Puerto Rico's Sovereign Debt Crisis

DGD Law:  "Because if they do, my horribly mismanaged state with junk bond status and a few others are going to be in line saying if you expanded it for a non-city like PR, we need it badly also."

One of Pandora's boxes that would cost a bundle to open for sure.

ReyP wrote:

CSMI, I see your point and for the most part I agree, however PR has a very high unemployment (around 12%) which means those Government employees are not very likely to find jobs.

Also we can not be certain that those people that are released were sitting on their hands and being non-productive.

While you are right that the goverment needs to scale down by A LOT that does not mean the workers were not productive or that they will find jobs in the private sector.

In my opinion the outdated processes and procedures require the larger number of workers, they are productive within an inefficient system. So the system needs to change and the unnecessary people need to be let go. They will continue to be a drain in the system as they are not likely to find a job in the private sector since there is not much of a private sector.

But I do agree with the basis of your point.

I dont know what the PR government spends on payroll, but let's assume that at least 25% of the government employees could be fired to be closer to the ratio of government employees to citizens compared to the mainland.  Please understand my estimates could be wrong, but the point will be accurate.  Let's say there are 1 million government employees in PR making $40,000 per year including benefits.  If 25% of them could be let go, that would leave 750,000 government employees remaining, or a loss of 250,000 government jobs.  Those 250,000 government jobs x $40,000/year = $10,000,000,000 which is $10 billion per year.  That $10 billion in payroll doesnt come out of thin air.  That $10 billion in wages must be paid for from tax revenue.   Is $10 billion wasted on excess government employees a wise use of capital?    Imagine if instead $10 billion was left in the private sector and instead those 250,000 employees were employed in the private sector where there is greater accountability, less corruption.  Would that not be better for society? 

To further illustrate my point, let's assume I'm wrong, and we should go in the other direction, hiring another 250,000 government employees and raising taxes another $10 billion to pay for it.  Now we have 1,250,000 government employees, with 500,000 unnecessary, being paid $20 billion in wages that are not needed.  Would that be a better solution?   

It's not the government's duty to employ everyone so that they have a job, just so they are not unemployed.  The duty of government should be to provide government services to citizens in the most effecient and cost-effective manner with the fewest number of employees required.  If those services, police, fire, teachers, road/highway construction, tax collection, building inspectors, etc can be provided with 750,000 government employees, the excess employees need to be let go.  Sure, not all of them will be able to easily find a new job, but it is a step in the right direction.

CSMI, in my first post I agreed with you on the need to lay off people and that there was a need to significantly reduce the government.

I only disagree on two minor points:
1) You said the people layoff were not needed/productive. I said we don't know that, that it depended on a very inefficient system and that those people may be needed as long as the inefficient system was in place.
2) You said those people should get a job in the private sector. I just said that due to the high unemployment, they would milk the system since today there are no jobs for them to take.

But I do agree with you on the rest, the government is probably two to 3 times bigger than it needs to be if the systems were efficient and not corrupt.

The pure theory of the smallest limited gov't possible is correct.  Make work or slowing progress is not a good answer.  In other words, employing 10 street sweepers instead of buying a single modern sweeping machine and employing one trained worker is a bad idea.  But there are many things that need fundamental change .  Virtually none of the 9 let go will currently find private sector work.
     U.S. federal minimum wage like 70% of average private sector wage.  Sum of welfare benefits against private sector wage a disincentive to work.  All the protective labor laws a disincentive for employers to hire.  Business atmosphere, costs and regulation/gov't control as Gary previously noted, a disincentive to start a business in PR.  All the anti-change, anti-entrepreneur, calcified socialist environment of the concentration of U.S. law and policy layered over Puerto Rico's years of doing their own version of the same creates a welfare state mentality in the hearts and minds of the people.  And in this rarefied environment the "I can doers" with their birthright American citizenship flee to the mainland for a better chance at life.  How does one change how a generation of people think?  When societal evolution has resulted in a concentration of "trained to live off the government dole" in a given geographic location.  (i.e. Detroit)  This is the crux of Victor's question when he is asking what are the basics I see that offer any sense of hope to this play out of Puerto Rico's future.
     I think in the entire years I raised my son I only spanked him once or twice.  Very deliberate, not in a rush or anger.  A slow discussion of why he was getting the spanking so he totally made the connection of action and consequences.  Dramatic show in a room with just the two of us of bend over and grab your ankles.  Not in front of others, but a humiliation in front of himself that was the result of his behavior that said, "I don't want that to happen again."  Many lib/psycho-babble types are thinking I am a bad person about now.  Someone like me does such a thing because Dad knows if I do not teach the boundary now, life will teach it to my son in a much harder way later.
     Puerto Rico is headed for one heck of a corporate spanking by life itself.  Thing is, so is the U.S. economy/population.  And so is the industrialized world, fiat currency/central bank, multi-national population.  And the timing is the house of cards is all gonna collapse in one ugly scene.  Without a doubt we are about to watch one hell of a world-wide temper tantrum that will make Ferguson/Baltimore look like a holiday.  Personally, I have a much higher level of hope for Puerto Rico's people's ability to grow up than for say, France, Spain, or Italy.  And Brazil or Venezuela?  OMG.  But then I am an optimist by nature.  We will see.  I don't think maybe the best time to open a new cupcake shop in Santurce or Ocean Park.  No, best let the worst of the storm pass and when the sun comes out start seeing what opportunities are there amongst the wide spread damage.  And they will be there.  I hope.

