from 40.7 percent to 41.3 percent (see Statistical Appendix of the 

Economic Report for the Governor and Legislative Assembly, 2021, Table 32).

129 “Population estimates and projections,” The World Bank, 2023. Accessed April 21, 2023,

<https://databank.worldbank.org/source/population-estimates-and-projections>.

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64 

I also rely on the World Bank for the population projection, which is available for the same 

horizon and for which I make the same assumption to extend to 2051.130

111. As in the EOM, I model the overall level of capital in Puerto Rico as the sum of 

capital stock unrelated and related to disaster relief funding, which accommodates differing 

assumptions about the depreciation rates and investment that determine their evolution.

131

I maintain the EOM’s assumption for non-DRF capital stock depreciation, but consider a more 

appropriate, albeit conservative, assumption for the DRF capital stock depreciation rate. 

112. As discussed in Section IV.C.1, DRF capital stock is directed towards buildings 

and utilities and does not undergo a significant change in composition to warrant an increasing 

depreciation rate.132 In addition, estimates from the Bureau of Economic Analysis suggest that 

residential and non-residential structures, which are similar to the composition of DRF-related 

capital stock, depreciate at 2 percent, which is significantly lower than the EOM’s assumption of 

6.5-7.96 percent over the FY2022-FY2051 forecast period.133 Nevertheless, I conservatively 

maintain the EOM’s elevated depreciation rate of 6.5 percent for the start of the projection, but 

hold it fixed through FY2051. 

130 2022 Certified Commonwealth Fiscal Plan Excel Workbook (“January 2022 Fiscal Plan Model Certified 

(Dataroom) .xlsx”, Sheet “Population Support”). I cannot rely on the 2022 Commonwealth Fiscal Plan’s 

population projection because it does not provide an estimate of the working-age population that is consistent 

with available estimates of LFPR. The World Bank—a reputable organization who I regularly rely on in my 

research and teaching—provides a population projection that is more recent and ensures consistency with the 

other model parameters.

131 I also follow the EOM and augment the total level of capital stock with “Exogenous investment in post-reform 

economy,” as discussed in Section IV.A.1.b.

132 See 2022 Commonwealth Fiscal Plan, at p. 38 (“The 2022 Fiscal Plan posits that, based on how disaster relief 

funds are spent, these funds will impact the economy in various ways: to build the capital stock of the Island 

through constructing and repairing buildings or utilities...”), (emphasis added.)

133 Inklaar, R. and M. P. Timmer, “Capital, labor and TFP in PWT8.0.” University of Groningen, 2013, at Section 3, 

p. 6.

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65 

113. For investment into non-DRF capital stock, I use the standard approach and set 

the amount of investment equal to a fixed portion of GNP in each year.

134 The portion of GNP 

that is used for investment is determined by the investment rate, which I calibrate based on an 

analysis of Puerto Rico’s own historical investment-to-GNP ratio alongside the investment-tooutput ratios for high-income countries. I start the projection at the most recent available 

investment rate, 27.3 percent, and assume that it decreases in a straight line to 23 percent over 

the first five years, where it remains for the remainder of the projection period.135 This long-term 

assumption is conservative as it is below Puerto Rico’s historical 30-year average investment

rate of 25.7 percent and below the average of the 30-year average for high-income countries 

(23.4 percent).136 For the level of investment stemming from DRF, I use values from the EOM 

(see Exhibit 10).

114. For the initial values of both DRF and non-DRF capital stocks in FY2021, I adopt 

the EOM’s estimate of the impact of the damage to capital stock from recent hurricanes and 

earthquakes.137

115. Next, total factor productivity (TFP) accounts for various policies and 

technological developments that make capital and labor more productive. I follow the standard 

134 Caselli, F., “Accounting for Cross-Country Income Differences,” Aghion, P. and S. N. Durlauf (ed.), Handbook 

of Economic Growth (Volume 1A). (Elsevier: North Holland, 2005).

135 Statistical Appendix of the Economic Report for the Governor and Legislative Assembly, 1975-2021.

136 The 30-year average for each high-income country was calculated using most recent data for countries that the 

World Bank classifies as high-income (all available years were used for countries with less than 30 years of data). 

See Statistical Appendix of the Economic Report for the Governor and Legislative Assembly, 1975-2021; “World 

Development Indicators,” The World Bank, 2023. Accessed April 20, 2023, <http://data.worldbank.org/datacatalog/world-development-indicators>; “World Bank Country and Lending Groups,” The World Bank. Accessed 

April 28, 2023, <https://datahelpdesk.worldbank.org/knowledgebase/articles/906519-world-bank-country-andlending-groups>; World Development Indicators,” The World Bank, 2023. Accessed April 20, 2023, 

<http://data.worldbank.org/data-catalog/world-development-indicators>).

137 2022 Certified Commonwealth Fiscal Plan Excel Workbook (“January 2022 Fiscal Plan Model Certified 

(Dataroom) .xlsx”, Sheet “Macro Forecast,” Row 181.

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66 

approach and solve for the initial level of TFP in Puerto Rico’s economy by using estimates for 

all of the other components of the production function.138 

116. TFP growth captures the productivity-related gains from Puerto Rico’s structural 

reforms, improvements in infrastructure, and the general growth in technology (e.g., due to new 

inventions and discoveries) around the world that is accessible to Puerto Rico. The CBO assumes 

a TFP growth rate of above one percent for the U.S., and the World Bank attributes a one percent 

TFP growth rate assumption to a “moderate” growth scenario. Other studies have also assumed 

growth rates in TFP above one percent over long time horizons,139 and given Puerto Rico’s 

future plans, a higher TFP growth rate would be warranted. Nevertheless, I conservatively set the 

TFP growth rate to increase in a straight line from 0.5 percent in FY2022 to one percent in 

FY2051 to capture the gradual roll-out of various structural reforms and rebuilding efforts. 

3. GNP Projection

117. To generate a projection of GNP for Puerto Rico, I start with the SGM and 

combine it with the assumptions described in the previous section. The SGM generates a path of 

potential output for the economy, which is analogous to what the EOM’s trendline based on a 

linear regression attempts to forecast. As discussed throughout this report, the SGM is better 

suited to this task for a multitude of reasons. The SGM is based on sound economic principles 

and not historical correlations that are unlikely to persist in the future. Furthermore, the SGM 

incorporates the effect of TFP and labor and allows them to dynamically generate capital stock. 

138 To calculate initial TFP in FY2021, I re-arrange the production function and calculate the ratio of GNP to the 

weighted product of the factor inputs, i.e., I solve for TFP. See, e.g., Shackleton, R., “Estimating and Projecting 

Potential Output Using CBO’s Forecasting Growth Model,” Congressional Budget Office, Working Paper, 3, 

2018, at p. 6.

139 Wilson, D., “Dreaming with BRICs: The Path to 2050,” Goldman Sachs Global Economics Paper No: 99, 2003, 

at p. 18.

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67 

Importantly, relative to the EOM, the SGM adopts more realistic, albeit conservative, 

assumptions about the depreciation of capital stock.

118. The SGM is a long-run model and omits the impact of short-run economic 

fluctuations that can push output to above or below potential, such as the effects of various fiscal 

policies. The EOM adds its estimate of these effects to the trendline generated by its linear 

regression (see Section IV.A.3). To make the SGM forecast comparable to the one produced by 

the EOM, I adopt the EOM’s modeling assumptions related to fiscal policies.

140 

119. Exhibit 21 shows, with the blue line, the projection from the SGM that 

incorporates the EOM’s fiscal policy assumptions.

141 It also shows the EOM projection (red 

solid line) and the EOM projection that omits the COVID-19 income adjustment (red dashed 

line) that forms the basis for the Plan of Adjustment. 

140 I note that my adoption of these assumptions is not in any way an acceptance of their suitability or adequacy—as 

mentioned before, I have not received sufficient backup materials to thoroughly evaluate them.

141 I provide the values of these data series in Appendix C.

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68 

Exhibit 21: GNP Projections from the Solow Growth Model and EOM FY2021–FY2051142

120. Even with very conservative assumptions, the SGM generates a drastically 

different economic outlook for Puerto Rico relative to the one produced by the EOM and relied 

upon by the Oversight Board. The SGM’s projection shows a continuing and steady economic 

recovery, which is consistent with the transformational policies planned for Puerto Rico, the 

recent evidence of trend reversals in various economic indicators and recent commentary from 

government officials, discussed in Section IV.E. That is, the SGM projects that, by FY2051, 

GNP will rise by an average annual growth rate of 0.4 percent, and end up 11.8 percent higher 

142 Note: The Solow model makes the following assumptions: the savings rate starts at an actual rate of 27.35% in 

FY2021 and linearly converges to 23% by FY2026, and remains at that level for the remainder of the projection. 

The labor share of income is 78.8%. The LFPR increases linearly from 50.32% in FY2021 to 57.26% in FY2051. 

The depreciation rate for non-DRF assets grows from 6.50% to 7.96%, while it remains constant at 6.50% for 

DRF assets, and the exogenous investments do not depreciate. The population projection is from the World Bank, 

and the TFP growth rate linearly increases from 0.5% in FY2022 to 1% in FY2051. Source: 2022 Certified 

Commonwealth Fiscal Plan Excel Workbook (“January 2022 Fiscal Plan Model Certified (Dataroom) .xlsx,”

Sheet “Macro Forecast,” Rows 25 and 264).

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69 

than it is in FY2021. The SGM also demonstrates that the GNP projection that serves as an input 

underlying the calculations in the Plan of Adjustment is unreliable, which contaminates the 

results presented in the Plan of Adjustment itself. 

VI. AN UNJUSTIFIABLY LARGE HAIRCUT ON PREPA BONDS MAY HARM 

PREPA IN THE LONG RUN BY INCREASING ITS COST OF CAPITAL GOING 

FORWARD

121. The Oversight Board’s Plan of Adjustment contemplates a minimum haircut of 34 

percent on PREPA’s existing debt to bondholders.

143 In this section, I consider the extent to 

which imposition of a haircut of that magnitude can be expected to result in increases in 

PREPA’s access to capital markets on reasonable terms in the future.

122. PREPA is a public utility—and the only public electric utility in Puerto Rico—so 

a helpful starting point for considering the potential impact of the recovery rate resulting from 

the Plan of Adjustment is the economic literature on sovereign debt restructurings. After 

describing the negative consequences associated with large debt reductions in sovereign debt 

markets, I then discuss how government influence over PREPA’s policies could subject PREPA 

to similar consequences.

A. Unduly Large Debt Reductions Can Cause Reputational Damage and Impair

Future Borrowing

123. Leading economic theory predicts that sovereign default causes subsequent 

capital market exclusion, and that larger debt reductions restrict access to foreign funding for a 

143 Disclosure Statement, Exhibit K, p. 10.

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70 

longer period of time.144 Economic models also predict that upon re-entry to capital markets, 

debtors face higher borrowing costs due to a higher risk premium, which also increases with the 

size of the debt reduction.145 The mechanism for these dynamics is driven by reputational 

damage: “[a] good repayment record assures access to credit in the future, while defaulting will 

be punished.”146

124. Economic models predict that only “inexcusable” or unjustified haircuts result in 

reputational damage, where inexcusable haircuts are debt reductions that are not justified by 

exogenous macroeconomic events.147 If PREPA is capable of substantial or even full repayment 

of the PREPA bonds, then a haircut on the order of magnitude proposed by the Plan of 

Adjustment would be inexcusable. 

144 Yue, V. Z., “Sovereign default and debt renegotiation,” Journal of International Economics, 80, 2, 2010: 176-

187; Eaton, J., and M. Gersovitz, “Debt with Potential Repudiation: Theoretical and Empirical Analysis,” The 

Review of Economic Studies, 48, 2, 1981: 289-309; Kovrijnykh, N., and B. Szentes, “Equilibrium Default 

Cycles,” Journal of Political Economy, 115, 3, 2007: 403-446; Grossman, H. I., and J.B. Van Huyck, “Sovereign 

Debt as a Contingent Claim: Excusable Default, Repudiation, and Reputation,” The American Economic 

Review, 78, 1988: 1088-1097; Amador, M., and C. Phelan, “Reputation and sovereign 

default,” Econometrica, 89, 4, 2021: 1979-2010, at p. 2000 (“A government that defaults loses its reputation, and 

it takes periods of borrowing and not defaulting to eventually restore it.”); Amador, M. and C.

Phelan, “Reputation and partial default,” National Bureau of Economic Research, Working Paper 28997, 2021, at 

p. 2 (“[T]he benefit of a larger haircut is ... the wiping out of more debt... The cost . . . is . . . loss in reputation, 

and . . . [an] increase in future interest rates.”). 

145 Cruces, J. J., and C. Trebesch, “Sovereign defaults: The price of haircuts,” American Economic Journal: 

Macroeconomics, 5, 3, 2013: 85-117, at p. 87 (“The size of haircuts is a significant predictor of spreads for up to 

seven years after a restructuring.”) and p. 108 (“The spread increase associated with haircut size is also 

economically substantial, especially for years four to seven after a restructuring.”).

146 Cruces, J. J., and C. Trebesch, “Sovereign defaults: The price of haircuts,” CESifo, Working Paper 3604, 2011, 

at p. 13. See also Eaton, J., and M. Gersovitz, “Debt with Potential Repudiation: Theoretical and Empirical 

Analysis,” The Review of Economic Studies, 48, 2, 1981: 289-309, at p. 304 (“borrowers who repudiate their debt 

face future exclusion from capital markets”). 

147 Grossman, H. I., and J.B. Van Huyck, “Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, 

and Reputation,” The American Economic Review, 78, 1988: 1088-1097, at p. 1088 (“[S]overeign debts serve at 

least in part to shift to lenders’ risks associated with verifiable events that affect the fortunes of the sovereign. 

This interpretation of sovereign debts also implies that lenders sharply differentiate excusable defaults, which are 

justifiably associated with implicitly understood contingencies, from debt repudiation, which would be 

unjustifiable and inexcusable.”), and p. 1097 (“[A] sovereign’s decision to validate lenders’ expectations about 

the servicing of its debts presumably depends mainly on the sovereign’s concern for its trustworthy reputation for 

debt servicing. A trustworthy reputation is valuable because it provides continued access to loans.”) 

