Puerto Rico's Sovereign Debt Crisis

O.K....problems are a dime a dozen...any ideas about a solution for this one?

Yep!

Whenever there is a problem we tend to think there exists a discrete solution. Some set of actions that when applied solves the problem. This not always the case, and instead the situation progresses organically. Puerto Rico is in debt billions upon billions of dollars; extrapolating the current situation it will never be able to pay this debt back. It has a government that refuses to be efficient, progressive and inentive; it just doesn't get it. It is not part of a greater entity that can help (as opposed to Greece being part of the EU). The government literally will not be able to pay it's pensioners and employees. So what will this organically grow into?  Well, the majority of the world lives on a dollar a day.

Now, how will all this affect us ex-pats? Any thoughts are welcome. I'd imagine that crime would increase. Services will deteriorate. Investment will descrease. Will PR'S status with the US change? Who would want to annex PR and then have to assume responsibility for its finances and problems? the Last thing the US should do is make PR a state. Maybe Haiti should annex PR, just being ironic : )

I recently read a post on FB that basically said; if the US would repeal the Jones act is illegal, and has cost PR more than $79 billion, in current dollars. If the act was found to be illegal/unjust/against the constitution... or what have you, and the Federal Government made reparations to PR, this island would be out of debt, and up by a $billion, or so. If you'd care for the link, I'll try to find it...

I don't want to think about the anarchy that would follow this ruin... time to stock up on the 30 day dry goods food supplies from Costco or Sam's!

Puerto Rico is in a position of major changes. I am the forever optimist that does not see the glass half full or half empty but refillable. This situation is most difficult for the middle class and many are leaving the Island as many young people are leaving Greece for better opportunities. I am not sure if other Europeans are moving to Greece to buy property but we do know that American main landers are moving to Puerto Rico for what it offers. I am an example of that. My income is made from the internet and I do and will manufacture in Puerto Rico as well as on the mainland until I move to Puerto Rico full time as soon as I sell my property in a very desirable area .of Western North Carolina. My home in Ponce is on airbnb and it brings in a steady amount of international visitors. We have alone become sort of a destination. Our farm is a prolific producer of organic fruits and vegetables. We will offer very personal ecotours with beautiful and  individualistic experiences away from the well trafficked places. Most of our guest are young  travelers looking for that experience that connects them to nature along with a splash of culture and Puerto Rican tradition. We have a farm In the country where we have our own community water supply. Most every one in our mountain community grows food of some sort. They look out for each other. There is no police presence. Fire trucks cannot make it up the mountain but we do get electricity and road maintenance. I do not see these folks leaving and once again I think the shift is with people who are highly defendant on the government and trying to live a high consumer based lifestyle. I have a lot of friends who are coming to visit the island based on how we have integrated into the island life. If we have to start from the ground up literally and figuratively that is what we will do. I have friends one from the states and another from Puerto Rico. They are young and are homesteading 5 acres with only well water and no electricity they are going on 3 years and they are in love with the experience. They are part of a growing grass roots movement that could take some  Puerto Ricans back to their traditional roots. Here in Asheville, NC we have a very similar life style. Young people are starting organic farms, goat farms for wool and dairy, organic beef, etc.  Some off grid too. There are many artists and creative business people opening  studios all sorts of food truck enterprises, organic restaurants, tea and kava bars etc. The wealthy come here to live and retire. The main industry is tourism, breweries, farming. It is kind of like an island in the sky. Enough said but I feel that Puerto Rico has that potential. It is blessed with beautiful terrain and most of the time the weather is beautiful unless Montserrat's Volcano erupts maybe every 50 years or the Sahara dust visits a couple of weeks now and then or an occasional hurricane but what place does not have some sort of challenges. I do not think Puerto Rico will fall into some sort of anarchy. Sure people are going to leave if they want to maintain the standard of living of the mainland. Where I live in Ponce what is happening to the Island had already happened in the Historic district  many years ago. It survived and is surviving. Most of the small businesses have left but now there are more restaurants, cafes and bars than there ever were. People with a vision  can resurrect a place if that place has something to offer. Natural beauty, nice weather, waters that offer swimming, boating, fishing, etc. drinkable water, hiking, unusual places to stay, good food,  creative adventure and experiences beyond and above the Disneyfied reality that is promoted by the commercial entertainment industry and mass media. . Puerto Rico has many reasons to be a destination and for people who are not dependant on earning their income locally, who can be entertained by natures beauty, for people who can learn to create what they want rather than buying what they want Puerto Rico cannot only be a very reasonable place to live but it has all the resources to live as healthy as anywhere else. It may not be a good place for consumer appetites but the USA mainland is a short flight away and there is a lot of stuff to consume there. I live in a very beautiful place on the mainland so I am in a position to make a good comparison and many of my friends who see and hear what I have created in Puerto Rico, on a tenth or more of the investment that I would have needed to create the same situation here, ask me what am I doing  here in Western North Carolina with the winter the high taxes, etc? I have been going back and forth from both  Ft Lauderdale, Florida and Asheville, NC to Puerto Rico for 15 years. This is a well thought out move and I am very aware of the challenges of the Island as well as challenges on the mainland. Unless Puerto Rico is going to be sold to the Chinese to pay of its debts I know I can work with the situation and my investments in Puerto Rico have not been affected by the changes taken place. Not only have they appreciated they are generating substantial income and I only see that income growing. If I can inspire Puerto Ricans to keep their land and property and make it work for them then I feel that I can give back to a place that I can call home in spite of crazy drivers, Sahara dust, volcanic ash, high consumer tax, inefficient bureaucracies, and all the other sort of things that come with large gatherings of human beings and natural occurrences. If any one thinks thinks I am out of reality than I suggest you try and imagine walking  in my shoes first. One note is that I have been an artist all my life and I live as one so I do very well with an empty canvas. Take a look a the painting I am creating and I will be very open to being critiqued. Thanks for letting me rant.

