Puerto Rico on the Brink

Puerto Rico is in trouble, after years of bad policies, mismanagement, excessive debt and bad luck.

Its economy has been shrinking or stagnant for a decade and the unemployment rate sits at nearly 12 percent. The commonwealth and its utilities have a debt of $73 billion, its public pension funds are woefully underfunded and one state agency has warned that the government could be forced to shut down soon because it might run out of money.

Lawmakers in Washington and San Juan need to come up with a plan that addresses the financial and economic problems of the territory, which is home to 3.6 million American citizens. The island’s difficulties also affect investors in the 50 states who own the tax-exempt bonds issued by Puerto Rico’s government and utilities.

Once a growing manufacturing center, Puerto Rico began a long decline in the mid-2000s after federal tax incentives for businesses that produced goods on the island were phased out, prompting some employers and tens of thousands of workers to leave.

Puerto Rican leaders made the situation worse by not investing sufficiently in the economy and by borrowing excessively. Investors eagerly extended loans without properly analyzing the territory’s deteriorating financial health. They did so in large part because interest earned from Puerto Rican government bonds is exempt from federal and state income taxes.

One of the biggest and most immediate problems for the island is the roughly $20 billion debt owed by three government-owned companies: the electricity utility, the water and sewer system and the highway authority. Because Puerto Rico is a territory, these businesses are not allowed to restructure their debt in Chapter 9 bankruptcies. Congress should approve a new bill that would allow these and other Puerto Rican government-owned companies, as well as municipalities, to use Chapter 9.

Some analysts and bankruptcy experts say that Congress should go even further and allow the government of Puerto Rico to file for bankruptcy. Some also argue that federal lawmakers should appoint a financial control board to oversee the island’s finances; this drastic step may not be warranted yet, but it is worth studying.

There is a lot that can be done to revive Puerto Rico’s economy. Stronger efforts to boost tourism, manufacturing and the services sector through targeted public investments could lead to faster growth. For example, Puerto Rico gets relatively few visitors despite its natural attractions. It had 3.2 million tourists in 2013, down from 3.7 million in 2005. By contrast, the Dominican Republic had 4.7 million tourists in 2013, up from 3.7 million in 2005.

The government could also improve its finances by raising taxes, which are very low by international standards. Puerto Rico only collects about 11 percent of its gross domestic product in taxes, compared with the 33 percent average for advanced countries. Gov. Alejandro García Padilla has proposed replacing the island’s 7 percent sales tax with a 16 percent value-added tax. That might be too large an increase given the economy’s weakness, but a smaller increase phased over time and higher income tax rates could help, as would better policing of tax evasion.

In addition to fixing its finances, Puerto Rico has to answer a bigger question about its future: Should it become a state? The government ought to hold another voter referendum on the issue. The last one, a nonbinding vote in 2012, was poorly worded and did not clearly establish that the majority of Puerto Ricans want statehood. Last year, Congress and President Obama budgeted $2.5 million for the territory to hold another referendum on its political status; Mr. Padilla said last year his government will hold a vote by 2016.

Puerto Rico is about 1,000 miles from Miami, but it can seem a world apart. The island’s financial problems are a reminder that benign neglect has had terrible consequences for millions of Americans.

A camp set up by demonstrators in front of the capitol building in San Juan, Puerto Rico.

By THE EDITORIAL BOARDAPRIL

Puerto Rico on the Brink

ASM works in partnership with Puerto Rico to attract four new international services from Norwegian

MANCHESTER, ENGLAND - Norwegian is launching in November 2015 new non-stop services from Puerto Rico to Stockholm, Copenhagen, Oslo and London. The airline will be operating to London Gatwick Airport twice weekly (Wednesday and Saturday) and weekly services to Copenhagen (Friday, returning via St Croix), Stockholm Arlanda (Tuesday) and Oslo Gardermoen (Sunday). All flights will be operated with a Boeing 787-8 Dreamliner.

ASM has been working in partnership with the Puerto Rico Tourism Company and Aerostar Airport Holdings over the past 18 months to attract Norwegian to fly non-stop between London and Scandinavia and Puerto Rico. The discussions with the airline started at World Routes in Las Vegas in 2013 and continued with subsequent head office visits in Fornebu, to present a detailed business case.

Madeleine Rieber Waldjac, Director Network at Norwegian said: "We would like to congratulate the team at Puerto Rico Tourism Company and Aerostar Airport Holdings. It is always important to have the airport authority supported by the tourism authority and when both entities work together, it gives us confidence that the route will be well supported. We know ASM always encourages tourism authorities and airports to work closely together and they always provide a detailed market study behind any opportunity."

Nigel Mayes, Senior Vice President Consulting & Product Development at ASM complimented the Puerto Rico team's approach: "We have worked closely with Puerto Rico Tourism Company and Aerostar Airport Holdings to present a detailed business case, identifying that the market from Europe to Puerto Rico is currently underserved, with a significant percentage of indirect passengers already flying between the two markets. In the past 12 months, this market size was an estimated 150,000 passengers, with 87 per cent having to travel indirect, mainly through the USA, due to the current limited direct offering across the Atlantic. Currently, only Condor and Air Europa provide direct services to Europe."

On behalf of Aerostar Airport Holdings, Alejandro Vales, Customer & Route Development Director ASUR / Aerostar commented: "It is most important for Aerostar to work in partnership with the Puerto Rico Tourism Company as they are pivotal in taking these new routes to market, which will ensure these air service are a success for both Puerto Rico and Norwegian".

Juan A. Nadal, Director - Air & Maritime Access at Puerto Rico Tourism Company said: "I am delighted Norwegian has recognised the diverse markets reached by serving Puerto Rico: a five-star leisure market, a rapidly growing cruise market and unparalleled connectivity in the Caribbean region. Undoubtedly, these air services will help solidify San Juan, Puerto Rico as the leading Caribbean airport. We are certain many other airlines will wake up and notice the opportunity that San Juan can provide; both as destination and as a connecting point."            

From San Juan, Puerto Rico, to:

• London Gatwick - two weekly departures on Wednesdays and Saturdays. Start date: November 4, 2015
• Copenhagen - one weekly departure on Fridays. Start date: November 6, 2015
• Stockholm - one weekly departure on Tuesdays. Start date: November 3, 2015
• Oslo - one weekly departure on Sundays. Start date: November 1, 2015.

Vicky Karantzavelou

ASM works in partnership with Puerto Rico to attract four new international services from Norwegian

1M-gallon water tank replacement project in Puerto Rico nears completion

(CUC) — The Commonwealth Utilities Corp. is preparing for the completion of a multimillion dollar project which figures prominently in the utility’s ability to deliver reliable water service to customers in Puerto Rico and the surrounding communities.