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71 

125. A seminal, empirical study by Cruces and Trebesch (2013) shows that larger 

haircuts are associated with longer-term exclusion from credit markets and higher future cost of 

credit.148 Based upon an examination of 27 sovereign defaults between 1993 and 2010, the 

authors show that high-haircut countries experienced post-restructuring borrowing costs that are

about 200bp higher than low-haircut countries.149 Further, the authors compare countries with 

haircuts above and below 30% and note that re-access to credit markets could take more than 

twice as long for countries with larger haircuts.150 Cruces and Trebesch conclude that “achieving 

a high degree of debt relief now can have benefits in the short-run, but may also imply worse 

borrowing conditions in the future.”151

126. The Cruces and Trebesch study is consistent with economic theory. Costly 

punishment of inexcusably large haircuts is necessary in sovereign debt markets because 

creditors lending to sovereigns have limited legal recourse, and the presence of an enforcement 

mechanism encourages lending.152 The need for such a mechanism is thus tied to available 

148 Cruces, J. J., and C. Trebesch, “Sovereign defaults: The price of haircuts,” American Economic Journal: 

Macroeconomics, 5, 3, 2013: 85-117, at p. 114 (“High creditor losses are associated with significantly higher 

post-restructuring spreads and longer periods of market exclusion.”). 

149 Cruces, J. J., and C. Trebesch, “Sovereign defaults: The price of haircuts,” American Economic Journal: 

Macroeconomics, 5, 3, 2013: 85-117, at pp. 101-102 (The authors identify high-haircut countries as countries that 

experienced haircuts higher than the median of 37%, including Argentina, Iraq, Ecuador, Seychelles, and Serbia

& Montenegro). See Figure 3 (p. 101) and Table 2 (p. 97).

150 Cruces, J. J., and C. Trebesch, “Sovereign defaults: The price of haircuts,” American Economic Journal: 

Macroeconomics, 5, 3, 2013: 85-117, at p. 109 (“On average, partial re-access takes just 2.3 years after cases with 

[haircuts less than] 30%, while the duration is more than twice as long (6.1 years) for cases with [haircuts more 

than] 30%,” such as Ecuador, Iraq, and Cote d’Ivoire.) See Table 2 (p. 97) and Online Appendix Table A2 

(Online Appendix p. 6).

151 Cruces, J. J., and C. Trebesch, “Sovereign defaults: The price of haircuts,” American Economic Journal: 

Macroeconomics, 5, 3, 2013: 85-117, at p. 114. 

152 Grossman, H. I., and J.B. Van Huyck, “Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, 

and Reputation,” The American Economic Review, 78, 1988: 1088-1097, at p. 1088 (“Private debts are subject to 

laws regarding bankruptcy and enforcement of collateral. Sovereign debts, in contrast, are above the law... 

[C]ases in which one sovereign or its agents seized the assets of another apparent sovereign ... involve 

infringement of sovereignty.”); Borensztein, E., and U. Panizza, “The Costs of Sovereign Default,” IMF Staff 

Papers, 56, 4, 2009: 683-741, at pp. 684-685 (“In the case of sovereign debt, creditor rights are not as strong as in 

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72 

remedies, which differ by market. For example, in many jurisdictions, corporate debt has a 

straightforward legal mechanism to enforce repayment, or partial repayment (e.g., through 

liquidation)153 and, in municipal debt markets, mechanisms to enforce repayment are stronger 

than in sovereign debt markets, though not as strong as in corporate debt markets (e.g., 

municipalities have greater protections from asset seizures).154

127. The observed dynamic at work in the sovereign debt context may extend to the 

present context, in which the Plan of Adjustment contemplates a haircut larger than the 30 

percent threshold identified in the Cruces and Trebesch study discussed above. Because the 

ability of creditors of a municipal utility to enforce payment may be more limited than in the 

context of corporate debt, imposition by the utility of an inexcusably large haircut may likewise 

result in punishment by the credit markets. In concrete terms, that means that while a large 

the case of private debts. If a private firm becomes insolvent, creditors have a well-defined claim on the 

company’s assets... In the case of a sovereign debt, in contrast, the legal recourse available to creditors has 

limited applicability because many assets are immune from any legal action[.]”), and at p. 685 (“[T]he literature 

sustains that sovereign debt markets are still viable because, if defaults are costly in some way to the borrowing 

country, there will be an incentive to repay debts, regardless of the effectiveness of legal recourse.”); Amador, 

M., and C. Phelan, “Reputation and partial default,” National Bureau of Economic Research, Working Paper 

28997, 2021, at p. 2 (“[T]o ... choose a smaller haircut, there has to be a corresponding, and equal, cost to 

imposing a larger haircut.”). 

153 Panizza, U. et al., “The Economics and Law of Sovereign Debt and Default,” Journal of Economic 

Literature, 47, 3, 2009:651-698, at p. 659 (“[T]he main difference between corporate and sovereign debt is the 

lack of a straightforward legal mechanism to enforce repayment of the latter. In the event of default, legal 

penalties or remedies do exist, but they are much more limited than at the corporate level. This leads to the 

question of why debt nonetheless tends to be repaid, and why a sovereign debt market can exist. Much of the 

economic literature on sovereign debt has focused on this problem.”), and p. 652 (“In the corporate world, debt 

contracts are enforced by the courts. A corporation cannot simply repudiate, i.e., decide not to repay its debts. If it 

tried, it would be sued and the courts would force it to hand over assets to the creditor, restructure, or (in the 

limit) shut down and liquidate its remaining assets.”).

154 Shleifer, A., “Will the Sovereign Debt Market Survive?,” American Economic Review, 93, 3, 2003:85-90, at p. 

85 (“[C]reditor rights vis-à-vis defaulting U.S. municipalities are much greater than those of lenders vis-à-vis 

their defaulting sovereign borrowers.”), and p. 86 (“In many U.S. states, municipalities are unlike corporations in 

that they cannot seek bankruptcy protection from creditors at all. In a few instances, municipalities can seek (and 

have sought) such protection, known as Chapter 9. This municipal bankruptcy procedure follows some of the 

principles of Chapter 11, but further weakens creditor rights.”).

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Exhibit Page 75 of 118
73 

haircut may appear to be of benefit to the utility in the short run, it may result in higher or more 

onerous lending terms in the longer run.

128. As I discuss in the next section, whether a public utility like PREPA is likely to 

experience reputational damage—and, as a result, face increased future borrowing costs and 

capital market exclusion—depends on market perceptions about the ability to enforce 

repayments.

B. The Commonwealth’s Influence Over PREPA’s Policies May Impact Market 

Perceptions About the Ability to Recover Loans

129. The Commonwealth has a long and well-documented history of interfering with 

PREPA servicing its debt (and policy-making in general), including (i) refusal to pay its overdue 

balances; (ii) refusal to allow PREPA to increase rates to cover costs; (iii) involvement in 

management and personnel appointments; and (iv) sanctioning subsidies that reduce PREPA’s 

revenues.155

155 Disclosure Statement, at p. 126 (“Exacerbating PREPA’s revenue collection challenges was the fact that the 

Commonwealth and its other instrumentalities are significant customers of PREPA. Due to their own financial 

difficulties, these entities were often unable to pay PREPA in a timely matter, and would often finance their own 

budget deficits by delaying payments to PREPA”.), and p. 379 (“The Legislative Assembly [of Puerto Rico] has 

historically attempted to pass legislation that may interfere with, hinder, impede, or attempt to control, PREPA’s 

ability to restructure and the terms of any bond issuance or achieve PREPA’s transformation goals.”); 2022 

PREPA Fiscal Plan, at p. 36 (“Government accounts and public corporations are a key driver of overall electricity 

sales revenue for PREPA. However, they are also a historically underperforming client base with regards to 

collections and pending receipts. Issues with municipality receipts and CILT reform notwithstanding, 

Commonwealth agencies and public corporations hold accounts payable to PREPA in excess of $200 million for 

past due energy services”.), and p. 21 (“Historically, management decisions have been subject to political 

influence and changes, leading to high management turnover, discontinuity in capital investment plans, and 

electric customer rates that were insufficient to cover [costs]”; “Political influence and a lack of continuity in 

decision making [is a] long-standing structural issue [that has] led to PREPA’s current financial and operational 

position.”); “Puerto Rico’s Public Utilities,” Financial Oversight and Management Board, The Independent 

Investigator’s Final Investigative Report - Section V (2), August 20, 2018 (as referenced in the Disclosure 

Statement and available at the Oversight Board’s website). Accessed April 21, 2023, 

<https://drive.google.com/file/d/19-lauVo3w9MPS03xYVe0SWhQin-Q6FEf/view?pli=1>, (“[P]olitical influence 

directly impacted PREPA’s rates in a way that simultaneously kept the rates high and, yet, insufficient to cover 

operational expenses and capital improvement projects. PREPA's base electricity rate had not increased from 

1989 to 2016.”)

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Exhibit Page 76 of 118
74 

130. Several of these interferences have directly limited PREPA’s revenues that are 

available to repay debts and the Plan of Adjustment introduces new subsidies that take additional 

funding away from PREPA (and increase the burdens PREPA imposes on its other customers). 

For example, the Plan of Adjustment proposes exemptions for certain customers from paying the 

fixed and volumetric charges “[t]o ensure the most vulnerable customers are not overly strained 

by the Legacy Charge[.]”156 Who bears the burden of the cost of this subsidy is a policy choice, 

and the current proposal effectively reduces the debt repayment capacity of PREPA. Although 

such a policy choice reduces the expenses the Commonwealth would have incurred had it been 

required to fund the exemptions, it is not without consequence. If markets perceive this subsidy 

and other policies affecting PREPAs revenues as political obstructions to PREPA’s debt 

repayment, then PREPA may face significant repercussions for its ability to raise funds in the 

future.

131. These observed effects would impose tangible costs on PREPA in response to any 

perception that bondholders were subjected to an inexcusably large haircut. Those costs would 

take the form of exclusion from, or increased costs to access, the credit markets.

VII. THE COMMONWEALTH’S SUBSIDIZATION POLICIES CREATE MARKET 

DISTORTIONS WITH NEGATIVE CONSEQUENCES

132. As discussed in the previous section, market perceptions of political interference 

in PREPA’s management and policies could result in higher future borrowing costs as lenders 

would demand a higher rate of return to compensate them for the higher risk associated with 

156 Disclosure Statement, at p. 40.

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Exhibit Page 77 of 118
75 

their loans. In this section, I present a basic model of supply and demand that shows reducing 

loan repayment to fund subsidies can have additional negative economic consequences.

133. As mentioned above, the Commonwealth sanctions various subsidies that are 

funded by PREPA’s collected revenues, effectively reducing PREPA’s ability to service its debt. 

In effect, funds are being extracted from PREPA to pay for government policies that could 

otherwise be used for debt obligations. One way to assess the impact of such a policy is by 

analogy. As I explain below, this process is similar to taxing the lenders’ rate of return on a loan 

and it creates significant market distortions.

134. The effect of a tax can be analyzed using a simple model of supply and demand 

for loans to PREPA, as shown in Exhibit 22.

157 

157 For a discussion of the equilibrium in a market for loanable funds, see, e.g., Mankiw, N.G., Principles of 

Macroeconomics (6th Edition). (Mason: Thompson South-Western Cengage, 2012), at pp. 268-270.

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Exhibit Page 78 of 118
76 

Exhibit 22: Equilibrium Interest Rate and Loan Amount in Market for Loanable Funds

135. The blue line represents PREPA’s demand curve for debt. It slopes downward 

because the quantity of debt that PREPA demands increases as the interest rate (or price) it pays 

for these loans declines. The red line represents the creditors’ supply curve, which slopes up 

because lenders are willing to lend a higher amount of funds as the interest rate (or price) it 

receives for these loans increases. The two curves intersect at the point where the interest rate 

(R1) is such that the amount that creditors are willing to supply is equal to the amount that 

PREPA demands (L1). 

136. Exhibit 23 demonstrates what happens in that market for loanable funds when the 

government imposes a tax on the rate of return. Rather than receiving the equilibrium rate (R1), 

the lenders receive a lower rate (R3). 

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Exhibit Page 79 of 118
77 

Exhibit 23: Interest Rate and Loan Amount in Market for Loanable Funds with Tax

137. The reduction in interest received by lenders causes a contraction in the supply, 

indicated by a leftward shift of the supply curve from Supply 1 to Supply 2. Even though the 

lenders only receive R3, PREPA faces a higher interest rate of R2, and the new intersection of 

the supply and demand curves occurs at a lower loan amount (L2).158 

138. As shown in Exhibit 23, this tax is distortionary in that it reduces the size of the 

market that would exist without the presence of the tax (the loan amount L2 is smaller than L1). 

In addition to making the market less efficient, the tax also causes a reduction in welfare. In 

economics, welfare is typically measured by the amount that a consumer is willing to pay for a 

158 For a discussion of tax implications in equilibrium, see, e.g., Mankiw, N.G., Principles of Macroeconomics (6th

Edition). (Mason: Thompson South-Western Cengage, 2012), Chapter 8.

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Exhibit Page 80 of 118
78 

good minus the amount that the consumer actually pays for the good (“consumer surplus”) and 

the amount that a supplier is paid for a good minus the cost of providing it (“producer 

surplus).159 In equilibrium, total welfare (the sum of consumer and producer surplus) is captured 

by the area under the demand curve and above the supply curve. When the tax is imposed, the 

total surplus, or welfare, is reduced by the amount of tax revenue generated by the tax (as shown 

by the blue rectangle).160 

139. Importantly, the total reduction in welfare is greater than the amount of tax 

revenue generated. This additional reduction in welfare is called deadweight loss and is captured 

by the orange triangle in Exhibit 23. Because the presence of the tax causes lenders to lend less 

and the borrower to borrow less, the market shrinks below its optimal level and the surplus that 

would have existed without the tax no longer exists. 

140. The Commonwealth’s policies of funding subsidies, by what effectively amounts 

to a tax on the rate of return on loans to PREPA, distorts the market by shrinking its size, 

reducing lender and borrower welfare, and creating a deadweight loss. 

159 For a discussion of welfare and consumer and producer surplus, see, e.g., Mankiw, N.G., Principles of 

Macroeconomics (6th Edition). (Mason: Thompson South-Western Cengage, 2012), Chapter 7.

160 The area of the rectangle is equal to the dollar value of the loans times the tax imposed on the rate of the return.

Case:17-03283-LTS Doc#:24175-1 Filed:05/09/23 Entered:05/09/23 09:12:01 Desc:

Exhibit Page 81 of 118
 	


 


		

	





	



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Case:17-03283-LTS Doc#:24175-1 Filed:05/09/23 Entered:05/09/23 09:12:01 Desc:

Exhibit Page 82 of 118
1

Appendix A

April 2023 

Curriculum Vitae

SEBASTIAN EDWARDS

EDUCATION

UNIVERSITY OF CHICAGO

Ph.D. (Economics), 1981

UNIVERSITY OF CHICAGO

M.A. (Economics), 1978

UNIVERSIDAD CATOLICA, CHILE

Licenciado Economia, 1975

Ingeniero Comercial, 1975

ACADEMIC APPOINTMENTS

2003-present ANDERSON GRADUATE SCHOOL OF MANAGEMENT, UCLA

The Henry Ford II Distinguished Professor of International Economics.