Well said, MrK!

The hole is around 72 Billion dollars, I do not see how they are going to get the cash to pay it. I believe it is next to impossible. The only real choice is to either default and or go bankrupt.

Receivership will be too painful, middle class and the poor will suffer a lot with all the taxes on roads, electric, water, realty tax, sales tax, etc. By the time they are done setting a plan, Hawaii will be cheaper than PR. A lot more people will also leave the island and that will leave less people to pay all the extra taxes.

Those people that purchased the bonds knew there were risks, now they should take their lumps. There is no way to pay 72 billion by 2035.

Since dogs don't pay taxes that leaves 3.5 million people to pay 72 billion dollars, not counting additional interest and other fees for any delays.

That means that every child and adult in PR has to pay $20,572 a head. A family of 3 would be $61,716, a family of 4 would have to pay $82,288.

I do not see it happening.

Hi ReyP, You seem to be good at math. Could you calculate what that ratio would be in Japan and the USA so we have a comparison of what you are saying?

I definitely want to see that Ponce farm!  I am in the Stella neighborhood in PR.  I'm here for a year.  But, love the neighborhood.  These are not farmers, just simple life here too.

don't know what to say about the debt...watching Padilla's speech tonight.

Hi I will be back in November. Stay in touch and I will give you a personal tour.

Mrkpytn wrote:

Hi ReyP, You seem to be good at math. Could you calculate what that ratio would be in Japan and the USA so we have a comparison of what you are saying?

I just used a calculator, but not too bad with spreadsheets either.
If you give me the numbers I can make the calculations.

Maybe we need to put things into perspective here. The July/August issue of Harvard Magazine has an article on dealing with debt. The public debt of the US is 105% with 320 million people with a debt of 18.6 trillion that translates into $58,125.00 per person. Puerto Rico with 3.6 million people and a debt of 73 billion that is  70% that translates into $20,278 per person. I got these figures from a site waragainstallpuertoricans.com the writer got his information based on the Harvardmagazine.com/dealing with debt.
Puerto Rico is less than 1/3 of the debt levels of advanced countries like USA, Japan, Germany, UK, Australia, France, Canada

@mrkptyn: Point taken. The whole world is drowning in debt with only a few exceptions (Austria and Switzerland come to mind). The EU zone, Japan and the US in particular are serial abusers of debt. I believe this excessive debt is one of the major factors, if not the major factor, accounting for the low to nil economic growth over the last seven years.

However, I wouldn't say it's a relevant comparison from PR's point of view. PR and Greece have a lot in common, such as both being locked into a currency ill-suited for their economies. But PR and Greece are not the US and the EU, who have many more options to kick the can down the road a bit longer in order to maintain a facade of economic stability. PR and Greece have just run out of road.

Here's an update. Will Congress amend the Bankruptcy Code to define PR as a municipality and therefore allow it to avail of Chapter 9 bankruptcy?

Hi, I am not sure why the US dollar would be ill suited for the economy of Puerto Rico. It seems more like the US paradigm of conspicuous consumption is more of the problem. It takes a certain amount of self discipline not to give in to the allure of bigger is better. I see more big SUV's in Puerto Rico than I do in Western NC. A lot of money and time is spent on Glamour. The USA corporations make quite a profit selling their crap to the uneducated consumer. Fast foods are slowly killing them. The USA would be the last to fall and we all know that if it does it is curtains for the way we know life. If financial institutions get bailed out why wouldn't a culture that has been nurtured to consume American made products be bailed out.  The automobile industry has benefited. Fast foods, Walmart, Walgreens, CVS. They all make great profits for sure. Any remnants of mass transit, like the train that traveled from Ponce to San Juan, were dismantled so everyone would be car dependent, There are more cars per capita than any where on the planet and that says a lot. What is happening in Puerto Rico is no different than what is happening all over the world. I think the future of Puerto Rico is in the land and the resilience of the residents who are still connected to that. There is a lot of arrogance in Puerto Rico and if  being humbled is part of the process of the lessons of life then that is the way it is. Iceland would be a good example of a country that gets it right from my limited knowledge.