The project was designed by Duenas, Camacho & Associates and construction of the tank was contracted to AIC Marianas. The first phase of the project began in August 2014 with the demolition of the pre-existing tank. Once completed, the welded steel tank will raise the level of water service provided to customers in Garapan, Puerto Rico, Lower Base and Sadog Tasi for the next 30 years.

The $2 million project is funded through a generous $1.5 million grant from the United States Economic Development Administration and $500,000 in matching funds from the Department of the Interior-Office of Insular Affairs.

As the Puerto Rico tank replacement project nears completion, CUC continues work on additional major water projects, including the replacement of the Papago reservoir, better known as the former “Super Blue” tank.

The $1.4 million project is funded by the Environmental Protection Agency through a Safe Drinking Water Act State Revolving Fund grant. The construction of the tank will take an estimated four months to complete and is scheduled to begin in May 2015.

For more information, call the water division at 322-5030/31 or the Call Center at 664-4CUC (4282).

1M-gallon water tank replacement project in Puerto Rico nears completion

Gundlach’s Fund Doubles Holdings of Junk-Rated Puerto Rico

DoubleLine Capital’s Jeffrey Gundlach more than doubled the holdings of junk-rated Puerto Rico debt in his Income Solutions Fund to $45 million.

The $2.28 billion fund’s investment in Puerto Rico general-obligation bonds as of March 31 was up from $20 million the prior month, according to data compiled by Bloomberg. The fund didn’t hold any commonwealth debt at the end of 2014.

The securities fell to an average price of about 79.8 cents on the dollar on April 22, the lowest since the debt was first sold in March 2014. The bonds, which mature in 2035, traded Monday at an average price of 80.2 cents to yield 10.4 percent.

Puerto Rico bonds, which are tax-exempt nationwide, have traded at distressed levels for more than a year amid speculation the commonwealth and its agencies won’t be able to repay $73 billion of debt. Municipal bonds sold in Puerto Rico lost 0.87 percent this year through April 24, the worst annual start since at least 2007, according to S&P Dow Jones Indices.

Gundlach is among investors betting on Puerto Rico.

A group of 34 hedge funds with $4.5 billion of its debt has said the island has potential to turn around. Among its members is New York-based Stone Lion Capital Partners LP, said Russ Grote, a Washington-based spokesman for the group. Others include Brigade Capital Management LLC, Centerbridge Capital Partners LP, Davidson Kempner Capital Management LP, Fir Tree Partners and Monarch Alternative Capital LP.

The Income Solutions Fund is a closed-end fund. Corporate debt is its largest allocation, accounting for almost 70 percent of holdings, Bloomberg data show. The Puerto Rico securities are the fund’s only municipal bonds, taking up about 1.3 percent of assets.

DoubleLine also had $2.5 million of the same general obligations in its $129.6 million Multi-Asset Growth Fund at the end of March, Bloomberg data show.

Loren Fleckenstein, an analyst at Los Angeles-based DoubleLine, said the company declined to comment.

Jeffrey Gundlach, founder and chief executive officer of DoubleLine Capital LP, pauses during a television appearance in New York, on May 17, 2012. Photographer: Scott Eells/Bloomberg

 

Gundlach’s Fund Doubles Holdings of Junk-Rated Puerto Rico

Puerto Rico gets downgrade—is it America's Greece?

Standard & Poor's downgraded Puerto Rico last week to CCC+, giving the perennially struggling U.S. territory the same credit rating as Greece.

Alfredo Sosa | The Christian Science Monitor | Getty Images

A roofless colonial building is overtaken by vegetation in Old San Juan, Puerto Rico.

Puerto Rico has been called "Greece in the Caribbean" or "America's Greece" in light of its poor credit ratings, high debt levels and flagging economy with high unemployment.

But the situation is much less dire for the American territory than it is for Greece, in part because Puerto Rico's debt levels are a much lower percentage of its GDP, compared with Europe's "sick man." The CIA World Factbook places Puerto Rico's at 93.6 percent and Greece's at 174.5 percent.

Read MoreTempted by Puerto Rico bonds? Be careful

That difference gives the island's government more latitude for handling the situation, according Vicente Feliciano, president of San Juan-based Advantage Business Consulting.

"Just the magnitude of the debt is very different," he said. "Still, some adjustments need to be made, both on the fiscal front and supply side reforms."

Unlike Greece's government, which has struggled to implement consistent reforms, the Puerto Rican government has been tackling economic change for the last nine years, Feliciano said. Those adjustments included a new sales tax, public sector job cuts and more.

As Greece struggles to negotiate with its lenders in Europe, Puerto Rico's political leaders have maintained their commitment to meeting all government general obligation debts, but not all debt held by public firms (such as the Puerto Rico Electric Power Authority).

Holders of Puerto Rican debt, much of which belongs to hedge funds, are watching for results of a legislative battle over the territory's 2016 budget. In its downgrade last week, S&P wrote that an extended disagreement about key budget provisions could "exacerbate liquidity and fiscal pressure."

Everett RosenfeldStaff Writer

Everett Rosenfeld

Puerto Rico gets downgrade—is it America's Greece?

Large tourist hotel abruptly closes in Puerto Rico

A large hotel in one of the main tourist districts of Puerto Rico has abruptly announced that it will close.

Puerto Rico Hotel and Tourism Association President Miguel Vega says the Radisson Ambassador Plaza in the Condado district of San Juan will close Wednesday. He said it will result in the loss of about 200 jobs.

The website of local newspaper El Nuevo Dia reported Monday that the company announced the closure of the 233-room hotel to employees in a statement that said it had been operating under bank control for the past year while seeking a buyer.

The Ambassador has struggled in an economy that has been in recession for nearly a decade while its casino has faced increased competition from the proliferation of illegal slot machines.

Large tourist hotel abruptly closes in Puerto Rico

Puerto Rico downgraded to CCC+ from B, with negative outlook, by S&P

Standard & Poor's downgraded Puerto Rico's general obligation rating to "CCC+" from "B."

The ratings agency said the downgrade—issued late Friday and announced again Monday morning—was based on its view that "the commonwealth's market access prospects have further weakened and Puerto Rico's ability to meet its financial commitments is increasingly tied to the business, financial, and economic conditions on the island."

Getty Images

A man walks past a vacant building in the Santurce neighborhood of San Juan, Puerto Rico.

It also placed the general obligation rating on CreditWatch negative.

S&P additionally lowered its ratings on Puerto Rico Sales Tax Financing Corp.'s (COFINA) first-lien and second-lien sales tax bonds to "CCC+" from "B." Other bonds, including those from the Puerto Rico Municipal Finance Agency and the Puerto Rico Employees Retirement System, were also downgraded with a negative outlook.

The ratings firm said that, absent improvements in the economic and business conditions in Puerto Rico, its analysts believe that "debt and other financial commitments will be unsustainable."

