At the urging of several business and community leaders, I commissioned a team at the New York Fed to analyze the challenges facing the Puerto Rico economy and to put forth recommendations on how to capitalize on the Island’s strengths and restore growth. Informed by consultations with local, national and international experts and stakeholders on the Island, we released that report in 2012.1 We presented five recommendations: (1) reduce barriers to labor force participation and job creation; (2) reform the energy industry, particularly, improve the efficiency of the electric  1  Report on the Competitiveness of Puerto Rico’s Economy, Federal Reserve Bank of New York. 2012. Available in English at http://www.newyorkfed.org/regional/puertorico/index.html and in Spanish at http://www.newyorkfed.org/regional/puertorico/spanish.html. BIS central bankers’ speeches  1  utility’s operations; (3) lower the costs of doing business; (4) foster partnerships between industry and higher education; and (5) promote independent policy evaluation. These recommendations were not presented as simple quick fixes, but rather as important steps to help improve the Island’s competitiveness over time. Since that report was issued, positive steps toward reform have been made in some areas. The recent bill reforming the energy sector and related efforts to expand the use of alternative energy sources should over time help to reduce the Island’s high costs of electricity. Additionally, the Commonwealth’s economic development strategy is seeking to capitalize on the strong pharmaceutical presence on the Island, to promote knowledge-based services and, importantly, to improve the general business environment on the Island.

1/7  BIS central bankers' speeches  There was a striking turnaround in capital flows, from net inflows to net outflows, that started in mid-2014, just when we had announced our credit easing package and when expectations were gradually building among market participants that we would also begin purchasing government bonds. At their peak in the spring of 2016, net capital outflows – measured here in terms of 12-month moving sums – reached nearly 5% of euro area GDP. Never before in the history of the euro area have capital flows been so high. You can also see that virtually all net capital outflows have been concentrated in purchases of foreign long-term debt securities. That is, large-scale purchases of sovereign bonds by the ECB encouraged many investors to rebalance their portfolios towards the closest substitute – bonds issued by other sovereigns.3 These capital outflows are likely to have added to downward pressure on global bond yields.4 For quantitative evidence, see Cœuré, B. (2017), “Monetary policy, exchange rates and capital flows”, speech at the 18 Jacques Polak Annual Research Conference hosted by the International Monetary Fund, Washington, 3 November. On the right-hand side you can see that the start of the APP, and prior expectations thereof, coincided with a measurable decline not only in euro area overnight index swap term premia but also in term premia in the United States. Put simply, increased demand for foreign securities increased their prices and thereby lowered their yield.