This trailer of zootopia, where they go to the DMV reminds me of PR goverment.
http://www.wsj.com/articles/BL-SEB-92879

OMG Rey.  The DMV sloths are really funny.

Bit of info relative to Jones Act:

     The 1st oil tanker to leave a U.S. port in this century with a load of regular "sold on the open world market" crude oil left Corpus Christi, TX yesterday afternoon.  The ship was built by Hyundai Heavy Industries, South Korea and sails under the Panamanian flag.  Very typical.  Seems a lot of shipping companies create business corporations in Panama.  Unlike most countries that play ball with the U.S. IRS, the Panamanian government corporate registry and banking system is very protective of client privacy.  Hmmm.  The ship's home port is Douglas Harbour, Isle of Mann.  I wonder how many of the sailors on board are actually from Panama or the Isle of Mann?  Just as a guess, maybe - none?  For those of you that don't know, Isle of Mann is another small island, offshore international banking location like the Caymans or the British Virgin Islands.  Not exactly your bustling shipping center of the world.  Um, welcome to how real free markets operate instead of the special interest, politically protected, Florida to San Juan route.
     I can tell you where the ship isn't going.

ReyP wrote:

This trailer of zootopia, where they go to the DMV reminds me of PR goverment.
http://www.wsj.com/articles/BL-SEB-92879

Haha, too funny!

Well we have a brand new year, payment is due Monday when PR is going to partially default on some of the payments. PR also does not comply with the Real ID requirement, so it looks like a GREAT brand new year.
The government efficientcy is as bad as the sloths in the Zootopia movie clip I posted earlier, so things will get better but at Sloth speed.

moving to PR next week... it's starting to feel like we've booked passage on the Exxon Valdez.   

For the new year?  When any of us have a big ol pile of credit card debt hanging over us, it follows us right into the new year and is part of how we make financial decisions.  Puerto Rico has a very big pile of debt to follow them and it's still there when trying to move on with the new.  That is the nature of debt.  Thing is, reality will eventually catch up with the U.S. federal government too.  We are bout there.  2016 will not be pretty.  And of course, it will compound and work together against PR.  There are a few other places that are in particularly bad shape in the U.S., much like PR.  Like say maybe ... Chicago?
     The White House just issued a prediction of under 5% unemployment  and 3%+ GDP for 2016.  OMG, now there's a shovel ready job cause the sh** is gettin' deep. For those of you that wanna believe such a rosy prediction?  It ain't happening.  Prepare yourself accordingly.  Ron y country music last night.  Ooh my.
     Hey Sitka, the Exxon Valdez went down 'cause el capitan was drunk.  The El Faro went down because it was a over 40 yr old ship tryin to outrun a hurricane and it's propulsion system broke down.  Sitting duck.  Hmmm, not sure which one is closer.  Maybe a combo.  See ya down there in a few months.  Maybe some might think weird here, but may I offer the oft quoted Theodoore Roosevelt to start the new year with:
     “It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.”

Well there is a plan for congress to come up with some kind of relief for PR by March, but that does not mean it will pass or that it will be very helpful or on time. There is going to be a lot of opposition to anything that weakens the bond holders hand unless it is cash to pay them, which is not likely.

Other US possessions are asking to be treated the same as PR if the bankruptcy is extended to the Island government not just the municipalities.

Other states are also getting ready to jump in with a "We need it too" attitude.