1996-2002 ANDERSON GRADUATE SCHOOL OF MANAGEMENT, UCLA

The Henry Ford II Professor of International Economics.

1993-1996 THE WORLD BANK GROUP

Chief Economist for the Latin America and Caribbean Region.

1990-1993 ANDERSON GRADUATE SCHOOL OF MANAGEMENT, UCLA

The Henry Ford II Professor of International Business Economics.

1981-present DEPARTMENT OF ECONOMICS, UCLA

Assistant Professor (1981-85),

Associate Professor (1985-1988) 

Professor of Economics (1988-2003) 

Distinguished Professor (2003-present). 

AWARDS, PRIZES AND HONORS

Carlos Diaz Alejandro Prize for lifelong scholarly contributions to the 

study of Latin America, 2012

Inaugural Lecture, Universidad de Chile Faculty of Engineering, 2008 

Corden Lecture, Australian National University, 2007 

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2

Appendix A

April 2023 

Figuerola Lecture, Universidad Carlos III, Madrid, Spain, 2006 

Mundell-Fleming Lecture, International Monetary Fund, 2002 

Inaugural Lecture, Kiel Institute World Economy, Kiel Germany, 2001 

World Economy Lecture, University of Nottingham, 2000 

OTHER PROFESSIONAL AND ACADEMIC ACTIVITIES

ANDERSON GRADUATE SCHOOL OF MANAGEMENT,

Senior Associate Dean of Global Initiatives, and Director Center for 

Global Management, 2012-present 

IAE, UNIVERSIDAD AUSTRAL, ARGENTINA, 2000-2004

Profesor Extraordinario

NATIONAL BUREAU OF ECONOMIC RESEARCH (NBER)

Research Associate, 1981-present

LATIN AMERICAN AND CARIBBEAN ECONOMIC 

ASSOCIATION (LACEA)

President, 2001-2003.

INTER AMERICAN SEMINAR ON ECONOMICS (IASE)

Chairman, 1987-2010

KIEL INSTITUTE OF WORLD ECONOMICS, KIEL-GERMANY

Scientific Advisory Council, 2002-present

TRANSNATIONIONAL RESEARCH CORPORATION

Member of the Advisory Board

KIEL INSTITUTE OF WORLD ECONOMICS, KIEL-GERMANY

Visiting Professor, Several times,

CENTRO DE ESTUDIOS PÚBLICOS, SANTIAGO-CHILE. Member

of the Board.,

EDITORIAL

Co-editor of the Journal for Development Economics, 1991-2005. 

Associate Editor of the Journal of International Trade and Economic 

Development, the Journal of International Financial Markets, 

Institutions and Money, and Analisis Economico, Journal of 

Development Economics, among other scholarly journals. 

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3

Appendix A

April 2023 

CONSULTANCY

Consultant to a number of multilateral institutions, including the 

International Monetary Fund, the World Bank, the Inter-American 

Development Bank, the OECD, the U.S. Agency on International 

Development.

Consultant to a number of governments, including Costa Rica, 

Guatemala, Mexico, Argentina, Chile, Colombia, New Zealand, 

Indonesia, Tanzania and Nicaragua.

Consultant to a several corporations and professional associations. 

EXPERT WITNESS

Expert witness in several cases involving exchange rates, international 

securities, international taxation, credit events, international investment 

disputes and other economic and financial issues related to developing 

and emerging countries. Worked with several international law firms. 

Details available on request.

Expert Testimony Since 2019 

1. January, 2022: Tax Court in Chile. SII vs LMC Chile SpA, Rol, RIT: 

GR-16-00100-2019; RUC: 19-9-0000481-0; Caratulada: LMC 

CHILE SPA con SII DGC. 

2. January, 2020: International Arbitration. Gramercy Funds 

Management LLC and Gramercy Peru Holdings LLC v. Republic of 

Peru, ICSID Case No. UNCT/18/2 

3. March, 2019: Arbitration Court in Chile. Commercial Bank 

Valuation.

PERSONAL Born August 16, 1953, in Santiago, Chile.

BACKGROUND

U.S. Citizen and Chilean Citizen.

PUBLICATIONS

I. Books and Monographs

The Order of Liberalization of the External Sector in Developing Countries, Princeton 

Essays in International Finance No. 156, New Jersey, International Finance Section, 

Princeton University, December 1984. 

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4

Appendix A

April 2023 

Economic Adjustment and Exchange Rates in Developing Countries, (Co-edited with 

L. Ahamed), Chicago: University of Chicago Press, 1986. 

Monetarism and Liberalization: The Chilean Experiment (in collaboration with A. CoxEdwards), Cambridge, Mass.: Ballinger Publishing Co., 1987. 

Named by Choice to its 1987 list of Outstanding Academic Books.

Exchange Rate Misalignment in Developing Countries, Baltimore: Johns Hopkins 

University Press, 1988. 

Debt, Adjustment and Recovery: Latin America’s Prospects for Growth and

Development (Co-edited with F. Larraín), Oxford: Basil Blackwell, 1989. 

Real Exchange Rates, Devaluation and Adjustment: Exchange Rate Policy in

Developing Countries, Cambridge, Mass.: MIT Press, 1989. 

Best Practices in Trade Policy Reform (Co-author), New York: Oxford University Press, 

1991.

The Macroeconomics of Populism in Latin America (Co-edited with R. Dornbusch), 

Chicago: University of Chicago Press, 1991. 

Spanish version published by Fondo de Cultura Economica, Mexico D.F. Mexico, 

1992.

Monetarism and Liberalization: The Chilean Experiment, Second Edition with a New

Afterward (in collaboration with A. Cox-Edwards), Chicago: University of Chicago 

Press, 1991. 

Spanish version published by Fondo de Cultura Economica, Mexico D.F. Mexico 

1992.

The Sequencing of Structural Adjustment and Stabilization, Occasional Paper 34, 

International Center for Economic Growth, 1992. 

Latin America and the Caribbean a Decade after the Debt Crisis, Latin American and the 

Caribbean Region of the World Bank, 1993. 

Stabilization, Adjustment and Growth (Co-edited with R. Dornbusch), Chicago: 

University of Chicago Press, 1994. 

Capitol Controls, Exchange Rates, and Monetary Policy in the World Economy, S. 

Edwards (Ed.), Cambridge, New York and Melbourne: Cambridge University Press, 

1995.

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5

Appendix A

April 2023 

Crisis and Reform in Latin America: From Despair to Hope, Oxford: Oxford University 

Press for the World Bank, 1995. 

Latin America After Mexico: Quickening the Pace (Co-authored with S.J. Burki), The 

World Bank, 1996. 

Dismantling the Populist State: The Unfinished Revolution in Latin America and the 

Caribbean (Co-authored with S.J. Burki), The World Bank, 1996. 

Crisis and Reform in Latin America: From Despair to Hope, Oxford: University Press, 

1995. Spanish version published by EMECE, 1997.

Labor Markets in Latin America: Combining Social Protection with Market Flexibility

(Co-edited with N.C. Lustig), The Brookings Institution, 1997. 

Inflacion, Estabilizacion y Politica Cambiaria en America Latina (Co-edited with M. 

Cardenas), Tercer Mundo Editores, 1997. 

Mexico 1994: Anatomy of an Emerging-Market Crash (Co-edited with M. Naím), 

Carnegie Endowment for International Peace, 1997. 

Capital Flows and the Emerging Economies, S. Edwards (Ed.), Chicago: University of 

Chicago Press, 2000. 

The Economics and Political Transition to an Open Market Economy: Colombia, OECD, 

2001.French version, OECD, Paris, 2001

Preventing Currency Crises in Emerging Markets (Co-edited with Jeffrey A. Frankel), 

Chicago: University of Chicago Press, 2002. 

Capital Controls and Capital Flows in Emerging Economies: Policies, Practices, and

Consequences, Chicago and London: University of Chicago Press, 2007, pp. ix, 688

The Decline of Latin American Economies: Growth, Institutions, and Crises, 

With Esquivel, Gerardo; Marquez, Graciela. Chicago and London: University of Chicago 

Press, 2007, pp. viii, 418 

Financial Markets Volatility and Performance in Emerging Markets, with Marcio García, 

University of Chicago Press, 2008. 

Current Account and External Financing, with Cowan, Kevin and Valdes, Rodrigo O. 

Santiago: Central Bank of Chile, 2008, pp. 582 

La Revolución Incompleta: Las Reformas de Gaviria, (In Spanish. Title translated as: 

“An Unfinished Revolution: Gaviria’s Reforms.” With Roberto Steiner), Grupo Editorial 

Norma, 2008. 

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Appendix A

April 2023 

The Economics of Crime: Lessons for and from Latin America, With Di Tella, Rafael 

and Schargrodsky, Ernesto. University of Chicago Press, 2010. 

Left Behind: Latin America and the False Promise of Populism, Chicago and London: 

University of Chicago Press, 2010, pp. xiv, 292. 

• Spanish translation, Norma, 2010.

• Korean translation, 2012.

• Chinese translation, 2016.

Toxic Aid: Economic Collapse and Recovery in Tanzania: Oxford University Press, 2014 

(April)

African Successes, Four Volumes, (Edited with Simon Johnson and David N. Weil), 

University of Chicago Press, 2016 

American Default: The untold story of FDR, the Supreme Court and the battle over gold, 

Princeton University Press, 2018 

The Chile Project: The Story of the Chicago Boys and the Downfall of Neoliberalism, 

Princeton University Press, 2023 

II. Articles

“A Note on the Dynamic Adjustment of International Reserves in LDCs,” in Economic 

Letters, 5, 1980, 71-74. 

Spanish version in Cuaderno de Economia, 48(0), 1979.

“Indicators of Performance of Monetary Policy in Open Economies,” (with A.C. 

Harberger) in Estudios Monetarios VIII, Banco Central de Chile (Ed.), Santiago, 1981, 

87-92.

“Exchange Rate Market Efficiency and New Information,” in Economic Letters, 9(0), 

1982, 377-382. 

“Lessons of Experience under Fixed Exchange Rates,” (with A.C. Harberger) in The

Theory and Experience of Economic Development, M. Gersovitz, C. Díaz-Alejandro, G. 

Ranis and M. Rosenzweig (Eds.), London: Allen & Unwin, 1982, 182-193. 

“Exchange Rates and ‘News’: A Multi-currency Approach,” in Journal of International 

Money and Finance, December 1982, 73-81. 

Reprinted in Exchange Rate Economics, R. MacDonald and M.P. Taylor (Eds.), 

London: JAI Press, 4(0), 1992, 41-71. 

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7

Appendix A

April 2023 

“Floating Exchange Rates in Less Developed Countries: A Monetary Analysis of the 

Peruvian Experience, 1950-1954,” in Journal of Money, Credit and Banking, 15(1), 

February 1983, 73-81. 

“Floating Exchange Rates, Expectations and New Information,” in Journal of Monetary

Economics, 11(3), May 1983, 321-336. 

“The Short-Run Relation Between Growth and Inflation in Latin America,” in American

Economic Review, 73(3), June 1983, 447-482. 

“The Demand for International Reserves and Exchange Adjustments: The Case of LDCs, 

1964-1972,” in Economica, 5(199), August 1983, 269-280. 

“Oil Export Boom and ‘Dutch Disease’: A Dynamic Analysis,” (with M. Aoki) in 

Resources and Energy, September 1983, 219-242. 

“Issues for Modeling How Exchange Rates Respond to News: Discussion,” in Exchange 

Rates and International Macroeconomics, J. Frankel (Ed.), Chicago: University of 

Chicago Press, 1983, 56-61. 

“Recent Stabilization Experiences in the Southern Cone: Chile,” in Economic 

Liberalization and Stabilization in Argentina, Chile and Uruguay, Washington, D.C.: 

World Bank, 1983. 

“Domestic Policies and Foreign Resource Requirements,” in Quarterly Journal of 

Economics, 99(1), February 1984, 201-206. 

“The Role of International Reserves and Foreign Debt in the External Adjustment 

Process,” in Adjustment, Conditionality and International Finance, J. Muns (Ed.), 

Washington, D.C., International Monetary Fund, 1984, 143-173. (Also in Spanish). 

“Floating Exchange Rates and ‘News’: Reply,” in Journal of International Money and

Finance, 3(1), April 1984, 123-126. 

“Colombia: External Sector and Agriculture Policies for Adjustment and Growth: 

Annexes 1-7,” in Colombia: External Sector and Policies for Adjustment and Growth, 

World Bank Report No. 7981-CO, Washington, D.C., April 1984. 

“The Demand for International Reserves and Monetary Equilibrium: Some Evidence 

from Developing Countries,” in Review of Economics and Statistics, 66(3), August 1984, 

495-500.

“LDCs’ Foreign Borrowing and Default Risk: An Empirical Investigation, 1976-1980,” 

in American Economic Review, 74(4), September 1984, 726-734. 

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Appendix A

April 2023 

Reprinted in International Debt, G. Bird and P.N. Snowden (Eds.), Cheltenham, 

U.K,: Elgar, 1(0), 1995, 167-175. 

Reprinted in Portfolio: International Economic Perspectives, R. Dunn (Ed.), 

Washington, D.C., 1985. 

Summary in National Bureau of Economic Research Digest, December 1983.

“Coffee, Money and Inflation in Colombia,” in World Development, 12(11-12), 

November/December 1984, 1107-1117. 

“Stabilization with Liberalization: An Evaluation of Ten Years of Chile’s Experience 

with Free Market Policies, 1973-83,” in Economic Development and Cultural Change, 

33(2), January 1985, 223-254. 

Reprinted in Economic Liberalization in Developing Countries, A. Choksi and D. 

Papageorgiu (Eds.), Oxford: Basil Blackwell, 1986. 

Reprinted in Portfolio: International Economic Perspective, R. Dunn (Ed.), 

Washington, D.C., 1987. 

“Money, the Rate of Devaluation and Interest Rates in a Semi-Open Economy: 

Colombia 1968-1982,” in Journal of Money, Credit and Banking, 17(1), February 1985, 

59-68.

“Economic Policies and the Record of Economic Growth in Chile: 1973-1982,” in 

National Economic Policies in Chile, G. Walton (Ed.), JAI Press, 1985. 