In its downgrade announcement, S&P cited its view that there is a lack of consensus on important parts of the 2016 budget which could "exacerbate liquidity and fiscal pressure." The firm said it expects to resolve the CreditWatch within three months when the budget is enacted.

S&P warned, however, that a delayed or flawed budget could result in an additional downgrade to "CCC" or lower.

A recent letter from Puerto Rico's Government Development Bank to its Governor warning of impending liquidity problems unless the government enacts a budget and begins tax reform. S&P wrote that the very existence the GDB letter "indicates liquidity stress."



Everett Rosenfeld

Puerto Rico downgraded to CCC+ from B, with negative outlook, by S&P

Puerto Rico hurtles toward default

A severe liquidity crisis that threatens to shut down Puerto Rico’s government is making life difficult for U.S. municipal bond investors.

The island territory has been labeled “America’s Greece.” Its $73 billion in bonds trading in the U.S. municipal-bond market carry junk ratings and are trading at record-high yields.

In a letter last week, the island‘s Government Development Bank said the government would likely shut down in three months, unless lawmakers agree on a financing deal that would see the island double its sales tax in an effort to balance its budget and allow it to sell $2.9 billion in new bonds.

Last Friday, Standard & Poor’s downgraded the Puerto Rico’s credit rating to CCC-plus, pushing it even further into junk territory, while a Bank of America report dated April 17 warned of the danger of “widespread restructuring for the commonwealth.”

This isn't a new phenomenon. Puerto Rico has been stacking up debt to close its budget gaps and fund its operations for years, while growth has remained anemic. Its population is declining and its tax base is shrinking, said Antonio Fernós Sagebien, principal at REOF Capital, a Puerto Rico-based distressed-debt advisory firm.

Government could run out of cash in 3 months

Puerto Rico hurtles toward default

We the ‘segregated’ people

While the current government of Puerto Rico tries to resolve the economic crisis with measures that have proven extremely ineffective, Congress must recognize that what lies at the heart of a great many of the Territory’s most serious problems is its inferior political status that denies local citizens equal rights and privileges that constitutionally belong to all Americans.

In the mid-20^th century, Puerto Rico became the first Territory in the Nation’s history which Congress authorized to enact a local constitution and a federally guaranteed republican form of government.  In doing so, Congress and the executive branch provided PR with the powers which had historically been bestowed exclusively to Incorporated and/or Organized Territories prior to being admitted as States.

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Leaders of the PPD and supporters of the current territorial-colonial status accepted public funds and actively campaigned in a referendum held in 2012, which addressed multiple status options, including remaining as a colony. However, the voters revoked the consent of the governed for the current territorial status, and an ample margin of 61 percent voted in favor of statehood.Correctly so, the statehood movement, in general, continues to voice frustration over the perpetuation of the current status because, despite the significant democratic mandate for statehood, Congress has not adopted the necessary measures to respect “the will of The People.” Congress must act to terminate the centennial colonial status; especially since the architects of the “Great American Constitutional Experiment” categorically refused the concept of maintaining territories as permanent colonial possessions.

Congressional leaders cannot ignore that since the U.S. Constitution was adopted and ratified (1787-1789), the struggles for equality that have taken place in America have successfully made extensive the constitutional concept of popular government encapsulated  in “We the people” to include the true sovereign of the Republic: The People.

I concur with Alfredo Castellanos Esq., a Constitutional scholar on the matter: that Congress should not ignore the evolution of our “constitutional experiment” that requires the federal government to guarantee the protection of our fundamental rights to all American citizens.  I also concur with Mr. Castellanos that the Fourteenth Amendment defined and created a primary national citizenship, intended to ensure that all Americans would be fully integrated partners of our Constitutional Republic.

The Bill of Rights and Amendments 13^th (abolition of slavery) , 15th (universal suffrage) , 19th (women right to vote)  and 26th (right to vote at age 18) clearly establish that “The People’ are the sovereign and that all the powers delegated to Congress, the executive and the Judiciary emanate from “The People.”

Despite that nine heroic recipients of the Medal of Honor and countless thousands of other patriotic individuals sacrificed their life and limbs in every war since World War I, the Equal Protection Clause guaranteed to all Americans through the V and XIV Amendments and other fundamental Constitutional and Civil Rights have never been fully extended to Puerto Rico.

Our nation has to awaken to the fact that both the existing laws and Supreme Court incorrect interpretations and rulings have intentionally discriminated against the 3.5 million U.S. citizens that call Puerto Rico home, excluding them in the process from truly being an integral part of “We the People.”

It is unacceptable that any U.S. citizen of Puerto Rico be denied many fundamental Constitutional and civil rights. Our fight for equal rights, justice, opportunities, progress, respect and responsibilities as Americans is a moral and constitutional plight, so that every citizen in Puerto Rico should be able to employ the full powers and measure of equality that are inherent in our national citizenship.

The current colonial-territorial status, incorrectly named “ELA-Free Associated State” is for all practical and constitutional purposes an equivalent of an “American Apartheid State” where The People’s fundamental constitutional rights have been denied for the sole reason that those individuals reside where they do.

Our nation must understand that the U.S. Constitution provides the path for a resolution of this abominable injustice, which shamefully represents one of the last vestiges of American colonialism.

The fifty states of our Union are now home to no fewer than five million persons of Puerto Rican descent who equally share all the rights and obligations inherent to our citizenship.  However, for our fellow citizens who remain in PR to become fully integrated on equal footing like citizens in the rest of the nation, Congress has to accept its legal and moral obligation of resolving this unacceptable condition.

I earnestly entreat the House and Senate to empower the people of Puerto Rico with an opportunity to choose the future and status that we deserve: Statehood and equality for the U.S. citizens of Puerto Rico.

Padilla, is a former mayor of San Juan, PR, former president of the U.S. Conference of Mayors, and current president of the Founders' Council of “Igualdad.”

By Hernán Padilla

We the ‘segregated’ people

Credit agency further downgrades Puerto Rico's general obligation debt amid financial crisis

Standard & Poor's has downgraded Puerto Rico's general obligation debt as legislators debate how to overhaul the U.S. territory's tax system and generate more revenue amid a financial crisis.

The credit rating agency says Puerto Rico's market access has weakened and expressed concern about a lack of consensus as the government prepares its 2016 fiscal budget. The announcement made late Friday comes just days after Puerto Rico's Government Development Bank warned the government could be forced to shut down in three months given a lack of funds.

The bank also said the government's fiscal problems could prevent it from accessing the capital market. Puerto Rico has said it plans to issue more than $2 billion in general obligation bonds as the island struggles to reduce $73 billion in public debt.







Credit agency further downgrades Puerto Rico's general obligation debt amid financial crisis

S&P further downgrades Puerto Rico's general obligation debt

" Standard & Poor's has downgraded Puerto Rico's general obligation debt as legislators debate how to overhaul the U.S. territory's tax system and generate more revenue amid a financial crisis.

