Title: Rising Costs and End of Federal Aid Contribute to Increase in Commercial Bankruptcies in Puerto Rico
After reporting a significant rise in commercial bankruptcy filings in Puerto Rico, industry leaders have identified several factors that have led to the departure of over 100 businesses in the first half of 2023.
According to data from the Puerto Rico Bulletin, a total of 137 businesses filed for bankruptcy during this period, marking a 19.1% increase compared to the previous year when 115 bankruptcies were registered. The inflationary spiral, high electricity costs, the termination of federal aid for COVID-19, and salary hikes are among the main triggers for this surge.
Lourdes Aponte, the president of the United Retail Center (CUD), emphasized that these difficulties for businesses have persisted since the aftermath of hurricanes Irma and María in 2017. Aponte stated, “High energy costs are one of the fundamental pieces making it increasingly difficult to operate businesses. These bankruptcies are the result of the challenges we have been facing since Irma.”
Restaurants topped the list of the most affected businesses, followed by pharmacies, agricultural companies, real estate, security companies, and medical offices. The total value of bankruptcies amounted to $264.9 million, which is 7.9% lower than the same period last year.
Aponte urged that the injection of federal funds given during past emergencies has already depleted. Therefore, maximizing the use of capital to encourage local trade is crucial. She stressed the need to support local businesses and nurture new talent to deter the flight of local professionals.
Economist José Caraballo Cueto attributed the increase in restaurant bankruptcies to high operating costs, with energy expenses being a major factor. Decreases in sales also contribute to impacting their income. The real estate sector’s bankruptcy surge may be attributed to the decline in property sales in Puerto Rico, as confirmed by data from the Mortgage Bankers Association (MBA), which reported a 17% drop in the home buying and selling market compared to the previous year.
Caraballo Cueto warned about the negative consequences of a market concentrated among surviving businesses, leading to a less competitive environment and fewer job opportunities.
José González, president of the Association of Retail Commerce (Acdet), cited the decrease in federal aid flow after the COVID-19 pandemic and the increase in the federal minimum wage as additional factors contributing to the rise in commercial bankruptcies. González believes that the minimum wage increase and the burden of inventory taxes have made doing business in Puerto Rico more challenging.
Despite the current increase in bankruptcies, some believe that the economic projections for Puerto Rico remain favorable. However, Chantal Benet, an economist from Economic Intelligence firm, stated that as of July, the trend of bankruptcies was still evident.
THE SPOKESMAN attempted to obtain a reaction from the Puerto Rico Restaurant Association (Asore), but no response was received at the time of publication.