If the congress approves a board to oversee the island expenses and tax collection that has override veto on the PR budget, they are basically eliminating the Governor and Top government, so I do not think it will go well. To be politically successful, it can not override their power, but that may mean it is not financially successful either. A control board will likely flame the independence movement in the island. Currently PR needs the US and the US partially needs PR, so a board is going to cause a lot of pain for both sides.

In my opinion the island will need a combination of full bankruptcy power for the entire government, a few billions to be used toward efficiency improvements & corruption elimination. Money to be dole out a little bit at a time depending on progress of efficiency and corruption elimination. We also need the SEC and FBI in there sending people to jail that got the island in the mess it is in. Jail threats will help newer politicians kept on their toes.

The US government bailed out the Car industry and several financial institutions in the US with very large sums of money, a few billions to make changes to the system / processes / procedures, can go a long way in getting the island into the 21st century if the US holds the purse and doles it out carefully so it will not be stolen.

One other big question is the case currently pending before the supremes -  the hearing is coming up soon.   

http://www.puertoricoreport.com/supreme … ogBwDZllmA

What will this decision do to our future on the island?

Sitka wrote:

One other big question is the case currently pending before the supremes -  the hearing is coming up soon.   

http://www.puertoricoreport.com/supreme … ogBwDZllmA

What will this decision do to our future on the island?

The supreme court will likely deal with the narrow issue of the case and not make a big statement about the sovereignty of the island. Likely they will declare that PR government can not prosecute the defendant.

Either way both the Political party that wants PR to be a state and the political party that wants PR to be independent will both make a big to do about it from their own point of view.

It is likely that (IF things go bad) the independence party may grow 3 folds from 6% to about 18%, but not enough to be a major concern. But it could be the beginning of steady increase in the next 20 years.

However PR has the Cuba, Mexico, Venezuela and many other examples of failed forms of governments, so maybe 40 to 50 years from now, we may see a government in place where the island is independent from the US but militarily protected by the US and dual citizenship for those that are already US citizens and  protection of their property and assets. So even if it goes that way, your grandkids will not loose their property and assets.

Statehood for the island in the short run (15 to 30 years) I think would be very bad for the people, after that I think it will be good as there is time for the people to adapt and understand all the implications.

Regardless of the statement of the court, if they rule wide on the issue of sovereighty (Not likely)  it will be like a firecracker going off in a hornet nest and people will jump up and make some kind of drastic change. But I do not think it is likely, the supreme court tends to limit any statements that may affect the constitutionality question.

Just my opinion
Rey.

Hey Sitka,  It could materially affect were they to take hold and say Puerto Rico is in the process of becoming a state.  To come up with such an opinion they would have to twist existing law for a political outcome.  SCOTUS has done that many times of course.  This court, on this issue, kinda doubt it.  The whole idea where PR politicians make Puerto Rico into some kind of special status thing isn't constitutional.  It's another political myth without basis in fact.  For such an entity to exist legally one would have to amend the U.S. constitution as there is no accommodation for such a status.  From a logical point of view, it wouldn't be in the best interest of any sovereign nation to legitimize such.  And again, the word "Commonwealth" is a great word in it's original meaning.  It is not however a technical term describing a well defined legal status.  Four U.S. states have the word in their official name.  The use of the word in all 5 situations is perfectly fine and correct.  It does not denote a technical political status however.  Politicians just latch on and say things for their gain.  Like, "Health care is a basic human right."  Well no, it isn't.  It's a good thing.  But we're not going to declare every nation of the world immoral that doesn't provide universal free health care to its population.
     Politicians (and many of the rest of us as well) HATE owning responsibility for their actions.  Falls in "The Devil made me do it" category.  Whether or not legal, bad choices were made.  And just like the Valdez, even if just the captain was drunk, we all have to live with the aftermath of the oil spill.  Thing is tho, in this case the majority voted for the captain.  Everybody has gotta share some of the responsibility for the results of the something for nothing game.  In the near term, Puerto Ricans will not be alone in this.

You have stated the best option for Puerto Rico. I hope the majority listen to you. If a country's production of basic necessities are imported. It is at the, self-serving, mercy of others. You correctly indicated this with the 30 food queue explanation. 

In previous centuries, the self-serving culture, which is not unique to the USA. Brought slaves into the Americas. Exploited Asia workers, evicted Native Americans while simultaneously pronouncing life, liberty and the pursuit of happiness. That is ancient history now.

However, corporations can move production facilities to other countries and pay pennies on the dollar for salaries. Corporations pay congressmen and state officials to be a proxy primary for the interest of the company. Trump, Palin, Curz, Rubio and many weak tea mined democrats are apathetic toward treating people equally. Stating the "reai America", "make America great again", "keep out refuges".  I am noticing a similarity in attitude toward the treatment of people between ancient history and the present.