The credit rating agency says Puerto Rico's market access has weakened and expressed concern about a lack of consensus as the government prepares its 2016 fiscal budget. The announcement made late Friday comes just days after Puerto Rico's Government Development Bank warned the government could be forced to shut down in three months given a lack of funds.

The bank also said the government's fiscal problems could prevent it from accessing the capital market. Puerto Rico has said it plans to issue more than $2 billion in general obligation bonds as the island struggles to reduce $73 billion in public debt.

S&P further downgrades Puerto Rico's general obligation debt - Business

Puerto Rico Agency Says Creditor Plan Adds $3.1 Billion Cost

Puerto Rico’s power utility disagrees with a proposal from bondholders to modernize the agency and fix its finances as a contract between the parties is set to expire at month-end.

The bondholder plan to upgrade the utility’s infrastructure to lower fuel expenses would raise costs by about $3.1 billion over nine years, the agency said in an executive summary dated Thursday.

Lisa Donahue, chief restructuring officer for the power provider, called Prepa, has said the investors’ plan may be premature in assuming full repayment of the agency’s $8.6 billion of municipal bonds and fails to meet environmental standards.

“A successful restructuring of Prepa must be based on an executable plan that rightly balances the contribution of Prepa’s” creditors, customers and bond insurers, according to the executive summary.

Prepa will release a restructuring plan this summer, Donahue told a commonwealth Senate committee last week. The utility, the island’s main provider of electricity, signed an August agreement with bondholders, banks and insurance companies that puts off default. The accord is set to expire April 30. The group has extended the contract twice for additional 15-day periods.

Prepa tax-exempt bonds maturing in July 2022 traded Friday at an average price of 59.3 cents on the dollar, for a 14.2 percent yield, according to data compiled by Bloomberg. The yield is about 12.5 percentage points above benchmark debt.

‘Consensual Plan’

Prepa is working with investors “to create a consensual plan that provides the best outcome,” Donahue said in a statement Thursday.

The bondholder group looks forward to working with Prepa on a plan, yet stands behind its proposal to modernize the system and stabilize power rates, Stephen Spencer, a managing director at Los Angeles-based Houlihan Lokey, an adviser to the investors, said Friday in a statement.

“We believe that a number of the criticisms are based on fundamentally flawed analysis or a misunderstanding of our proposal,” Spencer said.

Standard & Poor’s on Friday lowered Prepa’s rating one step to CCC-, its fourth-lowest junk grade. The company cited the utility’s April 1 move to withdraw $8.8 million from debt-service reserves to help make a bond payment. Prepa is scheduled to make a principal and interest payment of more than $400 million on July 1.

“We believe a default, distressed exchange, or redemption appears to be inevitable within six months, absent unexpected significantly favorable changes in the authority’s circumstances,” S&P said in a report.

by Michelle Kaske

Puerto Rico Agency Says Creditor Plan Adds $3.1 Billion Cost

Budget Affects Thousands of Puerto Ricans Needing Medicine As Government Shutdown Looms

The financial crisis in Puerto Rico continues to wreak havoc upon the island's various public services, targeting now the most vulnerable.

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Thousands who need medicine in the island are being affected because the government cannot pay insurance companies.

In an interview with EFE, opposition New Progressive Party (PNP) leader Jose Aponte said the government's financial problems had led to at least 5,000 Puerto Ricans not receiving needed medications. The problem is the government does not have enough funds to give money to the state-owned insurer ASES, which runs Mi Salud, Puerto Rico's version of Medicaid.

"The government doesn't pay its providers on time," Aponte said. He explained the insurance companies, because they have not been paid, refuse to pay pharmacies to provide medicine for those in need.

As the island's financial crisis continues, which includes a public debt of around $73 billion, the Government Development Bank, the government's financial institution, has cut back ASES funding. However, the insurance agency still owns around $39 million to private insurers only for medicine.



Although Gov. Alejandro Garcia Padilla has said his administration is dealing with this problem, the impending government shutdown could further destabilize or completely end government-funded services.

The government's finance officials, including members of the Government Development Bank, published an open letter addressed to Gov. Garcia Padilla and lawmakers explaining within three months Puerto Rico could face a government shutdown, according to Reuters.

"A government shutdown is very probable in the next three months due to the absence of liquidity to operate," the officials wrote. "The likelihood of completing a market transaction to finance the government's operations and keep the government open is currently remote."

The government's negotiations to save Puerto Rico's finances were not likely to succeed. As a result, the officials warned lay-offs as well as reductions in public services were expected.

If that were to happen, the crisis's aftermath would affect more than just the people not receiving medication.

Puerto Rico faces a government shutdown if the island does not scrape up funds. (Photo : Christopher Gregory / Getty Images )

Budget Affects Thousands of Puerto Ricans Needing Medicine As Government Shutdown Looms

Opinion: Puerto Rico’s last hope is bankruptcy

The Bankruptcy Code was established to allow insolvent borrowers - including individuals, companies, and municipalities – to undergo a court-supervised path for restructuring debts, so that our economy can continue to promote the most efficient use of resources. Unfortunately, there is one exception.

Despite its own insurmountable indebtedness, Puerto Rico does not have the same option that every other American municipality has. Congress should pass the Puerto Rico Chapter 9 Uniformity Act (H.R. 870) to change this.

Bankruptcy is Puerto Rico’s last hope. Despite my public affirmations that bankruptcy has been inevitable for some time, I didn’t come to this affirmation easily. Something just doesn’t seem right about allowing a poorly-managed government to rid itself of its obligations. But Puerto Rico has been inching towards insolvency for years, and recently speculators are the only ones betting that it won’t find some way to restructure.

What led to its current fiscal distress?  To put it simply, Puerto Rico has a historical addiction to spending that would make our nation’s most indebted states uncomfortable. Investors desperate for returns higher than what Treasury bonds - and most municipal bonds - can offer, have been the island’s enablers, unwilling to confront what everyone has seen as a growing problem.

Will D.C. be able to deny assistance, knowing that Puerto Rico lacks any other way out? Ask President Obama, who has appointed a special team to consider Puerto Rico’s options.

Most now know that Puerto Rico must do something drastically different, and soon, but the unfortunate side effect to kicking this can down the road has been a precipitous decline in the number of businesses willing to trust that they won’t be forced to pay the tab.

Economists recognized Puerto Rico’s unsustainable debts years ago, but there were glimmers of hope and lofty speeches that distracted us along the way. However, the one indicator that has consistently predicted government default elsewhere (including in many Latin American countries), is now pointing to the same inevitability in Puerto Rico:  Puerto Rico’s long-term growth rate is far lower than the rate at which it can borrow, making its debts insurmountable.