Mrkpytn wrote:

Hi I will be back in November. Stay in touch and I will give you a personal tour.

We would love to see your farm in November as well!

Mrkpytn, I like what you are doing and would enjoy being a piece of the islands puzzle.  Looking forward to learning and experiencing all the soil of PR has to offer.  It is a true pleasure to plant a seed and watch it grow.  Congrats to you for doing what many dream, but can not create.

Hi, I would love to invite you to visit and see what this adventuring guy is up to. Mark

Thanks, This is something I have been wanting to do since the 70's. My ideal was living where you can grow coffee and cacao because from my experiences in the Andes it was the most agreeable climate but I missed the ocean. I lived in South Florida for many years and traveled to mountainous areas but I always missed the ocean. I loved Colonial architecture from spending time in Cuzco and Lima Peru. Out of the blue a friend talked me into visiting Puerto Rico 17 years ago and instantly I realized when I was in Ponce that this Island offered me all that I wanted in one convenient place. Colonial architecture, mountains, oceans, warm climate. The next step was to develop a business that could support me with out depending on the local economy and along comes the internet and now I am internationally connect with a really big market. If the whole world collapses (not likely) I have a farm that produces food year round. Now I have to stay healthy and alive and experience it until the next great wonder presents itself.

When you are back in November, I would like to meet.  Back in Illinois, in my shop I build rustic furnishings from reclaimed and salvaged barn lumber as well as sell the surplus wood, seeking a way to bring it with me into PR.  Shipping logistics is going to be my hurdle.  I have a small orchard and enjoy the rewards our vegetable garden and chickens provide.

A couple of things about bringing reclaimed wood to PR. The USDA may not let you bring it in as old wood is notorious for harboring various insects. Aside from that, if you were able to bring it with you, you would need to make special arrangements for storage as the termites in PR are legendary and are everywhere. Another thing to consider, who are you going to sell your products to? Nobody has any money and the economy is rapidly collapsing.

In case you missed it:  http://www.marketwatch.com/story/puerto … -194853414

Spoiler alert:  Federal minimum wage and the Jones Act - two easy and quick starts to a fix.

@SawMan.  Indeed!

GreggK wrote:

A couple of things about bringing reclaimed wood to PR. The USDA may not let you bring it in as old wood is notorious for harboring various insects. Aside from that, if you were able to bring it with you, you would need to make special arrangements for storage as the termites in PR are legendary and are everywhere. Another thing to consider, who are you going to sell your products to? Nobody has any money and the economy is rapidly collapsing.

Plus the fact that locally made traditional PR style wood furniture is abundant and likely far cheaper.

Here is an article that covers how the situation came about, some of it is the government borrowing above its ability to pay but some is the Bond market and the political union with the US.

http://www.foxnews.com/opinion/2015/07/ … -mess.html

Puerto Rico getting this attention is bringing to the foreground problems that have existed for a very long time. In the 60's an oil refinery shut down on the South Coast and put 35,000 people out of work. Ponce went into a decline that it never recovered from. A lot of people work under the table at $6.00 an hour. Along with  food stamps and other government benefits they still struggle. I have a personal friend who is a single parent who had her pay cut in half. She has three children, lives in an apartment with no water because of past delinquencies and she works a government job. Others in her office have similar challenges. She says that depending on  which political party is in office and which party you support you either get the privileges or you do not. An underground economy is how a lot of the population  exist to survive. I am not sure how much this compares with Greece but I am very curious how the outside world is going to deal with this as the reality of Puerto Rico's history and it's relationship with the US becomes scrutinized.

Mrkpytn wrote:

Puerto Rico getting this attention is bringing to the foreground problems that have existed for a very long time. In the 60's an oil refinery shut down on the South Coast and put 35,000 people out of work. Ponce went into a decline that it never recovered from. A lot of people work under the table at $6.00 an hour. Along with  food stamps and other government benefits they still struggle. I have a personal friend who is a single parent who had her pay cut in half. She has three children, lives in an apartment with no water because of past delinquencies and she works a government job. Others in her office have similar challenges. She says that depending on  which political party is in office and which party you support you either get the privileges or you do not. An underground economy is how a lot of the population  exist to survive. I am not sure how much this compares with Greece but I am very curious how the outside world is going to deal with this as the reality of Puerto Rico's history and it's relationship with the US becomes scrutinized.

