commonwealth of puerto rico has been through a very rough 10 years. the economy has been in a long slump that could easily be called a depression. residents have endured a terrible drought, periodic blackouts and a fiscal crisis. i don ’ t need to elaborate on all of the struggles puerto rico continues to face. the island has been suffering from a vicious cycle. as employment declines, people move to the mainland to find jobs. accordingly, economic activity and tax revenues decline, forcing the government to raise taxes and cut spending, which further reduces employment and prompts still more residents to move. at this point, the outlook for anyone who has been living here must be bleak, and it may be hard to imagine this situation turning around anytime soon. and yet, history tells us that a turnaround, though not inevitable, is indeed achievable. lessons from past crises new york city is probably the most famous example of a municipality that experienced a major fiscal crisis, recovered and is now thriving. new york city ’ s experience is viewed, in retrospect, as a major success, and some, including myself, have pointed to it as a hopeful example of what 1 / 4 bis central bankers'speeches could come to pass in puerto rico. but, there are important caveats to the new york city story and its applicability to the commonwealth. like puerto rico, new york city experienced a number of years of both political and economic pain as a result of its fiscal crisis in the 1970s. on the political side, new york city residents lost a large measure of their ability to chart their own fiscal direction for several years. decisions about tax and spending policies were removed from elected city officials. the emergency financial control board was empowered to review all fiscal decisions of local officials and demand changes to the city ’ s budgets. part of the city ’ s tax base was dedicated to bond repayment — essentially handing it over to the city ’ s creditors. for 10 years, the city could not access the debt markets without support from the state. the economic pain was also very real. more than 70, 000 city government workers were cut from the payrolls in 1975 and 1976. city residents faced dramatic service reductions — fire houses closed, schools and police precincts had fewer resources, and crime continued to rise for many years. it is also important to note that new york isn ’ t the only u. s. city that has been through a major fiscal crisis. cleveland, philadelphia, washington, d

, which is less than the anticipated growth in the labour force and, therefore, the unemployment rate could increase to 5. 9 per cent. despite the projected increase, our unemployment rate is expected to remain below the european average. it may be worth recalling that the labour market proved particularly resilient to the last significant downturn in economic growth in 2001 / 2002. some pick up in economic growth is likely in 2009 on the basis that house - building activity will stabilise or contract only modestly, and there will be some recovery in the global economy. at this stage, growth in irish gdp and gnp are forecast to recover to 3. 6 per cent and 3. 2 per cent, respectively, in 2009. property prices and private - sector indebtedness i would now like to turn to recent developments in the property market – both residential and commercial. we have come through a buoyant period in the residential market. in previous years, the central bank expressed its concern about the persistently high rate of capital appreciation. however, residential prices are now about 9 per cent lower than this time last year, although there are tentative indications that the pace of decline in prices has eased somewhat. it is important to bear in mind that these developments should be seen as part of a necessary adjustment following many years of exceptional house price inflation. for instance, prices rose by about 12 per cent in 2006 alone and by over 50 per cent between 2002 and 2006. with respect to future price developments, as i stated recently, residential prices are now returning to more realistic levels. i stated in 2006 that, at that time, a gap was opening up between the price of residential property and the fundamentals supporting that position. this gap is now in the process of closing. there are a number of factors that may help to stabilise the market. on the supply side, developers have been very prompt in responding to declining demand and we have seen national completions contract sharply. the underlying demand for housing continues to remain strong, as evidenced by the fact that rents are continuing to grow strongly ( about 9 per cent per annum ), although there is recent evidence of some softening in rental growth. affordability has begun to improve again due to lower house prices and changes to stamp duty and mortgage interest relief. the combination of higher rents and improvements in affordability may already be bringing the relative costs of buying and renting closer, helping to re - establish equilibrium in the market. there are, of course