I wish the puerto rican government would invest in a shipping company. Maybe purchase a small company operating on the route. Operate the company only at cost and highly subsides the fuel cost. Hopefully to take the profitability out the other carriers.  I believe I recall a special permit is needed to operate on that route?

Puerto Rico's Member Of Congress Is So Frustrated, He'd Prefer Independence

"We live at your whim, subject to your impulses, which are bound by virtually no legal rules or moral standards."

Huffington post.

Puerto Rico's lone, nonvoting member of Congress has grown so frustrated with Washington's lack of interest in addressing the island's crushing $70 billion debt that he now says he'd prefer independence.

Resident Commissioner Pedro Pierluisi, a longtime statehood supporter, authored a bill earlier this year that would allow Puerto Rico's municipal governments and public corporations to reorganize their debts under Chapter 9 of the U.S. bankruptcy code -- an option already available in all 50 U.S. states. The measure enjoys bipartisan support on the island, wouldn't cost the U.S. government, and is supported by the White House and the U.S. Treasury.

Despite repeated imploring from Puerto Rican officials, however, the bill has languished in the Republican-controlled Congress. The island could default on its debt payments as soon as Jan. 1.

In a speech Wednesday on the House floor, Pierluisi acknowledged that decades of poor leadership on the island had helped create the current debt problems. At the same time, he lambasted the U.S. government's treatment of Puerto Rico, saying he'd prefer to see the island become an independent country than continue under the current system.

"The crisis has a second, equally significant source -- it is the relationship between the federal government and Puerto Rico, which is like the relationship between a master and his servant," Pierluisi said. "This relationship is a national disgrace. It denies my constituents, countless numbers of whom have served this country in uniform, the fundamental right to vote for their national leaders. Remember this the next time you hear our country lecture another country about the importance of democracy."

Pierluisi described himself as a "proud U.S. citizen," but declared that defending Puerto Ricans against mistreatment "will always take precedence over being polite."

"We live at your whim," Pierluisi said, "subject to your impulses, which are bound by virtually no legal rules or moral standards. If there is a silver lining in this crisis, it is that the crisis has caused a clear majority of my constituents to conclude that the relationship between the federal government and Puerto Rico must change. Puerto Rico must have equality in this union or independence outside of it."

In the past, Pierluisi has said that independence would be preferable to remaining a commonwealth. But the exasperated tone of his speech on Wednesday indicated a renewed sense of indignation over Congress' apparent unwillingness to help.

Puerto Rican Gov. Alejandro García Padilla visited Washington the same day with a bipartisan group of local elected officials to try to prod Congress, though he didn't criticize the U.S.-Puerto Rican relationship so harshly.

By the afternoon, Republicans in Congress had introduced two bills to help alleviate Puerto Rico's fiscal problems.

Rep. Sean Duffy (R-Wis.) introduced a bill that would give Puerto Rican public entities access to Chapter 9 if the local government agreed to accept the financial oversight of a five-member panel appointed by the White House in consultation with Congress.

"This bill empowers the Government of Puerto Rico with the choice to partner with the Federal Government and put the island on a path towards balanced budgets and a return to fiscal security," Duffy said in a press release. "If Congress does not act, it would have a devastating effect on the people of Puerto Rico and countless Americans throughout the states who stand to lose billions in the bond markets."

Meanwhile, Sens. Orrin Hatch (R-Utah), Charles Grassley (R-Iowa) and Lisa Murkowski (R-Alaska) introduced a bill that would offer $3 billion in debt assistance, but no access to Chapter 9 bankruptcy relief.

Pierluisi praised the Duffy bill in a statement, while offering only muted approval of the Senate legislation. "Overall, I am grateful to Chairman Hatch for his attention to this issue," Pierluisi said, "and I know he is approaching this matter in good faith."

From "Vagantem" and the "Huffington Post":

Resident Commissioner Pedro Pierluisi, a longtime statehood supporter,  "We live at your whim, subject to your impulses, which are bound by virtually no legal rules or moral standards."

Really?  I'm genuinely sorry to break it to you commissioner, but join the rest of the crowd on the mainland.  El Presidente's only nod to constitutional limitations is does he think he can get away with it.  For just one example, every single change to implementation dates on ObamaCare materially rewrites federal law.  Nobody gives a sh**.  And the Supreme Court has nada huevos to enforce the law.  No offense meant, but you may as well figure out reality.