“On the Interest Rate Elasticity of the Demand for International Reserves: Some 

Evidence from Developing Countries,” in Journal of International Money and Finance, 

4(2), June 1985, 287- 295. 

“Interest Rate Behavior in Developing Countries,” (with M. Khan) in Finance and

Development, 22(4), June 1985, 28-31. 

“Interest Rate Determination in Developing Countries: A Conceptual Framework,” (with 

M. Khan) in International Monetary Fund Staff Papers, 32(3), September 1985, 377-403.

“The Interaction of Coffee, Money and Inflation in Colombia,” in Linking 

Macroeconomic and Agricultural Policies for Adjustment with Growth, V. Thomas (Ed.), 

Baltimore: The Johns Hopkins University Press, 1985, 165-178. 

“The Rate of Devaluation and the Nominal Interest Rate,” in Linking Macroeconomic 

and Agricultural Policies for Adjustment with Growth, V. Thomas (Ed.), Baltimore: The 

Johns Hopkins University Press, 1985, 186-194. 

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Appendix A

April 2023 

“Equilibrium Real Exchange Rate,” in Industrial Adjustment in Sub-Saharan Africa, G.

M. Meier and W.F. Steel (Eds.), New York: Oxford University Press, 1985, 266-271.

“The Exchange Rate and Non-Coffee Exports,” in Linking Macroeconomic and 

Agricultural Policies for Adjustment with Growth, V. Thomas (Ed.), Baltimore: The 

Johns Hopkins University Press, 1985, 179-185. 

“Country Risk, Foreign Borrowing and the Social Discount Rate in an Open Developing 

Economy,” in Journal of International Money and Finance, 5(0), February 1986, S79- 

S96.

“The Welfare Effects of Trade and Capital Market Liberalization,” (with S. van 

Wijnbergen) in International Economic Review, 27(1), February 1986, 141-148. 

Reprinted in Portfolio: International Economic Perspectives, R. Dunn (Ed.), 

Washington, D.C., 1987. 

“The Pricing of Bonds and Bank Loans in International Markets: An Empirical Analysis 

of Developing Countries’ Foreign Borrowing,” in European Economic Review, 30(3), 

June 1986, 565-589. 

Summary in National Bureau of Economic Research Digest, December 1985.

“Are Devaluations Contractionary?,” in Review of Economics and Statistics, August 

1986, 501- 508. 

“A Commodity Export Boom and the Real Exchange Rate: The Money-Inflation Link,” 

in Natural Resources and the Macroeconomy, J. P. Neary and S. van Wijnbergen (Eds.), 

Cambridge, Mass.: MIT Press, 1986, 229-247. 

“Growth, Reform, and Adjustment: Latin America’s Trade and Macroeconomic Policies 

in the 1970s and 1980s: Introduction,” (with S. Teitel) in Economic Development and 

Cultural Change, 34(3), April 1986, 423-431. 

“Monetarism in Chile, 1973-1983: Some Economic Puzzles,” in Economic Development 

and Cultural Change, 34(3), April 1986, 535-559. 

Reprinted in Spanish in Del Auge a la Crisis de 1982, F. Morandé and K. 

Schmidt- Hebbel (Eds.), Santiago, Chile, ILADES, 1988, 55-78. 

“Adjustment to Windfall Gains: A Comparative Analysis of Oil-Exporting Countries:

Comment,” in Natural Resources and the Macroeconomy, J.P. Neary and S. van 

Wijnbergen (Eds.), Cambridge, Mass.: MIT Press, 1986, 93-95. 

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Appendix A

April 2023 

“Country Risk and Developing Countries’ Foreign Borrowing,” in Proceedings of San

Francisco Federal Reserve Bank Academic Conference, San Francisco, 1986, 67-95. 

“Economic Adjustment and Exchange Rates in Developing Countries: Introduction” 

(with L. Ahamed), in Economic Adjustment and Exchange Rates in Developing 

Countries, S. Edwards and L. Ahamed (Eds.), Chicago: University of Chicago Press, 

1986, 1-14. 

“Commodity Export Prices and the Real Exchange Rate in Developing Countries: Coffee 

in Colombia,” in Economic Adjustment and Exchange Rates in Developing Countries, S. 

Edwards and L. Ahamed (Eds.), Chicago: University of Chicago Press, 1986, 235-260. 

“The Liberalization of the Current and Capital Accounts of the Balance of Payments,” in 

Economic Liberalization in Developing Countries, A. Choksi and D. Papageorgiu (Eds.), 

Oxford: Basil Blackwell, 1986. 

“The Problems of Liberalization: Discussion,” in Economic Liberalization in Developing 

Countries, A. Choksi and D. Papageorgiu (Eds.), Oxford: Basil Blackwell, 1986. 

“Sequencing of Economic Liberalization in Developing Countries,” in Finance and

Development, 24(1), March 1987, 26-29. 

“Real Exchange Rate Variability: An Empirical Analysis of the Developing Countries 

Case,” in International Economic Journal, 1(1), Spring 1987, 91-106. 

“Tariffs, Real Exchange Rates and Terms of Trade: On Two Popular Propositions in 

International Economics,” (with S. van Wijnbergen) in Oxford Economic Papers, 39(3), 

September 1987, 458-464. 

“On the Appropriate Timing and Speed of Economic Liberalization in Developing 

Countries,” (with S. van Wijnbergen) in Economic Reform in Latin America, M. Conolly 

(Ed.), New York: Praeger, 1987, 71-92. 

“Financial Deregulation and Segmented Capital Markets: The Case of Korea,” in World

Development, 16(1), January 1988, 185-194. 

“Terms of Trade, Tariffs and Labor Market Adjustment in Developing Countries,” in 

World Bank Economic Review, 2(2), May 1988, 165-185. 

“The Chilean Stabilization Program of 1973-1983,” (with A.C. Edwards) in Monetary

Affairs/Geld und Waehrung, May 1988, 35-52. 

“Real and Monetary Determinants of Real Exchange Rate Behavior: Theory and 

Evidence from Developing Countries,” in Journal of Development Economics, 29(3), 

November 1988, 311-341. 

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April 2023 

Spanish version in El Trimestre Económico, Mexico, 56(0), July 1989, 75-110.

Reprinted in Development Economics, D. Lal (Ed.), Edward Elgar, 4(0), 1992, 

41-71.

“Introduction to Macroeconomic Adjustment and Growth,” (with E. Bacha) in Journal of 

Development Economics, December 1988. 

“The United States and Foreign Competition in Latin America,” in The Changing Role of 

the United States in the World Economy, M. Feldstein (Ed.), Chicago: University of 

Chicago Press, 1988, 9-64. 

Summary in National Bureau of Economic Research Digest, September 1987.

“Implications of Alternative International Exchange Rate Arrangements for the 

Developing Countries,” in New Institutional Arrangements for the World Economy, H.G. 

Vosgerau (Ed.), Berlin: Springer-Verlag, 1988. 

“Structural Adjustment in Highly Indebted Countries,” in The Developing Countries' 

Debt Crisis, J. Sachs (Ed.), Chicago: University of Chicago Press, 1988. 

Abridged version in Developing Countries Debt: The NBER Debt Project, J. 

Sachs (Ed.), Chicago: University of Chicago Press, 1988. 

“Commercial Policy, Terms of Trade and the Equilibrium Real Exchange Rate,” in 

Journal of International Economic Integration, 1988, 1-31. 

“Exchange Rate Misalignment in Developing Countries,” in World Bank Research

Observer, 4(1), January 1989, 3-21. 

Reprinted in Approaches to Exchange Rate Policy, Washington, D.C., 

International Monetary Fund, 1994. 

“Tariffs, Capital Controls, and Equilibrium Real Exchange Rates,” in Canadian Journal 

of Economics, 22(0), February 1989, 79-92. 

“Solving the Debt Crisis and Restoring Developing Countries Credit Worthiness: 

Comment,” in Carnegie-Rochester Conference Series on Public Policy (Supplement to 

the Journal of Monetary Economics), K. Brunner and A. Meltzer (Eds.), 30(0), Spring 

1989, 115-127. 

“Exchange Controls, Devaluations and Real Exchange Rates: The Latin American 

Experience,” in Economic Development and Cultural Change, 37(3), April 1989, 457- 

494.

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April 2023 

“Debt Crisis, Trade Liberalization, Structural Adjustment and Growth: Some Policy 

Considerations,” in Contemporary Policy Issues, 7(3), July 1989, 30-41. 

“Temporary Terms of Trade Disturbances, the Real Exchange Rates and the Current 

Account,” in Economica, 56(223), August 1989, 343-357. 

“The International Monetary Fund and the Developing Countries: A Critical Evaluation,” 

in Carnegie-Rochester Conference Series on Public Policy, K. Brunner and A. Meltzer 

(Eds.), 31(0), Fall 1989, 7-68. 

Spanish version in EI Trimestre Economico, 57(227), July-September 1990, 611- 

663.

“What Does the International Monetary Fund Really Do? Reply,” in Carnegie Rochester

Conference Series on Public Policy, 31(0), Autumn 1989, 77-81. 

“The Price of Postponed Adjustment,” (with P.J. Montiel) in Finance and Development, 

26(3), September 1989, 34-37. 

“Devaluation Crises and the Macroeconomic Consequences of Postponed Adjustment in 

Developing Countries,” (with P. Montiel) in International Monetary Fund Staff Papers, 

36(4), December 1989, 875-903. 

“Latin America's Intra-regional Trade: Evolution and Future Prospects,” (with M. 

Savastano) in Economic Aspects of Regional Trading Arrangements, D. Greenaway, T. 

Hyclak and R.J. Thornton (Eds.), New York: New York University Press, 1989, 189-233. 

“Debt, Adjustment, and Recovery in Latin America: An Introduction,” (with F. Larrain) 

in Debt, Adjustment and Recovery: Latin America's Prospects for Growth and 

Development, S. Edwards and F. Larrain (Eds.), Oxford and Cambridge, Mass.: 

Blackwell, 1989, 1-27. 

“Economic Liberalization and the Equilibrium Real Exchange Rate in Developing 

Countries,” in Debt, Stabilization and Development: Essays in Memory of Carlos F.

Diaz-Alejandro. G. Calvo, et-al. (Eds.), Oxford: Basil Blackwell, 1989, 163-84. 

“Disequilibrium and Structural Adjustment,” (with S. van Wijnbergen), in Handbook of 

Development Economics, H. Chenery and T.N. Srinivasan (Eds.), 2(0), Amsterdam, 

North- Holland, 1989. 

“A Market Solution to the Debt Crisis?,” in La Finanza Americana: Fra Euphoria E 

Crisis, G. Luciani (Ed.), Rome, Olivetti, 1989. 

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Appendix A

April 2023 

“Structural Adjustment Policies in Highly Indebted Countries,” in Developing Country 

Debt and Economic Performance, J. Sachs (Ed.), Chicago: University of Chicago Press, 

1989, 159-207. 

“The Debt Crisis and Economic Adjustment in Latin America,” in Latin American

Research Review, 24(3), 1989.

“Developing Countries’ Debt Problems and Efforts and Policy Reform,” (with A. 

Krueger, A. Harberger and R. McKinnon) in Contemporary Policy Issues, 8(1), January 

1990, 1-38. 

“The Sequencing of Economic Reform: Analytical Issues and Lessons from Latin 

America,” in The World Economy, 13(1), March 1990. 

“Introduction,” (with E. Bacha) in Journal of Development Economics, 32(2), April 

1990, 243- 246. 

“Anticipated Tariffs, Real Exchange Rates and the Current Account: The Case of Rigid 

Wages,” (with J. D. Ostry) in Journal of International Money and Finance, 9(2), June 

1990, 206-219. 

“The Debt Crisis and Adjustment in Argentina and Mexico: Comment,” in The Debt

Crisis in Latin America: How Much Progress?, J. Williamson (Ed.), Washington, D.C., 

Institute for International Economics, 1990. 

“Real Exchange Rates in Developing Countries: Concept and Measurement,” in 

International Financial Market and Agricultural Trade, T. Grennes (Ed.), Boulder and 

London: Westview Press, 1990, 56-107 

“Debt and Growth in Chile: Trends and Prospects: Comments,” in Debt and

Transfiguration? Prospects for Latin America's Economic Revival, D. Felix (Ed.), 

Armonk, N.Y. and London: Sharpe, 1990, 166-170. 

“The Three Major Debtors: Comment,” in Latin American Adjustment: How Much Has

Happened? , J. Williamson (Ed.), Washington, D.C.: Institute for International 

Economics, 1990, 177-181. 

“Explaining Fiscal Policies and Inflation in Developing Countries,” (with G. Tabellini) in 

Journal of International Money and Finance, 10(0), March 1991, 16-48. 

“Chile's Experience with Stabilization Revisited: Comments,” in Lessons of Economic 

Stabilization and Its Aftermath, M. Bruno, et-al. (Eds.), Cambridge, Mass. and London 

MIT Press, 1991, 92-98. 

“Comment on ‘Debt Growth in Chile’,” in Debt and Transfiguration, D. Felix (Ed.), 

London: Sharpe, 1991. 

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April 2023 

“Capital Flows, Foreign Direct Investment, and Debt-Equity Swaps in Developing 

Countries,” in Capital Flows in the World Economy, H. Siebert (Ed.), Tubingen, J.C.B. 

Mohr, 1991, 255-281. 

“Capital and Current Account Liberalization and Real Exchange Rates in Developing 

Countries,” in Exchange Rate Policies in Developing and Post-Socialist Countries, E.M. 

Classen (Ed.), San Francisco: ICS Press, 1991, 243-275. 

“Structural Adjustment Reforms and the External Debt Crisis in Latin America,” in The

Latin American Development Debate: Neostructuralism, Neomonetarism, and

Adjustment Processes, P. Meller (Ed.), Oxford: Westview Press, 1991, 129-168. 

“Macroeconomic Populism,” (with R. Dornbusch) in Journal of Development 

Economics, 32(2), April 1990, 247-277. 

Reprinted in Latin America’s Economic Development: Confronting Crisis, 

Second Edition, J.L. Dietz (Ed.), Boulder and London: Rienner, 1995, 271-277. 

Spanish version in EI Trimestre Economico, 57(0), December 1990, 5-40.

Spanish version in Nuevas Fronteras Economicas.

Portuguese versions in Revista de Economia Politica and Populismo Economico.

L.C. Bresser-Pereira (Ed.).

“Chile: Economic Crisis and Recovery: Comments,” in Restructuring Economies in 

Distress: Policy Reform and the World Bank, V. Thomas, et-al. (Eds.), Oxford: Oxford 

University Press for the World Bank, 1991, 489-493. 