In fact, the island’s economy has been stagnating or shrinking for nearly a decade, while its cost to borrow has continuously increased. Some analysts expect the next round of requisite financing, backed by revenues from a new tax on oil, to come in at around nine percent. This is infinitely greater than the flat growth I expect in the near future, and still more than 40 times higher than the Puerto Rican government’s anticipated 0.2 percent growth for 2015.

Any additional austerity measures (which generally equates to more taxes and cuts in spending) required for new borrowing will suppress economic activity even more, making it impossible for Puerto Rico to overcome this obstacle.

The solution of last resort is now obvious, but - for reasons that no one seems to understand - our elected representatives in Washington excluded Puerto Rico from the same recourse that every other municipality (and nearly every borrower, for that matter) in the country has available to it.

Consider that this legislative oversight may have been part of the reason for the depth of its financial hole in the first place. Lenders have known about Puerto Rico’s inability to file for bankruptcy, meaning that speculators haven’t had to fear the wrath of mismanagement. Now that it’s time to negotiate, these lenders have all the leverage.

In addition to hedge funds, millions of Americans also have exposure to Puerto Rico’s bonds, but for the most part these investments are a small fraction of diversified portfolios. Given that markets are already pricing in the possibility of a restructure, mom-and-pop investors can expect very little additional per capita loss if bankruptcy is permitted.

Some think that a municipal bankruptcy will force the Federal Government’s helping hand, but recent history proves otherwise. After the Great Recession, a number of municipalities were forced to go through court-monitored restructures when Uncles Sam’s tolerance for bailouts had reached its limits. American taxpayers didn’t have to pay anything.

On the other hand, if Puerto Rico doesn’t have the option to restructure its debts, it will eventually have no choice but to put its hand out to Washington. Will D.C. be able to deny assistance, knowing that Puerto Rico lacks any other way out?  Ask President Obama, who has appointed a special team to consider Puerto Rico’s options.

There’s a reason we’ve set up the bankruptcy option, and it’s not just so we can slip out from under our obligations without any repercussions. As a society, we’ve found that it’s the most efficient way of ensuring an organized restructure that doesn’t create market chaos, and, in the case of Puerto Rico, unnecessarily harsh economic repercussions for millions of Americans.

Even if H.R. 870 is passed, and Puerto Rico decides to take itself to bankruptcy court, it is going to be a long, hard road to regain economic growth. And it will be an even tougher one with a new market of skeptical lenders, far less likely to take the risks they historically have.

Nevertheless, there are now no good options for Puerto Rico, only less bad ones. The least bad path for Puerto Rico, and the rest of the country, is to allow it to undergo a supervised restructure, instead of the more chaotic, but still inevitable, extrajudicial one.



Justin Vélez-Hagan is the founder of The National Puerto Rican Chamber of Commerce and an economic policy researcher at the University of Maryland. He is also the author of the upcoming book entitled Nousonomics: The common sense behind basic economics. He can be reached at JustinV@NPRChamber.org or @JVelezHagan.





By Justin Vélez-Hagan

Opinion: Puerto Rico’s last hope is bankruptcy

Puerto Rico officials warn government shutdown imminent

Puerto Rico's top finance officials said the government of the U.S. territory will likely shutdown in three months because of a looming liquidity crisis and warned of a devastating impact on the island's economy.

In a letter to leading lawmakers, including Governor Alejandro Padilla, the officials said a financing deal that could potentially salvage the government's finances currently looked unlikely to succeed. It warned of laying off government employees and reducing public services

"A government shutdown is very probable in the next three months due to the absence of liquidity to operate," the officials said. "The likelihood of completing a market transaction to finance the government's operations and keep the government open is currently remote."

The letter, dated April 21, was also sent to the heads of Puerto Rico's Senate and House as well as the governor. It was signed by the government's fiscal team, including the head of the Government Development Bank and the Treasury Secretary.

Puerto Rico, which has a total debt of more than $70 billion, is trying to raise $2.95 billion in financing, while pushing through unpopular tax reforms such as a higher value-added tax and increasing a levy on crude oil to help pay for it.

Puerto Rico is largely reliant on hedge funds for its financing needs. Those hedge funds have been pushing the government to carry out tax reforms to improve its fiscal position as a condition for providing extra financing.

Government bonds have been in steady decline in recent weeks as uncertainty grows over the prospects for the island of 3.6 million people. On Wednesday, its benchmark general obligation bonds traded at an average 79.982 cents on the dollar, close to an all-time low.

The warning also marks a new tone of urgency from officials, who have up to now remained publicly upbeat about the prospects for getting a financing deal by the middle of May.

"A government shutdown would have a devastating impact on the country's economy, with payroll and public service cuts, with a painful recovery and of a long duration," the officials said in the letter.

The government has used hardball tactics to browbeat recalcitrant lawmakers in the past. Padilla threatened to shutdown San Juan's public transport system in November if lawmakers refused to pass an increase in the crude oil tax.

That shutdown, which could have impacted 75,000 people, was ultimately avoided and lawmakers agreed to pass the tax rise.



(Additional reporting by Luc Cohen. Editing by Andre Grenon and Alan Crosby)

A woman walks at the headquarters of the Government Development Bank of Puerto Rico, in San Juan in this file photo taken on May 10, 2012.

Reuters/Ana Martinez

By Edward Krudy

Puerto Rico officials warn government shutdown imminent

Gundlach Buys $20 Million of Junk-Rated Puerto Rico Bonds

DoubleLine Capital’s Jeffrey Gundlach bought $20 million of junk-rated Puerto Rico bonds this year as the commonwealth struggled with its fiscal crisis.

DoubleLine’s $2.26 billion Income Solutions Fund held $20 million of Puerto Rico general obligations as of Feb. 27, data compiled by Bloomberg show. The fund didn’t hold any commonwealth debt at the end of 2014. The bonds, which were issued in March 2014, traded Wednesday at record-low prices.

Puerto Rico securities, which are tax-exempt nationwide, have traded at distressed levels for more than a year amid speculation the commonwealth and its agencies won’t be able to repay $73 billion of debt. Municipal bonds sold in Puerto Rico lost 0.72 percent this year through April 21, the worst start since 2011, according to S&P Dow Jones Indices.

“I do think they are going to make it to the goal line,” Gundlach said of Puerto Rico in a March 10 conference call. The yield on the debt is “unbelievably high,” especially for residents of high-tax states such as California, he said.

As the value of Puerto Rico debt has dropped, hedge funds and distressed-debt buyers have purchased more of the securities, while municipal-bond mutual funds have cut their holdings.

High Reward

The bonds purchased by DoubleLine, which mature in 2035, traded Wednesday at an average price of 79.7 cents on the dollar, the lowest yet, for an average yield of 10.4 percent, Bloomberg data show. That’s equivalent to about a 17 percent yield on taxable bonds for investors in the highest tax bracket.