All very good points.
However in my personal opinion the shutdown of the refineries while it put a lot of people out of work, it was also a blessing. I remember they created a lot of pollution and the stink could be smelled for miles.

Yes I am glad that the refinery is gone and that they finally started to dismantle it after all this time. The point is that it employed a lot of people in the area and then left. I guess that is what the auto industry did to Detroit too.

Here is an interesting article in the Guardian discussing Puerto Rican emmigration in light of the sovereign debt crisis.

NomadLawyer wrote:

Here is an interesting article in the Guardian discussing Puerto Rican emmigration in light of the sovereign debt crisis.

As burdensome as the debt no doubt is relative to the economy, it would be "nice" if it had been used to build modern infrastructure highways, first-class healthcare and reliable utility systems (water, power, telecommunications, etc.) on which to lure industry (yes, building construction for retirees is an industry creating local jobs) - in other words, something to show for all that borrowing and a solid base to begin to build on.  I realize this is not the case at all.  So where did the money go NomadLawyer?  How did PR hiss away that much money with nothing to show for it?

Feathering nests and buying votes, sadly.

I can tell you that I left in 1973 to volunteer in the Army (A tradition back then as did my father(Korea war)) and I left the Army in 1982, but I stayed in the mainland.

Jobs were scarce in the island in 1973, but things were better back then compared to now. My brother stayed in PR, he studied Electronics in PR, but was never able to get a job in that. He never had a good break while in the island. I that left, had a lot of good breaks and experiences.

While many of us leave, the island still calls to us, I am fortunate that I can make it back to PR even if things get worse because I did a lot of savings and have a well paying job.

Many of my childhood friends also stayed in the island and they are ok, but not well.

I think it would be healthy for 1/3 to 1/2 of the young, to come to the mainland for 20 years or more, save, purchase property in the island, and then go back to the island to retire.

IMHO, people need to hold the politicians accountable and trow some of then in jail. They should not steal from the people. The island needs a true leader.

But we also need to be very careful, both Cuba and Russia are pushing for PR to be independent of the US, I wonder why the interest??? I hope people are less naive than that.

"IMHO, people need to hold the politicians accountable and trow some of then in jail. They should not steal from the people. The island needs a true leader."

AMEN, totally agree!

There are some politicians on the island who have had to answer to the law.  The mayor of Rio Grande for example is in prison (see article link).  When we were putting in our 500' driveway, we wanted to see if the municipality would contribute to the paving and lighting.  We were told to show up EARLY on the first Tuesday of the month to talk to the mayor and submit our request for consideration.  We showed up at 7:30 a.m., thinking that most government employees in the US show up for work around 8:00 a.m.  We were turned away because we were too late!  Other homeowners had been there since 4:30 a.m., and the mayor started meeting with people at 5:00 a.m.!!  We were astounded! 

https://www.fbi.gov/sanjuan/press-relea … or-bribery

Happy Independence day. There is an interesting article on the Puerto Rican Independence movement. It is based on a new book by Nelson A. Denis. It might be helpful for expats to get a perspective of one of the dynamcs of the US and Puerto Rico relationship. I found the article at www.motherjones.com/media/2015/puerto-r … zu-campos.

I had issues with the link, is this the article? http://www.motherjones.com/media/2015/0 … izu-campos

I re-posted the address under new topic. You can also just go to motherjones and type in "Puerto Rico" in the topics section. There are a few articles on Puero Rico. I would love to hear others feed back on this.

Mrkpytn wrote:

Happy Independence day. There is an interesting article on the Puerto Rican Independence movement. It is based on a new book by Nelson A. Denis. It might be helpful for expats to get a perspective of one of the dynamcs of the US and Puerto Rico relationship. I found the article at www.motherjones.com/media/2015/puerto-r … zu-campos.

Thank you for this link!  It is very interesting and certainly not surprising that the FBI has had files on so many PR (probably mainlanders, too).  They did their very best to quash any uprising of independence for PR, sadly.  I may have to look for the book to read.

They say if you owe the bank a $10,000 you have a problem.  If you owe them $10,000,000 the bank has a problem.  A bankruptcy may be painful, it will also be a blessing.  It will formalize what has already occurred.

The bond holders will have to take a loss, but this has already happened.  Have you looked at the price of a PR bond?  Those holding them have already taken the losses and most bonds have been sold to speculators.  PR could settle all its debt for $35 to $45 billion not $72.   

Because PR will not  be able to borrow any more money to cover its deficits,  it will need to balance its budgets.  This can only be done by shrinking the government and broadly collecting taxes.  The first needs more work and the second is in process via the VAT tax.  When PR's act is together, jobs will flow back.