“Terms of Trade Disturbances, Real Exchange Rates and Welfare: The Role of Capital 

Controls and Labor Market Distortions,” (with J. D. Ostry) in Oxford Economics Papers, 

44(1), January 1992, 20-34. 

“Markets and Democracy: Lessons From Chile,” (in collaboration with A. Cox-Edwards) 

in The World Economy, 15(2), March 1992, 203-219. 

“Seigniorage and Political Instability,” (with A. Cukierman and G. Tabellini) in 

American Economic Review, 82(3), June 1992, 537-555. 

“Trade Orientation, Distortions and Growth in Developing Countries,” in Journal of 

Development Economics, 39(1), July 1992, 31-57. 

“Interamerican Seminar on Economics: Introduction,” (with E. Bacha) in Journal of 

Development Economics, 39(1), July 1992, 1-3. 

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Appendix A

April 2023 

“Financial Liberalization Policies in a Multisector Framework,” in Development

Strategies for the 21st Century, T. Yamasaki, T. Mori and H. Yamaguchi (Eds.), Tokyo: 

Institute of Developing Economies, 1992. 

“Sequencing and Welfare: Labor Markets and Agriculture,” in Open Economies:

Structural Adjustment and Agriculture, I. Goldin and A. Winters (Eds.), Cambridge: 

CEPR / Cambridge University Press, 1992, 15-39. 

“Stabilization and Liberalization Policies for Economies in Transition: Latin American 

Lessons for Eastern Europe,” in The Emergence of Market Economies in Eastern Europe, 

C. Clague and G.C. Rausser (Eds.), Oxford: Blackwell, 1992, 129-159.

“Devaluation Controversies in the Developing Countries: Lessons from the Bretton 

Woods Era,” (with J. Santaella) in A Retrospective on the Bretton Woods System, M. 

Bordo and B. Eichengreen (Eds.), Chicago: NBER/University of Chicago Press, 1992. 

“On the Symmetry Between Effective Tariffs and Value Added Subsidies: Comment,” in 

Contemporary Studies in Economic and Financial Analysis Vol. 62, V.A. Canto and J.K. 

Dietrich (Eds.), London: JAI Press, 1992, 125-128. 

“Latin American Economic Integration: A New Perspective on an Old Dream,” in The

World Economy, 16(3), May 1993, 317-338. 

“Openness, Trade Liberalization, and Growth in Developing Countries,” in Journal of 

Economic Literature, 31(3), September 1993, 1358-1393. 

Reprinted in Developing and Newly Industrializing Countries, C. Milner (Ed.), 

Cheltenham, U.K.: Elgar, 1998, 39-74. 

“Exchange Rates as Nominal Anchors,” in Weltwirtschaftliches Archiv, 129(1), 1993, 1- 

32.

“Dollarization in Latin America,” in Proceedings of a Conference on Currency 

Substitution and Currency Boards. World Bank Discussion Papers No. 207, N. Liviatan 

(Ed.), Washington, D.C.: World Bank, 1993, 1-4. 

“Stabilization and Currency Boards in the Context of Specific Countries: Argentina and 

Peru: Comments,” in Proceedings of a Conference on Currency Substitution and 

Currency Boards. World Bank Discussion Papers No. 207, N. Liviatan (Ed.), 

Washington, D.C.: World Bank, 1993, 70-71. 

“Recent Trade Reforms in Latin America,” in The North American Journal of Economics 

and Finance, 4(1), 1993, 5-28. 

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Appendix A

April 2023 

“The Political Economy of Inflation and Stabilization in Developing Countries,” in 

Economic Development and Cultural Change, 42(2), January 1994, 235-266. 

“Economic Reform and Modernization in Latin America,” in NBER Reporter, Spring 

1994.

“Trade Liberalization Reforms in Latin America: Recent Experiences, Policy Issues, and 

Future Prospects,” in Latin America's Economic Future, G. Bird and A. Helwege (Eds.), 

London: Academic Press, 1994. 

“Introduction,” (with R. Dornbusch) in Stabilization. Adjustment and Growth, R. 

Dornbusch and S. Edwards (Eds.), Chicago: University of Chicago Press, 1994. 

“Trade Policy, Exchange Rates and Growth,” in Stabilization. Adjustment and Growth, 

R. Dornbusch and S. Edwards (Eds.), Chicago: University of Chicago Press, 1994.

“Labor Market Distortions and Structural Adjustment in Developing Countries,” (with A. 

Cox- Edwards) in Labor Markets in an Era of Adjustment, S. Horton, R. Kanbur and D. 

Mazumdar (Eds.), Washington, D.C., World Bank, 1994, 105-146. 

“Exchange Rate Policy and Trade Strategy,” (with R. Dornbusch) in The Chilean

Economy: Policy Lessons and Challenges, B.P. Bosworth, R. Dornbusch and R. Laban, 

(Eds.), Washington, D.C.: Brookings Institution, 1994, 81-104, 112-115. 

“Political Instability, Political Weakness and Inflation: An Empirical Analysis,” (with G. 

Tabellini) in Advances In Econometrics, A.C. Sims (Ed.), 2(0), 1994, 355-376. 

“Consolidating Economic Reforms in Latin America and the Caribbean,” (with S.J. 

Burki) in Finance and Development, 32(1), March 1995, 6-9. 

“The Chilean Economy,” (with A. Cox-Edwards) in Chile: A Country Study, R. Hudson 

(Ed.), Washington, D.C.: Library of Congress, 1995. 

“Trade and Industrial Policy Reform in Latin America,” (with S.J. Anjara and J.R. 

Bosch) in Policies for Growth: The Latin American Experience, A. Resende (Ed.), 

Washington, DC: International Monetary Fund, 1995. 

“Introduction,” in Capital Controls, Exchange Rates and Monetary Policy in the World

Economy, S. Edwards (Ed.), Cambridge University Press, 1995. 

“Exchange Rates, Inflation and Disinflation: Latin American Experiences,” in Capital

Controls, Exchange Rates and Monetary Policy in the World Economy, S. Edwards (Ed.), 

Cambridge University Press, 1995, 301-338. 

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Appendix A

April 2023 

“Reform, Recovery, and Growth: Latin America and the Middle East: Introduction,” 

(with R. Dornbusch) in National Bureau of Economic Research Project Report Series, S. 

Edwards and R. Dornbusch (Eds.), Chicago and London: University of Chicago Press, 

1995, 1-9. 

“Currency Crises and Collapses: Comments,” in Brookings Papers on Economic Activity, 

2(0), 1995, 271-278. 

“Public Sector Deficits and Macroeconomic Stability in Developing Countries,” in 

Budget Deficits and Debt: Issues and Options, Jackson Hole: Federal Reserve Bank of 

Kansas City, 1995, 307-373. 

“The Latin American Debt Crisis,” in The Evolving Role of the World Bank: Helping 

Meet the Challenge of Development, K.S. Lateef (Ed.), Washington, D.C., World Bank, 

1995, 97-118. 

“Exchange Rates and the Political Economy of Macroeconomic Discipline,” in American

Economic Review, 8(2), May 1996, 159-163. 

“Exchange-Rate Anchors, Credibility and Inertia: A Tale of Two Crises, Chile and 

Mexico,” in American Economic Review, 86(2), May 1996, 176-180. 

“Trade Liberalization and Unemployment: Policy Issues and Evidence from Chile,” (with 

A. Cox-Edwards) in Cuadernos de Economia, 33(99), August 1996, 227-250. 

“Interamerican Seminar on Macroeconomics: Introduction,” (with E. Bacha) in Journal of 

Development Economics, 51(1), October 1996, 1-4. 

“Why Are Latin America's Savings Rates So Low? An International Comparative 

Analysis,” in Journal of Development Economics, 51(1), October 1996, 5-44. 

“Economic Policy and the Dynamics of Growth,” (in Spanish) in Estudios de Economia, 

23(2), December 1996, 137-155. 

“Capital Inflows, the Real Exchange Rate and the Mexican Crisis of 1994,” (with R. 

Steiner and F. Losado) in Stabilization and Reforms in Latin America: Where Do We

Stand? H. Sautter and R. Schinke (Eds.), Madrid: Iberoamericana, 1996, 69-118. 

“Trade Liberalization Reforms and The World Bank,” in American Economic Review, 

87(2), May 1997, 43-48. 

Reprinted in Developing and Newly Industrializing Countries. Vol.2, C. Milner 

(Ed.), Cheltenham, U.K. and Northampton, Mass.: Elgar, 1998, 155-160. 

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Appendix A

April 2023 

“Latin America's Underperformance,” in Foreign Affairs, 76(2), March-April 1997, 93- 

103.

Spanish Translation in Estudios Públicos, Winter 1997.

Portuguese Translation in Gazeta Mercantil/Foreign Affairs, 6, March 1997.

“Trade Policy, Growth and Income Distribution,” in American Economic Review, 87(2), 

May 1997, 205-210. 

“Banks and Macroeconomic Disturbances Under Predetermined Exchange Rates,” (with 

C.A. Vegh) in Journal of Monetary Economics, 40(2), October 1997, 239-278. 

“Trade Reform, Uniform Tariffs and the Budget,” in Macroeconomic Dimensions of 

Public Finance, M. Blejer and T. Ter-Minesgian (Eds.), London and New York: 

Routledge, 1997, 179- 202. 

“Why are Latin American Saving Rates So Low?,” in Pathways to Growth: Comparing 

East Africa and Latin America, N. Birdsall and F. Jaspersen (Eds.), The Johns Hopkins 

University Press, 1997, 131-158. 

“Exchange Rate Anchors and Inflation: A Political Economy Approach,” in Positive

Political Economy: Theory and Evidence, S. Eijffinger (Ed.), Cambridge University 

Press, 1997, 187- 212. 

“Annual World Bank Conference on Development in Latin America and the Caribbean, 

1995: The Challenges of Reform: Proceedings of a Conference Held in Rio de Janeiro,” 

in Latin American and Caribbean Studies: Proceedings Series, S.J. Burki, S. Edwards and

S.R. Aiyer (Eds.), Washington, D.C., World Bank, 1997.

“Optimal Exchange Rate Policy for Stabilizing Inflation in Developing Countries,” in 

Exchange Rates, Capital Flows, and Monetary Policy in Changing World Economy: 

Proceedings of a Conference, Federal Reserve Bank of Dallas, Dallas, Texas, September

14-15, 1995, W.C. Gruben, D.M. Gould and C.E. Zarazaga (Eds.), Boston and London: 

Kluwer Academic, 1997, 27-36. 

“The International Dimension Of Macroeconomic Policies in Latin America,” in 

Macroeconomic Policy in Open Economies, M.U. Fratianni, D. Salvatore and J. vonHagen (Eds.), London: Greenwood Press, 5(0), 1997, 538-567. 

“Why Are Latin America's Saving Rates So Low? An International Comparative 

Analysis,” in Annual World Bank Conference on Development in Latin America and the 

Caribbean. 1995, S.J. Burki, S.R. Aiyer and S. Edwards (Eds.), Washington, D.C., World 

Bank, 1997, 67-87. 

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Appendix A

April 2023 

“Exchange Rate Policy and Macroeconomic Stability,” in Exchange Rates, Capital

Flows, and Monetary Policy in a Changing World Economy: Proceedings of a 

Conference, Federal Reserve Bank of Dallas, Dallas, Texas, September 14-15. 1995, 

W.C. Gruben, D.M. Gould and C.E. Zarazaga (Eds.), London: KluwerAcademic, 1997, 

44-53.

“Exchange Rate Issues in Developing and Transitional Economies,” in Journal of African

Economics, 6(3), Supplement 1997, 37-73. 

“The Mexican Peso Crisis: How Much Did We Know? When Did We Know It?,” in The

World Economy, 21(1), January 1998, 1-30. 

“Openness, Productivity and Growth: What Do We Really Know?,” in The Economic 

Journal, 108(447), March 1998,383-398. 

“Two Crises: Inflationary Inertia and Credibility,” in The Economic Journal, 108(448), 

May 1998, 680-702. 

“9th Interamerican Seminar on Economics,” in Journal of Development Economics, 

57(1), October 1998, 5-228. 

“Interest Rate Volatility, Contagion and Convergence: An Empirical Investigation of the 

Cases of Argentina, Chile and Mexico,” in Journal of Applied Economics, 1(1), 

November 1998, 55- 86. 

“The Choice of Exchange Rate Regime in Developing and Middle Income Countries,” in 

Exchange Rate Policy in Developing and Transitional Economies, T. Ito and A.O. 

Krueger (Eds.), Chicago: The University of Chicago Press, 1998. 

“The Chilean Pension Reform: A Pioneering Program,” in Privatizing Social Security, M. 

Feldstein (Ed.), Chicago: The University of Chicago Press, 1998, 33-57. 

“Chile: Radical Change Towards a Funded Pension System,” in Redesigning Social

Security, H. Siebert (Ed.), Kiel Institute, 1998, 233-263. 

“The Opening of Latin America,” in Economic Reform in Latin America, H.I. Costin 

(Ed.), 1998, 45-296. 

“A Capital Idea? Reconsidering a Financial Quirk Fix,” in Foreign Affairs, 78(3), MayJune 1999, 18-22. 

“How Effective Are Capital Controls?,” in Journal of Economic Perspectives, 13(4), Fall 

1999, 65-84. 

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Appendix A

April 2023 

“The Choice of Exchange Rate Regime in Developing and Middle Income Countries,” in 

Changes in Exchange Rates in Rapidly Developing Countries: Theory, Practice, and 

Policy Issues, T. Ito and A.O. Krueger (Eds.), NBER-East Asia Seminar on Economics, 

Chicago: University of Chicago Press, 7(0) 1999, 9-23. 

“Capital Inflows into Latin America: A Stop-Go Story?,” in International Capital Flows.

National Bureau of Economic Research Conference Report Series, M. Feldstein (Ed.), 

Chicago: University of Chicago Press, 1999,5-42. 

“On Crisis Prevention: Lessons from Mexico and East Asia,” in Financial Markets and

Development: The Crisis in Emerging Markets, A. Harwood, R.E. Litan and M. 

Pomerleano (Eds.), Washington, D.C., World Bank, 1999,269-334. 

“International Capital Flows and the Emerging Markets: Amending the Rules of the 

Game?” in Rethinking the International Monetary System, J.S. Little and G.P. Olivei 

(Eds.), Boston: Federal Reserve Bank of Boston, 1999, 137-157. 

“Economic Reforms and Labour Markets: Policy Issues and Lessons from Chile,” (with 

A. Cox- Edwards) in Economic Policy, 15(30), April 2000, 181-230. 

“Contagion,” in World Economy, 23(7), July 2000, 873-900.