The USA is STILL the best hope on the planet.  The way it operates at the federal level is as lawless as it is lawful.  One of Ronald Reagan's favorite sayings applies, "Of the most feared things a citizen can ever hear: We're from the government, and we're here to help."  Puerto Rico's government isn't exactly lily white either.  One word embodies what is needed most in the whole thing and there's damn little to be found all around:  INTEGRITY.

The point he was making is that PR is a colony, unable to vote in a system that is able to greatly affect the day to day outcome of the island. While the local leadership is just as lousy, the people voted for them, they did not vote for congress or the president. PR was a treasure of war and nothing much has changed since.

The US has gone in front of the UN and said that PR is not a colony and had PR removed from the list of colonies, now the actions or lack of actions clearly show that PR was and continues to be a colony at the whim of its master.

The words "Puerto Rico must have equality in this union or independence outside of it", are very powerful words, they call on the people to make a choice.

However, there is little support in congress to make PR a state, which leaves but one choice left.

It took a lot of guts for a pro-statehood politician to point out that we probably need independence.

There is one more card Puerto Rico can play if congress is unable to help the island and so far no local politician has mentioned it.

There could be a vote to modify the PR constitution to eliminate all wording that guarantie payment of the bonds and other debt.

This can be done, but congress will not allow it. Such a situation would clearly show the lack of sovereignty  of the island and inability to properly govern it self. It would be the will of the people VS congress disallowing the people to exert their power to change the constitution.

That would set a big firecracker in the situation in my opinion. It is strange no politician has mentioned this option.

Interesting thought.   If the PR constitution was amended to remove the general obligation bond protections, i.e. the provisions that guarentee 100% repayment of bonds, that would effectively wipe out the bond holders first position of repayment of deb; and by implication or expressed law to grant authority to declare bankruptcy.  Then financial slate could be wiped clean.

If that happened, how would future fiscal matters be affected?   Could the government borrow money to fund construction or public works?   How would credit or funding be obtained?    Or would the government be put on a strict cash in / cash out collection and payment system?  That would be the austerity plan that might get PR back into the black?

Certainly current bond holders would file suit and scream to high heaven, but if they take a haircut do we really care?

How have other municipal governments that have gone through bankruptcy and restructuring of debt come through the process?

Hi Sitka,

It was just an idea, but very unlikely to happen. I think it is one of those cards hidden in the sleeve of the poker player, to be used or to threaten to use it as a last resort.

Why not likely?
The current PPD (popular party that wants PR to remain as is in commonwealth with US) is about 40 percent of the voting population, they would not like to push congress into a corner and cause them to react, as it would reveal that the commonwealth is not real.

The party PNP (which wants PR to be a state) is also large around 48 percent and they would not like to piss off congress either since they want PR to be a state and a pissed off congress may decide not to accept the island as a state.

But the people of the island which are being taxed, are loosing their job, and can not get their retirement money, would likely vote 80 or more percent for removal of that item from the PR constitution. But neither of the above parties are likely to bring it to a vote for the above reasons. The independence party (PIP) is not big enough to call for a change to the constitution since they are under 10% of the population.

Only a concerted effort by the above two parties would be able to call for a vote.

As to the rest of the questions .... I live it to the other people in the forum to discuss, but I think PR would get another downgrade and will have less ability to borrow money. Keeping the taxes high for a year or two past the resolution would generate enough money to carefully rebuild and not depend on credit. Also privatising some of those firms will also help.

To the rest of the forum: What do you think about the idea of changing the constitution to remove the requirement of the government to pay the bond holders?

PS removing the requirement does not mean non-payment, and would IMHO obligate people to sit at the table and negotiate.

The idea of "fair play" is that you don't tell everybody we're gonna play the game one way, then change the rules after you've talked folks into playing.  In constitutional terms this is called passing a law "ex post facto", after the fact.  Not only is it unconstitutional, it's conceptionally un-American.  If your kids are playing marbles, it's what makes the other kid take his marbles and go home.

What is done in these political situations is to villianise the bond holders (i.e. those money grubbing wall street hedge fund types) and absolve the politicians of responsibility (i.e. OMG how could we have known using long-term debt to finance irresponsible decisions about current operating budgets would blow up in our faces?).

Since virtually all governments on the mainland operate the same way, what could go wrong?

Well it may not be fair but it is a card that can be played.

Today they are asking for ways to play fair with the bond holders as there is only so much blood that can get squeezed out of a stone, if the bond holders are unwilling, then .....Desperate times call for desperate measures.