DoubleLine oversaw $73 billion of assets as of March 31. Its $46.2 billion Total Return Bond Fund has beaten 99 percent of peers in the past five years. Loren Fleckenstein, a spokesman for the Los Angeles-based firm, declined to comment.

The Income Solutions Fund is a closed-end fund. Corporate debt accounts for about two-thirds of its holdings, its largest allocation, Bloomberg data show. The Puerto Rico bonds are the fund’s only municipal holdings, taking up less than one percent of assets.

It’s not the company’s first purchase of Puerto Rico debt. DoubleLine had $2.5 million of the same general obligations in its $129.6 million Multi-Asset Growth Fund at the end of March, Bloomberg data show. That fund first bought the debt last year.

by Michelle Kaske

Jeffrey Gundlach, founder and chief executive officer of DoubleLine Capital LP, pauses during a television appearance in New York, on May 17, 2012. Photographer: Scott Eells/Bloomberg

Gundlach Buys $20 Million of Junk-Rated Puerto Rico Bonds

Puerto Rico Bank Warns of Imminent Government Shutdown

Puerto Rico's Government Development Bank warned Wednesday that it is very likely the U.S. territory's government could be forced to shut down in the next three months because of a lack of funds.

The bank made the warning in a letter made public a day after it was sent to Gov. Alejandro Garcia Padilla and the presidents of the island's Senate and House of Representatives.

"The island's financial state is extremely uncertain," the letter said. "A government shutdown would have a devastating impact on the economy, with salary and public service cuts, and a long and painful recovery."

Bank officials said in the letter that the government's fiscal problems will prevent it from selling more bonds in the capital market as planned, and they urged legislators to immediately implement measures to cut costs and balance the budget. The government had been preparing to issue more than $2 billion in bonds in the coming months in part to strengthen debt-ridden agencies.

Bank officials said the government needs to approve a five-year plan to help reduce a $73 billion public debt as well as approve sweeping changes to the island's troubled tax system.

Once the government does that and presents a balanced budget, then it can be in a better position to issue bonds, said David Chafey, president of the bank's board of directors.

"Time is passing, and it's passing quickly," he told The Associated Press. "We need to provide investors with some kind of comfort."

Economist Charles Blitzer, a former World Bank and IMF official, said he wasn't surprised by the bank's assessment, adding that U.S. investors overall have known that liquidity is very low.

"What's a surprise is typically one agency of the government doesn't write to the rest of the government in quite this way," he said in a phone interview.

The letter was issued as Garcia faces opposition from members of his party on a measure that would impose a 16 percent value-added tax that he says is needed to help generate more revenue. 

House of Representatives President Jaime Perello said a group of legislators had reached a tentative agreement to impose a 14 percent value-added tax, adding that he expected the House to vote on the measure soon. Chafey said the measure is a key tax reform component.

If passed, the measure would then go to the Senate. A message left for Senate President Eduardo Bhatia was not immediately returned.

Puerto Rico's government last shut down in May 2006 amid a budget shortfall resolved by an emergency loan. The two-week partial shutdown closed Puerto Rico's public schools and idled half of the central government's workforce. It also prompted Moody's Investors Service to cut the rating of the territory's general obligation bonds.

By DANICA COTO

Puerto Rico Bank Warns of Imminent Government Shutdown

U.S. Rep. Tom Marino, Congress should consider alternatives to Puerto Rico bankruptcy: Mario H. Lopez | PennLive.com

Behind Puerto Rico's picturesque scenery and inviting beaches is a financial emergency that poses a significant risk to the U.S. taxpayer and the retirement savings of individuals and families.

As a U.S. territory, Puerto Rico's plight will ultimately become the responsibility of the U.S. taxpayer. So now, with a growing sense of urgency, Congress is considering options to keep Puerto Rico solvent.

U.S. Rep. Tom Marino, R-10th District, is shepherding a bill through Congress that would allow Puerto Rico to declare bankruptcy.

But instead of what could turn into a short-term bailout, it would be much wiser to insist on responsible measures that focus on comprehensive, long-term remedies. Steering clear of bailouts should be a priority.

Let's hope Members of Congress who take their duties to taxpayers seriously decide to slow the process down and fully examine the options.

Puerto Rico's finances have been an evolving disaster for years and the day of reckoning has arrived. 

Puerto Rico's finances have been an evolving disaster for years and the day of reckoning has arrived.

The island has a staggering $73 billion in debt.  Sadly, there is no political support in Puerto Rico for real reforms from budget cuts to pension reform.

Puerto Rico Gov. Alejandro Garcia Padilla has exacerbated the financial situation by signaling his intent to avoid paying debts, which has left the island's credit rating at junk status and reduced investor appetite.

It is important that Congress not legitimize the governor's irresponsible policies.

In February the House Judiciary subcommittee that Marino chairs heard arguments for granting Puerto Rico eligibility under Chapter 9 of the U.S. bankruptcy code, which would allow Puerto Rico to declare bankruptcy as the way other cities like Detroit have.

This seems innocuous at first glance but a closer look reveals bankruptcy could pose a threat to taxpayers as well as to Americans' retirement savings.

Proponents of Chapter 9 insist it is a limited step to allow public corporations to restructure their debts, and escape the pressures of Wall Street creditors. But this view doesn't address the pain it could cause average people here in Pennsylvania and around the country.

Many Americans, through their 401(k)'s and mutual funds are invested in Puerto Rico's bonds and could take a financial hit as a result of Chapter 9 being extended to Puerto Rico.

What's worse, proponents want Chapter 9 applied retroactively.  This could result in a blow to investors and average folks' retirement savings. Congress should not let this happen.

Beyond shortchanging hardworking Americans, Chapter 9 would allow Puerto Rico to continue with the bad governance and short-sighted economic policies that allowed it to descend into a financial abyss in the first place.

Under Chapter 9, some or all of Puerto Rico's debt could be wiped clean, which disincentivizes real policy changes and flies in the face of taxpayers who financed the debt to begin with.

Before Marino and his colleagues consider ways to address the financial crisis in Puerto Rico, they should think carefully about whether it would be fair to ask taxpayers and investors, including pensioners, to sanction a deal which would perpetuate the misguided policies that have caused them harm.

Ultimately what Puerto Rico needs is a top-to-bottom review of its governance and a comprehensive plan to get its finances on the right track.

One solution that deserves a serious look would be  to institute a federal board of control similar to that created for the District of Columbia 20 years ago.

District politicians and many citizens balked at the time, but the control board worked. Debts were paid, budgeting efficiencies were adopted and the Nation's Capital was back in business before long, attracting investment and continuing to improve governance.

For starters, a control board could undertake a comprehensive assessment of Puerto Rico's economic policies and an accounting of the debts of the central government and municipalities.