“Controls on Capital Inflows: Do They Work?,” (with J. De Gregorio and R.O. Valdes) 

in Journal of Development Economics, 63(1), October 2000,59-83. 

“Introduction to Capital Flows and the Emerging Economies,” in, S. Edwards (Ed.), 

Capital Flows and the Emerging Economies, Chicago and London: University of Chicago 

Press, 2000, 1-13. 

“On the Crisis Hypothesis of Economic Reform: Colombia 1989-91,” (with R. Steiner) in 

Cuadernos de Economía, 37(112), December 2000, 445-493. 

“Capital Flows, Real Exchange Rates and Capital Controls: Some Latin American 

Experiences,” in, S. Edwards (Ed.), Capital Flows and the Emerging Economies, Chicago 

and London: University of Chicago Press, 2000, 197-253. 

“Exchange Rate Overvaluation and Currency Crises: Lessons form Latin America and 

East Asia,” in J.R. Bisignano, W.C. Hunter, and G.G. Kaufman (Eds), Global Financial

Crises: Lessons from Recent Events, Klugwer 2001, 149-158. 

“Globalization and U.S. International Economic Policy,” in T.H. Henriksen (Ed.), 

Foreign Policy for America in the Twenty-first Century,” Hoover Press, 2001, 75-87. 

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Appendix A

April 2023 

“Capital Mobility and Economic Performance: Are Emerging Markets Different? in H. 

Siebert (Ed.), The World’s New Financial Landscape: Challenges for Economic Policy, 

Springer 2001, 219-244. 

“Dollarization: Myths and Realities,” in Journal of Policy Modeling, 23(3), April 2001, 

249- 265. 

“Volatility Dependence and Contagion in Emerging Equity Markets,” (with R. Susmel) 

in Journal of Development Economics, 66(2), December 2001,505-532. 

“Capital Mobility, Capital Controls, and Globalization in the Twenty-First Century,” in 

Annals of the American Academy of Political and Social Science, 579(0), January 2002, 

261-270.

“Information Technology and Economic Growth in Developing Countries,” in Challenge, 

45(3), May-June 2002, 19-43. 

“Social Security Privatization Reform and Labor Markets: The Case of Chile,” (with 

A.C. Edwards) in Economic Development and Cultural Change, 50(3), April 2002, 465- 

489

“Does the Current Account Matter?” in Sebastian Edwards and Jeffrey Frankel (Eds) 

Preventing Currency Crises in Emerging Markets, University of Chicago Press, 2002, 21- 

75.

“Introduction to Preventing Currency Crises in Emerging Markets?” in Sebastian 

Edwards and Jeffrey Frankel (Eds) Preventing Currency Crises in Emerging Markets, 

University of Chicago Press, 2002, 1-18. 

“Stabilization, Persistence and Inflationary Convergence: A Comparative Analysis,” 

(with Fernando Lefort) in F. Lefort and K Schmidt-Hebbel (Eds) Indexation, Inflation 

and Monetary Policy, Banco Central de Chile, 2002. 

“Twenty Five Years of Stabilization Programs in Latin America: The Exchange Rate 

Connection,” in Banco de Mexico, Stabilization and Monetary Policy: The International 

Experience, Mexico, D.F. 2002, 349-405. 

“The Political Economy of Unilateral Trade Liberalization: The Case of Chile,” (with D. 

Lederman) in Trade Reform and Unilateralism, J, Bhagwati (Ed.), MIT Press, 2002, 337- 

393.

“The Great Exchange rate Debate after Argentina,” in The North American Journal of 

Economics and Finance, 13(3), December 2002, 237-252. 

“Currency Crises and Contagion: An Introduction” (with R Rigobon) in Journal of 

Development Economics, 69(2) December 2002, 307-313. 

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April 2023 

“Debt Relief and the Current Account: An Analysis of the HIPC Initiative,” in The

World Economy, April 2003; 26(4): 513-31. 

“Interest Rate Volatility in Emerging Countries,” (with R Susmel) in Review of 

Economics and Statistics, May 2003; 85(2): 328-48. 

“Latin American and U.S. Universities: A Forty Years Analysis”, Cuadernos de 

Economia (Pontifical Catholic University of Chile). December 2003; 40(121): 399-412 

“Exchange Rate Regimes, Capital Flows and Crisis Prevention”, in Economic and

financial crises in emerging market economies, Martin Feldstein, ed., NBER Conference 

Report series. Chicago and London: University of Chicago Press, 2003; 31-78. 

“Public Sector Deficits, Macroeconomic Stability, and Economic Performance”, in 

Reforming India's external, financial, and fiscal policies, Anne O. Krueger, Sjiid Z. 

Chinoy, eds., Stanford Studies in International Economics and Development. Stanford: 

Stanford University Press, 2003; 177-206. 

“Dollarization: Myths and Realities”, in The Dollarization Debate, Dominick Salvatore, 

James W. Dean, Thomas D. Willett, eds., Oxford and New York: Oxford University 

Press, 2003; 111-28. 

“Debt Relief and Fiscal Sustainability,” in Review of World Economics 

(Weltwirtschaftliches Archiv) 2003; 139(1): 38-65. 

“Dollarization and Economic Performance: What do we Really Know?” (with I. I. 

Magendzo) in International Journal of Finance and Economics, October 2003; 8(4): 351- 

63.

“Financial Instability in Latin America”, Journal of International Money and Finance, 

December 2003; 22(7): 1095-1106. 

“Stock market cycles, financial liberalization and volatility”, (with Javier Gomez Biscarri

and Fernando Perez de Gracia), Journal of International Money and Finance, December 

2003; 22(7): 925-55. 

“Financial Openness, Sudden Stops and Current Account Reversals,” American

Economic Review, May 2004; 94(2): 59-64. 

“The Economics of Latin American Art: Creativity Patterns and Rates of Return,” 

Economia, Spring 2004; 4(2): 1-35. 

“Thirty Years of Current Account Imbalances, Current Account Reversals and Sudden 

Stops,” IMF Staff Papers, 2004; 51(0): 1-49. 

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23

Appendix A

April 2023 

“Stock Market Cycles, Financial Liberalization and Volatility,” Journal of International 

Money and Finance, 2004. 

“Flexible exchange rates as shock absorbers”, (with Eduardo Levy Yeyati), European 

Economic Review, 2005, 49 (8), 2079-2105. 

“Is The Current Account Deficit Sustainable? If Not, How Costly Is Adjustment Likely to 

Be?,” Brookings Papers on Economic Activity, 2005, 0(1): 211-71. 

“Strict Dollarization and Economic Performance: An Empirical Investigation,” (with 

I.Magendzo) Journal of Money, Credit and Banking, 38, 1, pp. 269-282, February 2006. 

“Internacionalización y Politica Económica en América Latina,” Estudios Internacionales, 

39, 154, pp. 79-80, September 2006. 

“External Imbalances in an Advanced, Commodity-Exporting Country: The Case of New 

Zealand,” pp. 149-180, Testing Stabilization Policy Limits in a Small Open Economy, 

Reserve Bank of New Zealand, November 2006. 

“The U.S. Current Account Deficit: Gradual Correction or Abrupt Adjustment?”, Journal of 

Policy Modeling, 28, 6, pp. 629-643, September 2006. 

“Monetary Unions, External Shocks and Economic Performance: A Latin American 

Perspective,” International Economics and Economic Policy, 3, pp. 225-247, December 

2006.

“Crises and Growth: A Latin American Perspective,” Revista de Historia Economica, 

Madrid, vol. 25, no. 1, Spring 2007, pp. 19-51

“Capital Controls, Capital Flow Contractions, and Macroeconomic Vulnerability,”

Journal of International Money and Finance, vol. 26, no. 5, September 2007, pp. 814-40.

“The Relationship between Exchange Rates and Inflation Targeting Revisited,” pp. 373- 

413, Monetary Policy Under Inflation Targeting, Mishkin, F.S. and Schmidt-Hebbel 

(Eds.), Banco Central de Chile, 2007. 

“Establishing Credibility: The Role of Foreign Advisors,” pp. 291-329, The Decline of

Latin American Economies: Growth, Institutions, and Crises, Edwards, S., Esquivel, G. 

and Márquez, G. (Eds.), The University of Chicago Press, 2007. 

“Capital Controls, Sudden Stops and Current Account Reversals,” pp. 73-120, Capital

Controls and Capital Flows in Emerging Economies: Policies, Practices, and 

Consequences, Edwards, S. (Ed.), The University of Chicago Press, 2007. 

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24

Appendix A

April 2023 

“Introduction,” pp. 1-11, The Decline of Latin American Economies: Growth, 

Institutions, and Crises, Edwards, S., Esquivel, G. and Márquez, G. (Eds.), The 

University of Chicago Press, 2007. 

“Contra la maldición de la distancia,” (Standing against distance’s curse), in Letras

Libres, Septiembre 2007. 

“Cuenta Corriente y Financiamiento Externo,” (Current Account and External Financing. 

With English summary.) (With Kevin Cowan and Rodrigo Valdés), Economia Chilena, 

vol. 10, no. 3, December 2007, pp. 5-18. 

“Globalisation, Growth and Crises: The View from Latin America,” Australian Economic 

Review, vol. 41, no. 2, June 2008, pp. 123-40. 

“Al Sur de la Crisis,” (South of the Crisis), Letras Libres, December, 2008.

“Hard Currency Pegs and Economic Performance,” With Igal Magendzo, in Money,

Crises, and Transition: Essays in Honor of Guillermo A. Calvo. The MIT Press, 2008, 

pp. 121-56

“Financial Markets Volatility and Performance in Emerging Markets: An Introduction”, 

in Financial Markets Volatility and Performance in Emerging Markets, Edited by 

Sebastian Edwards and Marcio García, University of Chicago Press, 2008. 

“Financial Openness, Currency Crises and Output Losses”, in Financial Markets 

Volatility and Performance in Emerging Markets, Edited by Sebastian Edwards and 

Marcio García, University of Chicago Press, 2008. 

“Current Account and External Financing: An Introduction,” in Current Account and 

External Financing, Cowan, Kevin, Edwards, Sebastian and Valdes, Rodrigo O. 

Santiago: Central Bank of Chile, 2008, pp. 582

“Openness, Trade Liberalization, and Growth in Developing Countries,” in Globalization 

and Productivity. David Greenaway (Ed). Edward Elgar. 2008, pp. 27-62 

“On Current Account Surpluses and the Correction of Global Imbalances,” in Current 

Account and External Financing, Cowan, Kevin; Edwards, Sebastian and Valdes, 

Rodrigo O. Santiago: Central Bank of Chile, 2008, pp. 582

“The Economics of Crime: Lessons for and from Latin America: An Introduction,” in

The Economics of Crime: Lessons For and From Latin America, Di Tella,

Rafael; Edwards, Sebastian; Schargrodsky, Ernesto, eds. University of Chicago Press, 

2010.

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25

Appendix A

April 2023 

“Sequencing of Reforms, Financial Globalization, and Macroeconomic Vulnerability,” 

Journal of the Japanese and International Economies, vol. 23, no. 2, June 2009, pp. 131- 

48.

“Protectionism and Latin America's Historical Economic Decline,” Journal of Policy

Modeling, vol. 31, no. 4, July-August 2009, pp. 573-84. 

“Capital Controls on Inflows, Exchange Rate Volatility and External Vulnerability,” 

(with Roberto Rigobón), Journal of International Economics, vol. 78, no. 2, July 2009, 

pp. 256-67.

“The International Transmission of Interest Rate Shocks: The Federal Reserve and 

Emerging Markets in Latin America and Asia,” Journal of International Money and 

Finance, vol. 29, no. 4, June 2010, pp. 685-703. 

“Exchange-Rate Policies in Emerging Countries: Eleven Empirical Regularities from 

Latin America and East Asia,” Open Economies Review, vol. 22, no. 4, September 2011, 

pp. 533-63.

“Adjustment Patterns to Commodity Terms of Trade Shocks” (With J. Aizenman and D 

Riera-Crichton), Journal of International Money and Finance, December 2012 

“The Federal Reserve, Emerging Markets and Capital Controls,” Journal of Money,

Credit and Banking, December 2012 

“Monetary Policy Independence under Flexible Exchange Rates: An Illusion?,” The 

World Economy, 38(5), pp. 773-787, May 2015 

“Argentina’s haircut as an outlier,” Vox EU, 2015

“Economic Development and the Effectiveness of Foreign Aid: A Historical 

Perspective,” Kyklos, 2015 

“Sovereign Default, Debt Restructuring, and Recovery Rates: Was the Argentinean 

‘Haircut’ Excessive?,” Open Economies Review, pp. 1-29, 2015 

“Constitutional Rights and Inequality in Education” (with Alvaro Garcia Marin), (In 

Spanish) Estudios Públicos, 2015 

“Constitutional Rights and Education: An International Comparative Study” (with Alvaro 

Garcia Marin), Journal of Comparative Economics, 2015 

“Currency changes and contracts: Lessons for Greece” Vox EU, 2015

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26

Appendix A

April 2023 

“The Federal Reserve and Monetary Policy in Latin America. Is there a policy spillover.” 

In Michael Bordo and John Taylor (Eds). Rules for International Monetary Stability: 

Past Present, and Future, Hoover Institution Press, Stanford, pp. 1-54, 2017

“Keynes and the Dollar in 1933,” Financial History Review, 2017

“The London Monetary and Economic Conference of 1933 and the end of the Great 

Depression.” Open Economies Review 28, no. 3 (2017): 431-459. 

“Keynes on the Sequencing of Economic Policy: Recovery and Reform in 1933.” History 

of Economics Review 68, no. 1 (2017): 17-34. 

“Gold, the Brains Trust, and Roosevelt.” History of Political Economy 49, no. 1 (2017): 

1-30.

“Finding equilibrium: on the relation between exchange rates and monetary policy,” Bank 

for International Settlements papers, 96, pp. 1-27, 2018 

“Monetary Policy, Fiscal Dominance, Contracts, and Populism,” Cato Journal, 38(1), pp33-50, Cato Institute, 2019. 

“Inflation Targeting, Capital Controls, and Currency Intervention in Iceland, 2012–

2017,” in The 2008 Global Financial Crisis in Retrospect, R. Aliber and G. Zoega (Eds.), 

Cham: Palgrave Macmillan, 2019, 395-410. 

“Modern Monetary Theory: Cautionary Tales from Latin America,” Cato Journal, 39(3), 

2019, 529-562. 

“On Latin American Populism, and Its Echoes around the World,” Journal of Economic 

Perspectives, 33(4), 2019, 76-99. 

