william c dudley : the road to recovery – puerto rico and the mainland remarks by mr william c dudley, president and chief executive officer of the federal reserve bank of new york, at the e - 3 summit of the americas : export trade basics forum 101, san juan, puerto rico, 1 april 2011. * * * good morning. i am pleased to be back in puerto rico to speak to you and meet with various communities in the commonwealth. each visit gives me a chance to deepen the bank ’ s relationship with the island. last year i visited la cantera and met with community leaders, business people, academics, bankers and government officials. this year i visited goya foods – the oldest hispanic - owned plant in our country with subsidiary facilities in my home state, new jersey, and upstate new york. i will also meet with a similar wide range of people to talk about what we do and to hear first - hand the economic and financial issues important to puerto ricans so that i can best represent all my constituents in my work at the fed. your beautiful island is unique within the second federal reserve district. for me, personally, being here also recalls special memories of my childhood visit with my parents. i thank the organizers for inviting me to speak at the export trade basics forum, to help kick off the week - long summit on education, exports and entrepreneurship that begins next week. this morning i will talk about economic conditions in the mainland and in puerto rico, paying particular attention to the developments since my visit last year and to the role of exports. as always, what i have to say reflects my own views and not necessarily those of the federal open market committee ( fomc ) or the federal reserve system. introduction to the new york fed by way of introduction, let me start with a synopsis of what the new york fed is, what we do, and what makes my job so interesting. the new york fed is part of the federal reserve system, america ’ s central bank, which was created by congress in 1913. with this act, congress delegated to the fed system its constitutional authority to manage the supply of money in the nation ’ s economy. congress designed the central bank to be decentralized, representative of all regions of the country – including puerto rico and the virgin islands – and independent of the political process. the fed system is comprised of the board of governors in washington, d. c. – a federal agency currently led by chairman ben bernanke

the weakness since then has not been broad - based, but instead concentrated in construction and manufacturing. the unemployment rate has come down by a full percentage point since its peak. however, at just over 16 percent, it remains unacceptably high. inflation generally remains subdued on the commonwealth – although there has been some recent volatility. after a period of falling prices in 2009, inflation picked up in december 2009 with annualized rates of around 4 percent for a few months – with medical care a key driver for these increases. since june 2010, reported inflation rates have reverted to a range bis central bankers ’ speeches between 1 percent and 2 percent. however, the rise in food and energy prices is likely to push inflation somewhat higher over the next few months. to help keep track of conditions in puerto rico, we can now look at the institute of statistics ’ new manufacturing purchasing managers index ( pr - pmi ), which is conducted in conjunction with the puerto rico manufacturers association and scotiabank. the survey shows that business conditions on the island were steady in january, following improvement at the end of 2010. the pr - pmi has signaled growth for seven of the past nine months. it will take some time before this new index has a clear track record, but we welcome this source of timely information on economic activity in puerto rico. now, what about credit conditions in puerto rico : how much debt do families have and how have they been doing in terms of meeting their obligations? i needn ’ t tell you how important it has been to monitor these trends over the course of the great recession. using a new source of information – the new york fed ’ s consumer credit panel – we can now track how families in the mainland and puerto rico have managed their credit in recent years. overall, compared with the mainland, puerto ricans avoided much of the recent boom and bust in the use of household credit. yet, signs of distress are readily apparent, owing to the long and deep recession here. unlike the mainland, households on the island did not raise their borrowing much in the run - up to the recession. thus, it is not surprising that puerto rico did not see the sharp spike in loan delinquencies that many areas saw from late 2007 to early 2009. instead, puerto rico ’ s delinquencies on household debt – that is, the proportion of debt where payments are 90 or more days late – have risen gradually as the recession has persisted. in 2005, households were behind