Fair or not, people have to be able to work, have food on their table and get medical services, if people don't work they can not pay the taxes to pay the bond holders either so destroying the economy will only get them a partial payment.

No matter what PR does, the people in the island are going to suffer and the bond holders are also going to suffer so if we have to change the marble game rules mid-game so everyones gets something, then that is what needed, otherwise nobody gets anything. Driving the economy all the way down, having more and more people leave the island, is not going to get the bond holders their 73 billions (plus interest) money.

I agree with you completely Rey on the front of the the people of PR are hurting.  What I react to is no one takes any responsibility for anything, voters or politicians.  If no change happens as a result, we are all destined to repeat the same thing.  Government forced wealth transfer has to be based on something more than I'm hurting, therefore I have a right to someone else's money.

Who done it:
In the game it is important, in the legal sense it is important also if one is going to prosecute, which is highly unlikely and any punishment is not going to measure up to the damage.

What is in my mind super important is understanding how we got into that trouble so we can learn from it, and having the leadership vision and the people will to implement changes that will see us SUCCESSFULLY into the future.

I may care some on who did it, but as a way to learn how we got there and the mistakes that led us down that path.

Now we need to build a brand new solid foundation and build up on that. Using the majority of the money to pay the bonds would prevent or at a minimum Greatly delay the building of the foundation. So one way or another we nee a reprieve and to learn what went wrong and the vision and leadership to get us growing again.

IMHO latin america as a whole has for the most part very few good leaders, specially those with a vision for other than robbing the country.

IMHO We basically need a Latin JFK like leader with the business savvy of a TRUMP like businessman with out the stupid comments.

Your point is valid. Regarding the federal greeting of "..We are here to help." I admit. That initiates its own disaster for many citizens.

Tall order Rey.  We can hope.  Also a willingness of the majority to grow up some and realize:

1)  We all need to take personal responsibility.
2)  Rarely is the best decision the easiest one.

Those are wise words Rey. I think you should consider joining the leadership.

The Dominican Republic should watch and observe. They are on track to the same fiscal destination as Puerto Rica currently faces, 9 years from today.

The practice of borrowing funds should be the exception and not the rule. It is best when reserved for infrequent large project or short term small projects. Too many people in this world, in too many countries, do not care about the consequences of dumping debt payments onto their children and grandchildren.

From undiscovered independence, slavery, colonialism to partially self-inflicted fiscal bondage. That is a general statement on Latin America.

Puerto Rico does need to modify the law toward bond payments. While increasing domestic production of the most used commodities. I hope there is a way to levy a tax solely on the large non Puerto Rican land owners who have been banking land. Am I correct in understanding it is not utilized for food production?

My advice is assess the vulnerabilities of the impact modifying the government laws on bonds. Are there other projects, external funding sources or obligations in jeopardy?

vagantem wrote:

Those are wise words Rey. I think you should consider joining the leadership.

The Dominican Republic should watch and observe. They are on track to same fiscal destination as Puerto Rica currently faces, 9 years from today.

The practice of borrowing funds should be the exception and not the rule. It is best when reserved for infrequent large project or short term small projects. Too many people in this world in too many countries, do not care about the consequences of dumping debt payments onto their children and grandchildren.

From Slavery, colonialism to self-inflicted fiscal bondage.

Puerto Rico does need to modify the law toward bond payments. While increasing domestic production of the most used commodities. I hope there is a way to levy a tax solely on the large non Puerto Rican land owners who have been banking land. Am I correct in understanding it is not utilized for food production?

I don't know much about DR, but if they are borrowing the same way, yes it is a matter of time.
Borrowing for a large sound business project does make sense, but even better is to partner with investors so there is little to no borrowing and everyone shares the risk and rewards. BTW, I am thinking on getting involved to some degree in the future, but not yet in PR, thanks for the compliment.

As to the hoarding of land, they are hedging their bets that the land later can be used for some large real estate project similar to the Ceiba, Roosevelt Road Base set of projects. However this example of the Ceiba project is moving at typical Island time pace, and they are not likely to even break ground for another 5 years or so.

We need the lands for agriculture, milk and meat production so PR can reduce the imports that are killing us. This would require a lot of automation as paying 35 cents an hour to cut sugar cane gets you zero workers. Check history on Domino Sugar and the island, they basically lend money to the farmers and the farmers could not pay, so they took the lands and made tons of money, the syrup was send to the states, where it was made into sugar, then refined and sold to PR for a lot more. Now we grow sugar for rum and that is about it. Oh and we are still buying Domino Sugar BTW.