It could then lay out a program to reduce the size of government and implement legitimate tax reform that does not attack the middle class.

Given Gov. Garcia Padilla's track record, it is doubtful that a declaration of bankruptcy would compel Puerto Rico's leaders to undergo a stark self-critique or adopt unpopular choices needed to right the Island's finances, such as reducing bloated public payrolls and union pensions.

But anything short of that could provide an escape hatch from current debt and enable similar mistakes in the future.

This would be unfair to the Puerto Rican people and leave U.S. taxpayers ultimately responsible for their growing debts.

While Puerto Rico is a long way from Pennsylvania, its insolvency is a looming problem for taxpayers here.

Marino and other lawmakers should reject any sort of bailout and demand comprehensive changes in Puerto Rico's governance and finances.

Anything less would shortchange both Puerto Rican families hit hard by the current financial instability, and taxpayers on the U.S. mainland.

Mario H. Lopez is president of the Hispanic Leadership Fund, a Washington D.C.-based political advocacy group.

By PennLive Op-Ed: By Mario H. Lopez     The Patriot-News    

U.S. Rep. Tom Marino, Congress should consider alternatives to Puerto Rico bankruptcy

​Cate Long on Puerto Rico debt problems and more on Greece [Video]

Anxiety over the financial future of Greece is only building. European equities are falling dramatically and Athens’ main stock exchange has fallen 41 percent in the last twelve months making it one of the world’s worst performing indexes. Boom Bust guest host Ameera David weighs in.

Ameera and Edward review the talks by Greek Finance Minister Yanis Varoufakis and German Finance Minister Wolfgag Schaeuble at the Brookings Institution on Thursday ,and the very different visions the two laid out for sustainable growth in Greece and elsewhere in the eurozone.

Erin also sits down with Cate Long – partner at Puerto Rico Clearinghouse and founder of Multiple Markets. They talk about the latest events surrounding Puerto Rico’s attempts to get to grips with its debt burden. Cate tells us how three cash-strapped public corporations in Puerto Rico will find the money they need to pay their creditors and gives us her take on the government’s tax changes.

After the break, Bianca gives us a daily news update on other headlines including minimum wage protests in the US, German yields, Chinese property developers, and Argentina.

And in The Big Deal, Ameera and Erin discuss Etsy IPO and Yelp.

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​Cate Long on Puerto Rico debt problems and more on Greece

Puerto Rico's PREPA taps reserve fund for quarterly payment

Puerto Rico's troubled utility, PREPA, made another withdrawal from its reserve account to make a quarterly bond payment on April 1, according to a regulatory filing posted by the utility.

While the withdrawal amounted to just $8.8 million, the filing posted on Wednesday shows the utility is remaining current on it debt payments ahead of a much larger bond payment of around $400 million which comes due on July 1 and that some analysts expect PREPA to miss.

The bulk of PREPA's more than $8 billion in outstanding debt has biannual bond payments. Three series of revenue bonds have quarterly due dates. They include a floating rate bond and taxable Build America Bonds .

PREPA entered into liquidity crisis last summer and first used its reserve last July, withdrawing $41.6 million to make a shortfall on its bond payments. That prompted debate over whether the utility has entered technical default.

PREPA is in discussion with its creditors over restructuring its debt and operations. Under the latest agreement reached on Wednesday, creditors said they will not call a default for the next 15 days while talks are ongoing. (Reporting by Edward Krudy; editing by Gunna Dickson)

Puerto Rico's PREPA taps reserve fund for quarterly payment

Puerto Rico woos the rich but so far gains little

Hedge fund manager Rob Rill grins. He has just had word that U.S. financial regulators have finally closed Puerto Rico's ailing lender Doral Financial, a stock he has been shorting for the past six months.

"Doral is no more," he tells staff in his office, its marble desk tops, dark wood furniture and leather chairs more reminiscent of a New England country club than a Puerto Rico beach town.

Rill is one of a cohort of money managers from the mainland who moved to the U.S. territory lured by tax breaks introduced in 2011 to boost the flagging economy and betting against a troubled local bank may not be what the authorities had in mind.

To be sure, Rill's fund played no part in the lender's downfall and its business plan focuses on investing in tech and financial firms. But the Doral transactions serve to symbolize Puerto Rico's challenge of ensuring that the tax breaks spur enough economic activity to reverse years of decline.

Almost four years on, the economic payoffs still appear elusive.

The government says nearly 900 individuals and firms have moved under the tax relief program, creating 7,000 jobs.

So far, however, economic data and those with a front row view of the territory's economy - real estate brokers, investors and lawyers dealing with cross-border transactions - have yet to register a significant upswing.

"We are starting to see some activity - not huge, it's very slow," says Fernando Toro, a real estate agent at Cushman and Wakefield in San Juan, about interest in rental office space.

Mark Leeds, tax partner with international law firm Mayer Brown, says interest in the tax breaks only picked up last year.

"I have not seen a rush toward this," he said. "For whatever reason it doesn't seem to be for everybody."



SMALL DOLLARS

Strict residency conditions, which include spending half of the year on the island and selling or leasing home on the mainland, discourage some individuals. The precarious state of government finances and fears that tax rules could change again, seem to keep bigger firms sidelined, lawyers and brokers say.

"What we're talking about right now is very small dollars and a very nominal piece of the overall GDP of the island,"

Todd Hagerman, a spokesman for the Government Development Bank in Puerto Rico says.

The government expects each new company to create 30 jobs on average, but Hagerman says most firms that have moved are small businesses, with the exception of call centers that employ hundreds and flatter the overall jobs count.

However, he voices optimism that the tax program would gain momentum, echoing its chief architect Alberto Baco, who says the number of new jobs it brings will double this year and 82,500 more will be added to the $100 billion economy over the next five years.

Yet so far the island, which has been in an out of recession for the past nine years, lost 36,000 jobs since 2011. Between 2010 and 2013 twice as many Puerto Ricans left for the mainland than in two decades to 2000.

The tax program that covers financial services firms, other companies that export services and wealthy individuals offers a flat 4 percent corporate income tax, and exemption from capital gains tax and certain interest and dividends taxes.

The territory counts prominent hedge fund manager John Paulson among its investors and supporters, although he has not taken up tax residency there or moved his firm to the island. Paulson, who redeveloped San Juan's five-star Vanderbilt hotel is investing in commercial real estate and called Puerto Rico the "Singapore of the Caribbean."

But Paulson, who manages $19.3 billion in assets, is hardly representative for 509 individuals and 346 firms that have taken advantage of the tax incentives through the end of 2014. Most of the hedge funds and traders on the island appear to be relatively small outfits trading in public markets, such as Rill's sub-$100 million fund.

Based in Dorado, a resort town outside San Juan, the fund has a local staff of eight, which is already a significant contribution to the local economy, Rill says.

