1. Puerto Rico’s Economic Outlook 3Q 2009 November 30, 2009

2. Content Global economic conditions U.S. economic outlook –A double deep recession –The jobless recovery P.R. economic trends –Macroeconomic indicators –Industry analysis –The banking industry Government initiatives –“Ley de Cierre” –New permits office GNP forecast

3. The global economy India, China and the United States are leading the world economy’s recovery but recovery is “still too timid” to halt the continuing rise in unemployment, according to Organization of Economic Cooperation and Development’s (OECD) latest economic outlook released on Thursday. China, which is set to growth by 8.3 per cent in 2009 and 10.2 per cent next year, is leading the global recovery, helped by its limited direct exposure to the financial crisis and by a massive stimulus package. The Indian economy, projected to grow by 6.1 per cent in 2009-10 and 7.1 per cent next year, has weathered the global downturn relatively well, it said.

4. U.S. economy The U.S. Economy grew at a 3.5% annual rate in the third quarter, marking the end of four straight quarters of contraction. The upturn of the economy was based mainly on positive contributions from its biggest component; Private Consumption Expenditures. Real Personal Consumption expenditures grew 3.4% in the third quarter, compared to a 0.9% decrease in the second. This increase in consumption was propelled by strong growth in auto sales, which by itself contributed 1.66% to the growth in GDP.

5. The U.S. recovery Assuming that there is no second fiscal stimulus package in the US and that the Federal Reserve (the Fed, the US central bank) begins to tighten monetary policy in the second half of 2010, the “Economist Intelligence Unit” expect US GDP growth to weaken to 1.3% in 2011.

6. The labor remains weak Another reason for the skepticism regarding the sustainability of the U.S. recovery is the high unemployment rate. The unemployment currently stands at 10.2% and could top 13%. Consumer spending, which accounts for almost 70% of GDP, will remain constrained as long as unemployment remains at current levels.

7. Puerto Rico’s economic outlook Puerto Rico's economy, which has been contracting steadily since the fiscal year 2006/07, remains extremely weak despite a modest improvement in global economic conditions in recent months. The latest economic data indicate that conditions remained poor in the first half of 2009. The decline in construction activity continued to deepen in the first half of 2009, underscored by a 30% year-on-year decline in the number of construction permits approved. Following a 3% year-on-year decline in the first quarter of 2009, retail sales were down by 3.3% in May, mainly reflecting weaker sales of motor vehicles. Moreover, tourism data show that there was a 4.8% decline in the number of registered hotel guests during the second quarter of 2009. In the first half of 2009 consumption of electricity fell by 5.6%, indicating severe weaknesses in the overall economy.

8. Total employment The unemployment rate was 16.4% in September, up 0.6% from August. The number of unemployed workers rose to 217,000, the Department of Labor reported. The level of unemployed is the most for a September and the unemployment rate of 16.4% is the highest since 1993. The unemployed level is 9,000 more than the one registered in August and 54,000 more than a year earlier.

9. Bankruptcies Bankruptcies continue to spiral upwards. Consistent with the trend registered since the recession began, declared bankruptcies rose 21% in September. The registered total for the month was 1,015, while the same month last year had 814 declared bankruptcies. Regarding commercial bankruptcies, El Boletín de Puerto Rico, reports over 645 filings. The majority of these are in: construction contractors (46), Restaurants (28), Cafeterias (22), Beauty Salons (18) and auto repair shops (18). Total unsecured debt rose to $686 million, while secured debt topped $771 million. This brings the September total to $1,439 million.

10. Retail sales Retail sales remain very weak (-1.46%) due to high unemployment levels, decreasing disposable income, and low consumer confidence. Almost every category shows a negative trend, in particular long term goods such as new car sales (-13%) and construction goods (-13%).

11. Retail sales

12. Christmas sales Christmas retail sales are expecting to be below 2008 level. Higher unemployment, low consumer confidence, and the contraction in credit is expected to affect Christmas sales. Retail sales are expected to be -5% down in 2009.

13. Construction industry

14. The real estate crisis

15. The banking industry Net Income Applicable to Common Shares Market capitalization

16. Fiscal up date Throughout the first quarter of fiscal 2010, treasury revenues have continued their downward trend. Although higher than most estimates, net revenues to the general fund have remained flat during the first quarter even with the introduction of several new special taxes implemented by the current administration. Property taxes, one of the tax groups increased by the Administration, contributed $20 million in September.

17. Revenues to the general fund

18. Personal tax revenues Personal tax revenues decreased by 8.4% or $50.5 million. Increasing unemployment rate is affecting this particular item.

19. Sales tax revenues Sales tax revenues were below expectations in September totaling $84, $3 million less than estimates. It is important to recall that I.V.U revenues to the general fund will be substantially reduced this year due to legislative amendments made to the COFINA law that stipulates that 2.5%, instead of 1%, out of the 4.5% state sales tax will go to the special fund.

20. Government economic actions The GDB held the Public Private Partnership summit in October. High profile investors assisted and confirmed their interest in Puerto Rico. At the end of the legislative session, the new permits legislation and the amendment to the “Ley de Cierre” were approved. The House of Representatives (Federal) approved the Health Reform Bill, that includes Puerto Rico. That would represent and inflow of 13 billion during 6 years.

21. Puerto Rico’s GNP Historically, the local economy has been synchronized with the U.S. economic cycle. However, due to the closing of numerous manufacturing plants as a result of the phasing out of Section 939, the effect of the expansionary cycle of the U.S. is not as important as it was when Puerto Rico was a Strategic industrial point of export towards the U.S. market. Towards the end of the industrial era, the economic ties between Puerto Rico and the North American economy have occurred as functions of tourism, finance flows, and federal transfers.

22. Final remarks The end of the U.S. recession could spell trouble for the local economy. As mentioned in the previous presentation, counter cyclical measures implemented by the U.S. government such as low interest rates and heavy amounts of stimulus will be phased out as the U.S. economy begins to stand on firm ground. Also, commodities such as Oil and Gold have rebounded to 2007 levels, driving up the cost of electricity and gasoline in the island, zapping consumers of disposable income and increasing the cost of doing business in the island. Historically, the local economy has been synchronized with the U.S. economic cycle. However, due to the closing of numerous manufacturing plants as a result of the phasing out of Section 939, the effect of the expansionary cycle of the U.S. is not as important as it was when Puerto Rico was a Strategic industrial point of export towards the U.S. market. Towards the end of the industrial era, the economic ties between Puerto Rico and the North American economy have occurred as functions of Tourism, finance flows and federal transfers. This means that the government must do everything it can to accelerate its economic projects and strategies in order to get out of the current recession and re-synchronize our economy with the U.S. economic cycle.