Having been to the Dom Rep 6 times, managed a restaurant sports bar there, and married a lovely Dominicana, I have some knowledge of this constitutional republic.  Simply put, they are a regular Latin American country in general in that the politician that gets elected is the one that promises the most free stuff.  And of course, the stuff isn't free and the politicians lie.

Both US and PR politicians lie.  Both US and PR people have voted for something for nothing.  Both the US and PR (and Dom Rep) are hopelessly in debt.  The thing about Puerto Rico that is different is that the U.S.A. bears significant responsibility in creating what has happened in Puerto Rico.

Puerto Rico is not a U.S. state.  Total population of U.S. born Puerto Ricans living in Puerto Rico is little more 3 million.  As I've said, most of the original bond holders have already been hurt by selling out their bonds to hedge fund, Wall Street speculators.  These guys don't have HIGH moral ground to stand on either.  The U.S. government (read not Obama, not SCOTUS making fiat law, but congress passing real law) should step up and take responsibility for it's part.

1)  Pass a law allowing Puerto Rico to go through a structured bankruptcy.  This is no different than big U.S. cities larger in population than PR.  What is different is it changes the rules after the fact.  Well the speculators bought the debt because it was high risk.  Too bad boys.  A bailout is more taxpayer $$ funneled to Wall Street.  No.  STOP! doing this politicians.  (And the reality is it's mainland politicians transferring the debt from from the backs of Puerto Ricans, who already spent the money on themselves, and transferring it to the huge government debt already on the backs of my kids and grand kids.)

2)  Add Puerto Rico to the U.S. Virgin Islands (next door) being exempted from the small part of the Jones Act of 1920 that badly hurts PR's economic competitiveness in the Caribbean basin.  Do it NOW!  No more excuses.

3)  Do a top to bottom scouring of government and prosecute and convict anyone who is corrupt and broke the law.  Mandate a thoroughgoing investigation of PR's own law enforcement entities and prosecute any individuals working with organized crime.  Not the little I let my brother off, but the government prosecutors that looked the other way on big-time cronyism with taxpayer dollars.

4)  Dump imposing a ridiculous federal minimum wage that hamstrings small business when PR's economy is only 1/4 as healthy as the U.S.'s poorest state Mississippi.

5)  Incentivize welfare to work.  Reform a welfare system that rewards not working.

6)  Kill the special treatment for Puerto Rico's bonds that makes it so easy for PR's politicians to pass out gravy freebies and finance the bill with long term debt.

Of the 6 things listed above that from a sense of what is morally the right thing to do, should be done, how many of these things will politicians stand up for and pay a political price to actually get done?  Sorry, but the answer is ZERO.  Works the same way on the mainland.  Some people in the U.S. are finally starting to get the idea of the hopelessness, and is why they are so angry they are ready to vote for a Donald Trump.  Are there enough of them?  Will anything of real worth come to pass?  We shall see.

100% with you Carlos, but I would act a few to the list:
1) Require that PR privatize all utilities (Water, Electricity, Internet, Phone service) with zero government subsidies
2) Give SEC powers over all PR financial services such as bonds, stocks, etc.
3) Provide PR with a few Billions to invest in the infrastructure, agriculture and increasing Island Tourism (not more Cruises)
4) End land grants, apartment grants and other favours

To grow we need more jobs in tourism, agriculture and services.
Privatisation would provide for better accountability and efficiency
Better infrastructure for citizens and businesses at unsubsidised market values
Regulations and watchdogs / auditors to make sure nobody is stealing from the system
Stop the granting of lands / plots and apartments and other favours, audit all political figures and their agencies.

I advise caution with privatizing all utilities. I have notice some become large corporations and eventually operate with the same mentally as the large bond holders affecting PR now. It may be better to cap the market share of privatization to 50% or 60%.

The benefit of this philosophy, it provides a competitive factor. If a privatizes utility fails to maintain fiscally sound and low cost service, the government can take over via the public utility. From my observation in the DR. Their energy market is in arrears of millions of dollars. Some of their issues is theft of service, poor efficiency in infrastructure. I wish the best assets of both the DR and PR were combined, minus the debt. That would be a formidable global force.

Personally, I am a fan of minimum wages standards. With all the laws and lobbyist for businesses. The worker with the lowest wage is the last considered when evaluating the economic.  All other suggestion I agree with 110%.

In the DR and PR and other countries I travel, I search to spend my dollars with local people. I avoid large franchise regardless of the ownership. Keeping the money locally and with those most needing it is my spending priority.