“Milton Friedman in Chile: Shock Therapy, Economic Freedom, And Exchange Rates,” 

(with L. Montes) in Journal of the History of Economic Thought, 42(1), 2020, 105-132. 

“A Fed for Next Time: Ideas for a Crisis‐Ready Central Bank — Panel 4: Preserving 

Monetary Autonomy,” (with P. Stella, G. Selgin, and V. Guida), Cato Institute, 2020. 

“Milton Friedman and Exchange Rates in Developing Countries,” National Bureau of 

Economic Research Working Paper Series, No. 27975, 2020. 

“Change of monetary regime, contracts, and prices: Lessons from the great depression, 

1932–1935,” Journal of International Money and Finance, Volume 108, 2020. 

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27

Appendix A

April 2023 

“Macroprudential Policies and The Covid-19 Pandemic: Risks and Challenges For 

Emerging Markets,” National Bureau of Economic Research Working Paper Series, 

No. 29441, 2021. 

“Central Bank Digital Currencies and the Emerging Markets: The Currency 

Substitution Challenge,” Challenge, 64:5-6, 2021, 413-424. 

“Exchange Rate Pass-Through, Monetary Policy, and Real Exchange Rates: Iceland 

and the 2008 Crisis,” (with L. Cabezas) in Open Economies Review, 33, 2022, 197-

230. 

“The Department of Economics at the University of Chicago, 1947–1982” (with A.C. 

Harberger) in The Palgrave Companion to Chicago Economics, R.A. Cord (Ed.), 

Cham: Palgrave Macmillan, 2022, 3-20. 

“International Economics at Chicago” (with D.A. Irwin) in The Palgrave Companion to 

Chicago Economics, R.A. Cord (Ed.), Cham: Palgrave Macmillan, 2022, 55-57. 

III. Book Reviews

Review of “International Debt and the Stability of the World Economy” by William 

Cline in Journal of International Money and Finance, August 1984. 

Review of “Exchange Rates in Multi-Country Econometric Models,” in Journal of 

International Economics, P. De Grauwe and T. Peters (Eds.), 1985. 

Review of “Exchange Rates in Multi-Country Econometric Models,” in Journal of 

International Economics, P. De (Ed.), 19(3), 1985,387-390. 

Review of “Latin-American Experiments in Neo-Conservative Economics,” in Journal of 

Development Economics, 17(3), 1985,321-325. 

Review of “Two Crises: Latin America and Asia 1929-38 and 1973-83” by Angus 

Maddison in Journal of Economic Literature. June 1987. 

Review of “Neoconservative Economies in the Southern Cone of Latin America, 1973- 

1983,” Journal of Economic Literature, 26(1), 1998, 110-111. 

Review of “Dollars, Debts and Deficits” by Rudiger Dornbusch in Journal of Economic 

Literature. 27(2), 1989, 635-637. 

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28

Appendix A

April 2023 

Review of “A Century of Debt Crises in Latin America: From Independence to the Great 

Depression” by Carlos Marichal in Journal of Economic Literature, 28(3), September 

1990, 1207-1208. 

Review of “The Order of Economic Liberalization: Financial Control in the Transition to 

a Market Economy” by Ronald I. McKinnon in The World Economy, May 1993. 

Review of “India in Transition: Freeing the Economy” by Jagdish Bhagwati in The

Journal of International Trade and Economic Development, April 1995. 

Review of “Globalization and its Discontent” by Joseph Stiglitz, in Journal of 

Development Economics, 2003. 

IV. Selected Publications in Spanish and Other Languages

“Shadow Price of Foreign Exchange and Effective Protection,” (in Spanish) in Cuadernos 

de Economía, Chile, 12, December 1975, 127-144. 

“A Simplified Model for Estimating the Equilibrium Level of the Exchange Rate in 

Chile,” (in Spanish) in Estudios de Economía, Chile, 9(0), 1977, 121-147. 

“The Impact of a Common External Tariff on the Balance of Payments and Exchange 

Rate: The Case of Chile and the Andean Pact,” (in Spanish) in EI Trimestre Económico, 

Mexico, 175(0), July-September 1977, 237-244. 

“A Note on Monetary Policy, Expectations and Nominal Interest Rates,” (in Spanish) in 

Cuadernos de Economía, Chile, 16(0), August 1979, 237-244. 

“Trade Liberalization, Minimum Wages and Employment in the Short Run,” (in Spanish) 

Cuadernos de Economía, Chile, 17(0), December 1980, 303-314. 

“On the Determinants of Country Risk -A Preliminary Analysis for the Case of LDCs,” 

(in Spanish) in Final Report on First BHC International Seminar, Santiago, Chile, 1981. 

“Inflation and Exchange Rate Regimes -An Empirical Analysis of the Latin American 

Experience 1950-1967,” (in Spanish) in Estudios de Economía, Chile, 13(0), 1981, 63- 

84.

“Technological Progress and Inflation Differentials: A Comment,” (in Spanish) in 

Cuadernos de Economía, Chile, 19(56), April 1982, 87-92. 

“Exchange Rate Adjustment and the Demand for International Reserves: An Empirical 

Analysis,” (in Spanish) in Cuadernos de Economía, Chile, 19(57), August 1982, 193-202. 

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29

Appendix A

April 2023 

“Savings, Growth and Foreign Debt -The Case of Chile,”(in Spanish) in Revista de 

Estudios Internacionales, Chile, 1982, 260-275. 

“The Relationship Between Interest Rates and the Exchange Rate Under a Floating 

System,” (in Spanish) in Cuadernos de Economía, Chile, 20(59), April 1983, 65-74. 

“Openness and External Disturbances in a Small Developing Economy,” (in Portuguese) 

in Revista Brasileira de Economia, February 1984, 110-128. 

“The Demand for International Reserves by LDCs: A Dynamic Analysis,” (in Spanish) in 

El Trimestre Económico, Mexico, 51(210), January-April 1984, 131-146. 

“Foreign Debt and Country Risk,” (in Spanish) in Cuadernos de Economía, Chile, 21(62), 

April 1984, 3-23. 

“Stabilization with Liberalization: Chile 1973-1983,”(in Spanish) in Estudios Públicos, 

Chile, 14(0), Fall 1984, 91-128. 

“On the Relation Between Devaluations and Real Output: An Empirical Investigation of 

the Contractionary Devaluation Issue,” (in Spanish) in Coyuntura Económica, Bogota, 

Colombia, 15(4), December 1985. 

“Exchange Controls, Devaluations and Real Exchange Rates: The Latin American 

Experience,” (in Spanish) in Exchange Controls and the Economy, Banco de la República 

de Colombia (Ed.), 1988,219-260. 

“La Crisis de la Deuda Externa y las Politicas de Ajuste Estructural en América Latina,” 

in Coleccion Estudios CIEPLAN, 23(0), March 1988, 145-193. 

“Programas de Ajuste y Crecimiento,” (with E. Bacha) in EI Trimestre Económico, 

56(0), July 1989. 

“Desajustes del Tipo de Cambia en Paises en Vias de Desarrollo,” in Estudios de 

Economía, 16(2), 1989, 249-271. 

“Controles Cambiarios, Devaluaciones y Tipos de Cambia Reales: La Experiencia 

Latinoamericana,” in Centro de Estudios Monetarios Latinoamericanos, 35(6), 1989, 

261-282.

“La Fijacion de Precios de Obligaciones y Prestamos Bancarios en Mercados 

Internacionales: Un Analisis Empirico del Prestamo Extranjero a Paises en Vias de 

Desarrollo,” in Informacion Comercial Española, 1989, 53-77. 

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30

Appendix A

April 2023 

“Exchange Rate Adjustment and Macroeconomic Equilibrium in Costa Rica: Lessons and 

Prospects,” (in Spanish) in Politicas Economicas en Costa Rica, C. Gonzalez-Vega and E. 

Camacho-Mejia (Eds.), Academia de Centro America, San Jose de Costa Rica, 1990, 93- 

125.

“Structural Reform and Openness in Developing Countries: Problems of Sequencing and 

Speed,” (in Spanish) in Apertura Económica v Sistema Financiero, F. Gomez-Ordonez 

(Ed.), Bogotá, Asociacion Bancaria de Colombia, 1990, 318-347. 

“The Macroeconomics of Populism in Latin America,” (with R. Dornbusch), (in Spanish) 

in El Trimestre Económico, 57(225), January-March 1990, 121-162. 

Reprinted (in Spanish) in INCAE, 5(1), 1991, 45-63.

“Sector Externo, Politicas Financieras y Proceso de Ajuste Macroeconomico: Del 30 De 

Marzo al 1 de Abril de 1989,” (with E. Bacha) in EI Trimestre Económico, 57(0), 1990.

“Conceptos y Mediciones del Tipo de Cambia Real en los Paises en Desarrollo,” in 

Monetaria, 13(4), 1990, 357-399. 

Growth. Reform and Adjustment (in Spanish) (Co-edited with S. Teitel), Fondo de 

Cultura Económica, Mexico, D.F. Mexico 1991. 

“Politicas Publicas y Desarrollo y Ajuste de Mercados de Trabajo: Introduccion,” (with 

E. Bacha) in EI Trimestre Económico, 58(0), December 1991, 3-7. 

Monetarism and Liberalization: The Chilean Experiment (in Spanish, in collaboration 

with A. Cox-Edwards), Mexico, Fondo de Cultura Economica, 1992. 

Macroeconomía del Populismo en la América Latina (Co-edited with R. Dornbusch), 

Mexico, Fondo de Cultura Económica, 1992. 

“Introduccion: Crecimiento, Politica, Comercial y Economia Politica del Ajuste,” (with 

E. Bacha) in EI Trimestre Económico, 59(0), December 1992, 3-6. 

“The Nominal Exchange Rate as a Nominal Anchor,” (in Spanish) in Ensayos Sabre

Politica Económica, Colombia, December 1992. 

“Orientacion del Commercio Exterior, Deformaciones y Crecimiento en Los Paises en

Desarrollo,” in EI Trimestre Económico, 59(0), December 1992, 41-74. 

“Desafios y Oportunidades en América Latina,” in Altius, Citius, Fortius, ICAREENADE, Santiago, Chile, 1993. 

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31

Appendix A

April 2023 

“América Latina y el Reciente Proceso de Integracion Regional y Mundial,” in 

Coyuntura Económica, 24(3), 1994, 103-119. 

“The Future of Latin American Reforms,” (in Spanish) in Informacion Comercial

Española, 1994. 

“Reformas Comerciales en América Latina,” in Coyuntura Económica, 24(4), 1994, 99- 

118.

“EI Fin de Las Reformas Latinoamericanas?,” in Estudios Públicos, 1998, 69-84.

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Appendix B 

1 

Materials Considered

Legal Documents

• Disclosure Statement for Modified Second Amended Title III Plan of Adjustment of the Puerto Rico 

Electric Power Authority, dated March 1, 2023, and accompanying Exhibits. 

• First Amended Title III Plan of Adjustment of the Puerto Rico Electric Power Authority, dated 

February 9, 2023, and accompanying Schedules. 

Expert Reports

• Expert Report of Dr. Maureen Chakraborty, April 28, 2023, and associated Exhibits. 

• Expert Report of Susan Tierney, PhD., April 28, 2023, and associated Exhibits. 

Publicly Available Documents

• “Assessment of Development Results - Georgia,” United Nations Development Programme. 

Accessed April 20, 2023, <https://www.oecd.org/countries/georgia/47861316.pdf>.

• “Congressional Task Force on Economic Growth in Puerto Rico – Report to the House and Senate,” 

United States Congress, December 20, 2016. Accessed April 19, 2023, 

<https://www.finance.senate.gov/imo/media/doc/Bipartisan%20Congressional%20Task%20Force%2

0on%20Economic%20Growth%20in%20Puerto%20Rico%20Releases%20Final%20Report.pdf?platf

orm=hootsuite>. 

• “Estimating Public, Private, and PPP Capital Stocks,” IMF Fiscal Affairs Department, May 2021. 

Accessed April 21, 2023, <https://infrastructuregovern.imf.org/content/dam/PIMA/KnowledgeHub/dataset/InvestmentandCapitalStockDatabaseUserManualandFAQ_May2021.pdf>. 

• “Evaluation and Improvement of Puerto Rico’s National Economic Accounts,” Bureau of Economic 

Analysis, September 2011. Accessed April 19, 2023, <https://jp.pr.gov/wpcontent/uploads/2021/09/Evaluation-and-Improvement-of-Puerto-Ricos-National-EconomicAccounts-September-2011.pdf>. 

• “Full Committee Meeting to Examine the State of the U.S. Territories,” Written Submission, U.S. 

Senate Committee on Energy and Natural Resources, Government of Puerto Rico, February 9, 2023. 

Accessed April 27, 2023, <https://www.energy.senate.gov/services/files/A1843597-5C10-4578-

B100-2261CDE0649A>. 

• “House Price Index Datasets,” Federal Housing Finance Agency, 2023. Accessed April 21, 2023, 

<https://www.fhfa.gov/DataTools/Downloads/Pages/House-Price-Index-Datasets.aspx>.

• “Kiribati,” Britannica. Accessed April 19, 2023, <https://www.britannica.com/place/Kiribati>. 

• “Moldova country profile,” BBC, February 20. Accessed April 19, 2023, < 

https://www.bbc.com/news/world-europe-17601580>. 

• “Nigeria profile – Timeline,” BBC, February 18, 2019. Accessed April 19, 2023, < 

https://www.bbc.com/news/world-africa-13951696>. 

• “Norther Mariana Islands,” Gregorio Sablan. Accessed April 20, 2023 <https://sablan.house.gov/ourdistrict>.

• “Population estimates and projections,” The World Bank, 2023. Accessed April 21, 2023, 

<https://databank.worldbank.org/source/population-estimates-and-projections>.

• “Puerto Rico - Limited Federal Data Hinder Analysis of Economic Condition and DOL’s 2016 

Overtime Rule,” United States Government Accountability Office, June 2018. Accessed April 19, 

2023, <https://www.gao.gov/assets/gao-18-483.pdf>. 

• “Puerto Rico Economic Data,” Economic Development Bank for Puerto Rico. Accessed April 21, 

2023, <https://www.bde.pr.gov/BDE/PRED.html>. 

• “Puerto Rico Economic Indicators,” New York Federal Reserve, April 19, 2023. Accessed April 20, 

2023, 

Case:17-03283-LTS Doc#:24175-1 Filed:05/09/23 Entered:05/09/23 09:12:01 Desc:

Exhibit Page 114 of 118
Appendix B

2

<https://www.newyorkfed.org/medialibrary/media/research/regional_economy/charts/Regional_Puert

oRico>.

