william c dudley : puerto rico and the us virgin islands after hurricanes irma and maria remarks by mr william c dudley, president and chief executive officer of the federal reserve bank of new york, at the economic press briefing on puerto rico and the us virgin islands after hurricanes irma and maria, new york city, 22 february 2018. * * * good morning, and welcome to the new york fed ’ s regional economic press briefing. today, we will provide an update on the economies of puerto rico and the u. s. virgin islands, with particular focus on the impacts of hurricanes irma and maria. as always, what i have to say reflects my own views and not necessarily those of the federal open market committee or the federal reserve system. 1 initial fallout from the storms hurricanes irma and maria did immense damage to puerto rico and the u. s. virgin islands, severely exacerbating what were already very difficult economic conditions. my heart goes out to our fellow citizens who have suffered so much and who face a long and difficult recovery ahead. maria was the most devastating hurricane to hit puerto rico in nearly a century. many lives were lost, homes and businesses suffered immense damage, and large parts of the island ’ s infrastructure and agriculture were destroyed. moreover, puerto rico ’ s power outage was, by far, the most severe in u. s. history, in terms of total customer - hours lost, and it will still likely take many more months to fully restore electricity and other critical infrastructure to all of the island ’ s residents. as a result, a sizable number of residents went to the u. s. mainland in the weeks following maria, and it still is unclear how many will return once circumstances improve. even before the storms hit, puerto rico was struggling with severe fiscal difficulties and a long period of poor economic performance. for over a decade, the island has been experiencing a shrinking economy, contracting employment, low and declining labor force participation, and persistent out - migration of residents to the mainland. furthermore, public debt reached a problematic level, and the commonwealth and its instrumentalities — including the power and water authorities — lost their ability to borrow in the public markets. defaults and ongoing debt restructuring efforts followed. in the u. s. virgin islands, the situation is similar in many ways. st. thomas and st. john were ravaged by irma, and st. croix was devastated by maria just two weeks later. their economy, which is much more dependent on

tourism than that of puerto rico, has also been contracting for the better part of a decade. however, the population of the u. s. virgin islands has not fallen nearly as sharply as puerto rico ’ s, and its economy had stabilized in the past two years following the closure of a major refinery in 2012. still, while by some measures the u. s. virgin islands are not as fiscally stressed as puerto rico, they, too, do not have access to the debt markets. recovery and rebuilding the combined impact of complex preexisting economic problems and the hurricanes has made recovery much more challenging. the loss of market access has severely hampered the ability of the governments to mobilize resources to respond to the damage and rebuild and upgrade infrastructures. one example is puerto rico ’ s electrical grid, which is a major obstacle to recovery. even before maria, puerto rico suffered frequent blackouts, and the high cost and unreliability of electricity 1 / 3 bis central bankers'speeches had reduced business competitiveness. puerto rico ’ s power plants are largely outdated and inefficient, and the electrical distribution system is poorly maintained and extremely fragile. in my mind, given this poor starting point, now is a perfect opportunity for puerto rico to essentially start from scratch and build a resilient power generation and distribution network. i would assume that an emphasis on renewable energy would be part of this effort, especially given the dramatic fall in costs for this form of electricity generation. the challenge, of course, will be how to finance this investment, when the commonwealth is already mired in debt. despite these woes, there are signs of resilience in puerto rico. as we will show, job losses following the storm were very substantial, totaling around 4 percent in puerto rico and 8 percent in the u. s. virgin islands. these losses are considerably steeper than after most major hurricanes that have hit the united states. however, they are not as devastating as katrina ’ s impact on the new orleans economy more than a decade ago, which was and remains unprecedented. nonetheless, the labor market, at least in puerto rico, appears to be stabilizing as jobs in sectors that were most affected — such as leisure and hospitality — have started to come back. and, as repair and rebuilding efforts get underway in both puerto rico and the u. s. virgin islands, jobs are being created in sectors such as construction. these job gains are expected to continue for some