Back to the debt issue. The states are selling marijuana in defiance of the federal law. Cities are seizing large amount of money found on people during routine traffic stops. Then require them to fight in court to justify receiving their money back.  Fortunately, the department of justice is address this abuse, a little. Texas and other states are using tactics to stall citizenship on children born in the US from international travelers. I state these examples of defiance and abuse against establish federal law, to compare with the ideal you had ReyP. Modifying the bond law or pushing back on the large land owners are necessities.

Vegantem - Little can be done about the land owners sitting on the properties, you would need to have a new law that states that owners of Hectares need to put the property to use in some form of business or risk loosing their title. This would be difficult to pass and they would try to find ways around it like dividing the property into smaller chunks or start a lemonade stand if the law is not well written and careful of loopholes.

Maybe the government should conduct more drug raids, and add any confiscated money to the general fund. Arresting police get 5% (tax free) of the take so they have an incentive to take down the criminals instead of protecting the criminals. Drugs would be destroyed after used in court and the government could legally confiscate the cash, cars, boats, houses, lands, etc of the criminals and also add their value to the government general fund. That could result in an all out war between the criminals and the government or the island may loose a lot of drug lords, not sure. But the government would be less poor and there may be enough to do both, pay the debt and run the island, there is a lot of drugs and money running thru the island.

With a tax free 5% of the take, there will be a lot of people wanting to become police with no pay other than the 5% incentive pay, LOL.

Police all over the world rip off drug dealers and keep the money and drugs to themselves, the above aproach would allow for giant amounts of drugs off the street, and 95% of the (cash and properties) take goes to the island goverment.

My ideas are probably not legal, but I try to be creative. It is just how you word it and spin it, which is what politicians do.

I wonder if the governor reads our forum?
LOL

Hey ReyP,

I know a Sheriff in Maricopa County that would like your ideas!  With an incentive program like that we could make great progress on locking up the drug dealers, tax evaders and child support dodgers!  Put the inmates in pink jumpsuits!

Would it work on the cronies of corruption and lords of nepotism in the halls of San Juan?

Unfortunately it would be illegal because the arresting officer has an incentive to arrest the perpetrator, but sure would be sweet. it could be applied to all sort of crimes including corruption if there is a saving of funds or return of stolen funds of any kind as the 5% would apply to it.

Other than fear, all criminals would be susceptible to it.
But .... it will not happen in my life time, too many bleeding heart liberals.

The best indicator (to me) of the magnitude a country's debt problem is the Debt-to-GDP ratio. (Government Debt divided by the country's Gross Domestic Product).  This puts the amount of debt in context with the size of the country's economy.  The lower the percentage, the better.

Selected debt-to-GDP ratios:

Japan (230%)
Greece (177%)
PR (150%)
U.S. (103%)
UK (89%)
Canada (87%)
Dominican Republic (45%)

Not to obsess (too much), but I cannot help but be amazed at the ridiculous and irresponsible borrowing and spending of the U.S. and PR compared to other developed nations, emerging and other economies:

Panama (45%)
China (41%)
Colombia (38%)
Taiwan (36%)
South Korea (36%)
Switzerland     (34%)
Australia (34%)
Hong Kong (32%)
Mexico (31%)
New Zealand (30%)
Ecuador (30%)
Norway     (26%)
Saudi Arabia     (1%)

I believe you to be fundamentally correct SawMan.

But you don't list France, Spain, Italy, Portugal; China, Russia, or India.  As well as I would not trust number accuracy from Argentina, Brazil, Venezuela, Cuba, et. al.  Ask Saudi Arabia if their debt is 1% after 5 years of $35 oil.

And BTW.  Since Manuel Trujillo's party has been in power virtually consistently since his assassination in the early 60's, 75% of the GDP is dependent on tourism, American companies won't do business there due to the corruption of dealing with the government, and that 5-7% of population receives above 40% of the GDP...    We might do well to put an asterisk next to any La Republica Dominicana gov't published figures.  Just the fact that 85%+ of the beer sold nationwide is only one company is a window to the DR's "free" market capitalism.  Not that Presidente isn't a good beer, well-suited to the Caribbean.

However, conceptually the GDP to debt ratio does tell a lot.  And the major industrialized/fiat currency/central bank nations of the world are carrying a combined debt load that altogether is historically unprecedented.  When the pent up energy gets released, I'm afraid PR's sovereign debt problem is gonna be a piker to the bigger picture.  Can anybody say start the new year down 910 points in 4 days?