• “Puerto Rico Economy at a Glance,” U.S. Bureau of Labor Statistics, Manufacturing Excel 

Workbook (“SeriesReport-20230418200059_ddd172.xlsx,” Sheet “BLS Data Series,” rows 13-36). 

Accessed April 21, 2023, <https://www.bls.gov/eag/eag.pr.htm#eag_pr.f.3>.

• “Puerto Rico’s Debt Restructuring Process,” Financial Oversight and Management Board for Puerto 

Rico. Accessed April 18, 2023, <https://oversightboard.pr.gov/debt/>.

• “Puerto Rico’s Public Utilities,” Financial Oversight and Management Board, The Independent 

Investigator’s Final Investigative Report - Section V (2), August 20, 2018 (as referenced in the 

Disclosure Statement and available at the Oversight Board’s website). Accessed April 21, 2023, 

<https://drive.google.com/file/d/19-lauVo3w9MPS03xYVe0SWhQin-Q6FEf/view?pli=1>.

• “Report by the President’s Task Force on Puerto Rico’s Status – Executive Summary,” March 2011. 

Accessed April 19, 2023, 

<https://obamawhitehouse.archives.gov/sites/default/files/uploads/Puerto_Rico_Task_Force_ExecSu

mmary.pdf>.

• “Statistical Appendix to the Economic Report to the Governor,” Puerto Rico Planning Board, 1975-

2021. Accessed April 25, 2023, <https://jp.pr.gov/apendice-estadistico-del-informe-economico-a-lagobernador/>.

• “The Puerto Rico Economic Activity Index (EDB-EAI),” Center of Economic Studies, March 30, 

2023. Accessed April 25, 2023, <https://www.bde.pr.gov/BDE/PREDDOCS/EDB-EAI.pdf>.

• “The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1987,” The Nobel 

Prize, October 21, 1987. Accessed April 20, 2023, <https://www.nobelprize.org/prizes/economicsciences/1987/press-release/>.

• “The World Factbook — Central America and the Caribbean,” Central Intelligence Agency. Accessed 

April 21, 2023, <https://www.cia.gov/the-world-factbook/central-america-and-the-caribbean/>.

• “Unemployment Rate in Puerto Rico [PRUR],” U.S. Bureau of Labor Statistics and FRED, Federal 

Reserve Bank of St. Louis. Accessed April 24, 2023, <https://fred.stlouisfed.org/series/PRUR>.

• “Why has the Syrian war lasted 11 years?,” BBC News, March 15, 2022. Accessed April 20, 2023, 

<https://www.bbc.com/news/world-middle-east-35806229>.

• “Wittgenstein Centre Data Explorer Version 2.0.,” Wittgenstein Centre for Demography and Global 

Human Capital, 2018. Accessed April 25, 2023 <http://www.wittgensteincentre.org/dataexplorer>.

• “Wittgenstein Centre Human Capital Data Explorer,” Wittgenstein Centre Demography and Global 

Human Capital, 2023. Accessed April 20, 2023, <http://dataexplorer.wittgensteincentre.org/wcdev2/>.

• “World Development Indicators,” The World Bank, 2023. Accessed April 20, 2023, 

<http://data.worldbank.org/data-catalog/world-development-indicators>.

• 2018 Fiscal Plan for Puerto Rico as Certified by the Financial Oversight and Management Board, 

dated June 29, 2018.

• 2022 Certified Fiscal Plan for the Puerto Rico Electric Power Authority, dated June 28, 2022.

• 2022 Fiscal Plan for Puerto Rico as Certified by the Financial Oversight and Management Board, 

dated January 27, 2022.

• 2023 Transformation Plan for Puerto Rico Restoring Growth and Prosperity As Certified by the 

Financial Oversight and Management Board for Puerto Rico, Volumes 1-3, April 3, 2023.

• Economic Data for Puerto Rico, U.S. Bureau Economic of Analysis, July 26, 2022. Accessed April 

20, 2023, < https://www.bea.gov/sites/default/files/2022-07/prgdp0722.xlsx.

• Gregorio Sablan, “Northern Mariana Islands,” Accessed April 20, 2023 

<https://sablan.house.gov/our-district>.

Case:17-03283-LTS Doc#:24175-1 Filed:05/09/23 Entered:05/09/23 09:12:01 Desc:

Exhibit Page 115 of 118
Appendix B 

3 

• Pennings, S., “Long Term Growth Model (LTGM v4.3) - Model Description,” The World Bank, May 

12, 2020. Accessed April 24, 2023, <https://thedocs.worldbank.org/en/doc/133191589476085869-

0050022020/original/ModelOutlineV43.pdf>. 

• World Bank Country and Lending Groups,” The World Bank. Accessed April 28, 2023, 

<https://datahelpdesk.worldbank.org/knowledgebase/articles/906519-world-bank-country-andlending-groups> 

Research Articles and Textbooks

• Acemoglu, D., Introduction to Modern Economic Growth. (Princeton University Press: Princeton, 

2009). 

• Amador, M. and C. Phelan, “Reputation and Partial Default,” National Bureau of Economic 

Research, Working Paper 28997, 2021 

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2010. 

• Armstrong, J.S., “Extrapolation for Time-Series and Cross-Sectional Data,” Armstrong, J.S. (ed.), 

Principles of Forecasting: A Handbook for Researchers and Practitioners. (Kluwer Academic 

Publishers: Norwell, 2001).

• Borensztein, E., and U. Panizza, “The Costs of Sovereign Default,” IMF Staff Papers, 56, 4, 2009: 

683-741. 

• Bram, J. et al., “Trends and Developments in the Economy of Puerto Rico,” Federal Reserve Bank of 

New York, Current Issues in Economics and Finance Second District Highlights, 14, 2, 2008. 

• Caselli, F., “Accounting for Cross-Country Income Differences,” Aghion, P. and S. N. Durlauf (ed.), 

Handbook of Economic Growth (Volume 1A). (Elsevier: North Holland, 2005). 

• Chatfield, C., Time-Series Forecasting. (Chapman & Hall/CRC: Boca Raton, 2000), Section 1.3. 

• Cruces, J. J., and C. Trebesch, “Sovereign Defaults: The Price of Haircuts,” American Economic 

Journal: Macroeconomics, 5, 3, 2013: 85-117. 

• Dean, J., “Ukraine: Europe’s Forgotten Economy.” Challenge, 43, 6, 2000: 93-108. 

• Eaton, J., and M. Gersovitz, “Debt with Potential Repudiation: Theoretical and Empirical 

Analysis,” The Review of Economic Studies, 48, 2, 1981: 289-309. 

• Eaton, J., and M. Gersovitz, “Debt with Potential Repudiation: Theoretical and Empirical 

Analysis,” The Review of Economic Studies, 48, 2, 1981: 289-309. 

• Eden, M. and A. Kraay, “‘Crowding in’ and the Returns to Government Investment in Low-Income 

Countries,” Policy Research Working Paper, The World Bank, 2014, <https://doi.org/10.1596/1813-

9450-6781>. 

• Ekrem, E., et al., “Female Labor Force Participation and Economic Growth: Theoretical and 

Empirical Evidence.” The Empirical Economics Letters, 15, 10, 2016: 985-991 

• Farhadi, M., “Transport infrastructure and long-run economic growth in OECD countries.” 

Transportation Research Part A: Policy and Practice, 74, 2015: 73-90. 

• Feenstra, R.C. et al., “The Next Generation of the Penn World Table,” American Economic Review, 

105, 10, 2015: 3150-3182. 

• Friedman, B.M., “Crowding Out or Crowding In? Economic Consequences of Financing Government 

Deficits,” Brookings Papers on Economic Activity, 1978, 3, 1978: 642-654. 

• Grossman, H. I., and J.B. Van Huyck, “Sovereign Debt as a Contingent Claim: Excusable Default, 

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• Hall, R.E., and C.I. Jones, “Why Do Some Countries Produce So Much More Output per Worker than 

Others?,” The Quarterly Journal of Economics, 114, 1, 1999: 83-116. 

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• Kamps, C., “New Estimates of Government Net Capital Stocks for 22 OECD Countries, 1960-2001,” 

IMF Staff Papers, 53, 1, 2006. 

Case:17-03283-LTS Doc#:24175-1 Filed:05/09/23 Entered:05/09/23 09:12:01 Desc:

Exhibit Page 116 of 118
Appendix B 

4 

• Khanna, R., and Chandan Sharma., “Does infrastructure stimulate total factor productivity? A 

dynamic heterogeneous panel analysis for Indian manufacturing industries,” The Quarterly Review of 

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2007: 403-446. 

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Public Policy, 1, 1976:19-46. 

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Innovation and Sustainable Development 4, 2-3, 2009: 97-108 

• Mankiw, N.G., Macroeconomics (7th Edition). (New York: Worth Publishers, 2010).

• Mankiw, N.G., Principles of Macroeconomics (6th Edition). (Mason: Thompson South-Western 

Cengage, 2012).

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Inc.: New York, 1980). 

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Literature, 47, 3, 2009: 651-698 . 

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New York, 2012). 

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Model,” Congressional Budget Office, Working Paper, 3, 2018. 

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2003:85-90. 

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Economics, 70, 1, 1956: 65-94. 

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Confidential Case Documents

• 2022 Certified Commonwealth Fiscal Plan Excel Workbook (“January 2022 Fiscal Plan Model 

Certified (Dataroom) .xlsx”).

• Letter from Proskauer, In re: The Financial Oversight and Management Board For Puerto Rico, as 

Representative of Puerto Rico Electric Power Authority, No. 17-04780-LTS, dated April 17, 2023. 

• Marrero, O.J. “Investor Presentation Fiscal & Economic Progress Update,” Presentation at JP Morgan 

High Yield Conference, March 7, 2023. 

Case:17-03283-LTS Doc#:24175-1 Filed:05/09/23 Entered:05/09/23 09:12:01 Desc:

Exhibit Page 117 of 118
Solow Model Real 

GNP Projection

EOM Real GNP 

Projection 

with Income 

Adjustment

EOM Real GNP 

Projection 

without Income 

Adjustment

World Bank 

Population 

Projection

Commonwealth 

Fiscal Plan 

Population 

Projection

$ 5,731,000,000 $ 6,031,715,926 $ 5,760,878,829 3,263,584 3,322,863

$ 5,921,046,484 $ 6,346,253,694 $ 5,912,790,676 3,268,675 3,278,624

$ 5,958,691,686 $ 6,382,301,815 $ 5,967,676,184 3,276,550 3,241,305

$ 5,978,049,951 $ 6,277,984,461 $ 5,927,451,827 3,282,839 3,207,742

$ 6,015,254,601 $ 6,212,156,731 $ 5,927,833,098 3,286,781 3,176,643

$ 6,063,717,082 $ 6,182,533,021 $ 5,946,563,741 3,287,874 3,152,073

$ 6,164,649,169 $ 6,224,998,970 $ 6,004,570,633 3,285,947 3,137,306

$ 6,249,661,915 $ 6,252,491,743 $ 6,033,336,186 3,280,893 3,121,597

$ 6,304,364,450 $ 6,246,445,326 $ 6,027,947,612 3,270,699 3,103,796

$ 6,335,446,470 $ 6,225,645,533 $ 6,008,053,246 3,254,590 3,081,449

$ 6,357,071,564 $ 6,214,802,594 $ 5,997,839,019 3,233,138 3,055,271

$ 6,348,183,759 $ 6,169,850,292 $ 5,953,869,873 3,207,905 3,027,073

$ 6,332,696,047 $ 6,126,801,407 $ 5,911,662,684 3,181,722 2,999,983

$ 6,314,360,046 $ 6,078,131,804 $ 5,863,973,453 3,155,170 2,973,390

$ 6,301,058,421 $ 6,028,061,082 $ 5,814,983,655 3,128,540 2,946,111

$ 6,262,618,285 $ 5,943,077,525 $ 5,731,494,272 3,101,943 2,915,518

$ 6,241,561,096 $ 5,882,661,605 $ 5,672,307,517 3,075,307 2,883,783

$ 6,232,966,608 $ 5,834,253,170 $ 5,625,242,754 3,048,726 2,851,037

$ 6,233,736,962 $ 5,794,804,109 $ 5,587,315,795 3,022,090 2,818,131

$ 6,240,932,246 $ 5,762,358,649 $ 5,556,545,289 2,995,465 2,786,247

$ 6,287,055,954 $ 5,763,519,291 $ 5,557,554,115 2,968,675 2,755,326

$ 6,256,686,937 $ 5,702,828,704 $ 5,501,183,077 2,941,766 2,724,321

$ 6,267,546,872 $ 5,676,938,933 $ 5,477,108,324 2,914,499 2,693,899

$ 6,277,344,168 $ 5,652,742,505 $ 5,454,676,489 2,886,902 2,664,685

$ 6,285,954,364 $ 5,630,088,632 $ 5,433,729,428 2,859,049 2,637,420

$ 6,296,058,522 $ 5,609,418,069 $ 5,414,703,337 2,830,964 2,611,638

$ 6,317,117,134 $ 5,595,861,705 $ 5,402,407,844 2,802,708 2,587,219

$ 6,335,835,804 $ 5,578,576,538 $ 5,386,704,991 2,774,253 2,564,228

$ 6,358,512,113 $ 5,562,638,765 $ 5,372,304,326 2,745,694 2,541,952

$ 6,383,837,227 $ 5,549,656,487 $ 5,360,776,403 2,716,734 2,519,706

$ 6,405,502,157 $ 5,538,018,851 $ 5,350,534,622 2,689,133 2,498,791

[1] 

[A] 

[B] 

[C]

Appendix C - Macroeconomic Projections

Note:

Sources: 

2047

2048

2049

2050

2051

2042

2043

2044

2045

2046

2037

2038

2039

Real GNP is in 1954 U.S. dollars. 

2040

2041

2032

2033

2034

2035

2036

Expert Report of Sebastian Edwards. 

2022 Certified Commonwealth Fiscal Plan Excel Workbook (“January 2022 Fiscal Plan Model Certified (Dataroom) .xlsx,” Sheet “Macro 

Forecast,” Cells M25-AP, M264-AP, L31-AP. 

“Population estimates and projections,” The World Bank , 2023. Accessed April 20, 2023, <http://data.worldbank.org/data-catalog/worlddevelopment-indicators>.

Year

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

Case:17-03283-LTS Doc#:24175-1 Filed:05/09/23 Entered:05/09/23 09:12:01 Desc:

Exhibit Page 118 of 118