"We are picking up people in the professional class that are outstanding that otherwise simply wouldn't have any opportunity," Rill says.

Rill says his firm is looking at launching a fund focused on local investments after Puerto Rico last year introduced tax breaks for private equity investments on the island.

A $4.7 million KPMG study that Puerto Rico commissioned to guide its tax overhaul criticized the tax breaks as "inordinately complex" and suggested scrapping the incentives for individuals and linking corporate ones to economic activity.

Nick Prouthy, a Puerto Rico-based real estate investor with $500 million worth of projects on the island, says it badly needs more capital, but it is equally important how that capital will be put to work.

"Will these people make investments in Puerto Rico or will they sit in Dorado and trade?"



(Reporting by Edward Krudy; Editing by Tomasz Janowski)

Pedestrians stand outside a branch of the Doral Bank in San Juan February 27, 2015.

REUTERS/ALVIN BAEZ-HERNANDEZ

Puerto Rico woos the rich but so far gains little

Lufthansa Technik Puerto Rico Facility To Open in July

Seven months after groundbreaking last August, Lufthansa Technik’s 215,000-sq-ft hangar has been structurally completed, as has the floor slab for the first and second bay and most of the flooring of the workshops and offices. Completion of the internal walls, air conditioning ductwork, electrical conduits and piping is ongoing.

“We are very happy with the progress of the overall project. Recruitment and training are constantly ongoing,” said Elmar Lutter, CEO of Lufthansa Technik Puerto Rico. “A highly motivated team will meet the first aircraft and we are confident that the recently extended training school system will provide a basis for the growing aerospace cluster in Puerto Rico.”

When completed, the Aguadilla facility will employ approximately 400. In addition to the theoretical training—conducted in Puerto Rico by the Aviation Institute of Puerto Rico (AAIPR) in consultation with Lufthansa Technical Training—the new staff is undergoing extensive practical training in Lufthansa Technik's European facilities to ensure the same quality level at the new facility.

Lufthansa Technik Puerto Rico (LTPR) will be FAA Part 145 and EASA Part 145-approved. Initial customers will be Airbus A319, A320 and A321 operators from the Americas. The first layover is planned for July. A second line is planned to be operational in November, followed by three more lines until early 2017 to include Boeing 737 by then.

The new hangar will handle five lines of heavy and overhaul checks (C-, IL- and D-checks), along with other maintenance work on narrow-body aircraft.

• Maintenance and Modifications

http://www.ainonline.com/aviation-news/business-aviation/2015-04-15/lufthansa-technik-puerto-rico-facility-open-july

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by David A. Lombardo

Lufthansa Technik Puerto Rico Facility To Open in July

Chinese business delegation seeks investment opportunities in Puerto Rico

A group of investors from China is touring southern Puerto Rico in search of business opportunities.

"Our relationship may be quite fruitful," Li Shutang, who leads the business mission, told Efe. "We are looking for investment opportunities to strengthen links, and one should not forget that China is a country with more than 1.3 billion people."

Li said his group's visit may be a first step toward important cooperation.

Rolando Emmanuelli Jimenez, president of the ProSur group promoting business projects in the island's southern region, told Efe that the Chinese delegation included four businessmen from Tianjin, a city in northeastern China.

The visitors will remain in Puerto Rico this week to sign investment agreements that are welcome on the island, which has been eager to attract foreign capital to help it pull out of the economic slump of the past decade.

Among the projects that might get Chinese investment, Emmanuelli mentioned a study to build residences for senior citizens and low-income people in the cities of Ponce and Juana Diaz.

The same cities are also being evaluated for construction of a large commercial district that would offer housing with a wide variety of services to meet residents' needs.

"This last project is very ambitious and it will take more time," Emmanuelli said, adding that he was confident that agreements to carry out these projects would be signed within months.

Negotiations are far along and Li has been in touch with China's consul in Houston, whose area of responsibility includes Puerto Rico, to gain support for his investments in southern Puerto Rico, Emmanuelli said.

A larger Chinese business delegation might visit Puerto Rico during the summer.

With more than 12 million inhabitants, Tianjin has one of the world's largest trans-shipment ports.

ProSur works to promote development in the southern region of Puerto Rico. EFE

Chinese business delegation seeks investment opportunities in Puerto Rico

Puerto Rico legislators want quick rescue of power company

Legislators on Tuesday demanded quicker action to rescue Puerto Rico's public power company, expressing dissatisfaction over the pace of a multimillion-dollar plan to improve its finances.

Members of the island's Senate Commission of Energy Affairs expressed concern the Electric Energy Authority might fall into receivership if the bondholders' debt is not paid soon.

"It's very important that we solve an issue that is really hurting the economy of Puerto Rico," Sen. Eduardo Bhatia said.

The authority's chief restructuring officer, Lisa Donahue, told the commission she will present a first draft by June 1 on how she plans to save the company.

"We get one chance to do this right. I wish it could go faster. It can't go faster," she said. "When our report is final, there will be very tough decisions that will require bipartisan support."

The Electric Energy Authority holds nearly $9 billion in debt and owes investors some $400 million by July. A bondholder group announced Tuesday that it has offered to extend the forbearance agreement for 30 more days after the government obtained a two-week extension earlier this month. The power company's board president, Harry Rodriguez, said Tuesday that no deal has been reached and accused the group of publicly releasing an incomplete summary of the newest proposal.

Donahue said if the deadline is not eventually met, the U.S. territory's government could face a 30-day default notice and bondholders could then file for appointment of a receiver.

Sen. Ramon Luis Nieves, who oversees the energy affairs commission, noted the U.S. territory's government is paying a total of $17.4 million to various firms to help strengthen the power company's finances.

"People have been asking, 'Are these agreements justified?'" he said. "Up until now we have no business plan, no recovery plan."

The bondholder group recently offered to invest $2 billion in energy production and other measures to improve the power company's finances and infrastructure. Donahue said Tuesday that some elements of the plan were helpful but others would not work given technical, systematic, regulatory or environmental issues.

Donahue said one of the power company's main challenges is dealing with a turnover of more than 200 management positions whenever a new party takes over the territory's governorship.

"Operating a business where you can't plan for the long term is an impossible task," she said.

Read more here: http://www.thenewstribune.com/2015/04/14/3740666_puerto-rico-legislators-want-quick.html?rh=1#storylink=cpy

By DANICA COTO

Puerto Rico legislators want quick rescue of power company

Puerto Rico’s dilemma

These are crucial weeks for the fragile economy of Puerto Rico, a United States territory. The current administration of Governor Alejandro Garcia Padilla (D) is pushing hard for the implementation of an Added Value Tax of between 12 and 16 percent to all goods and services sold.

Since 2006 the Island has used a flat sale tax rate of 7 percent. The new proposal will eliminate that structure and in favor of a double digit tax on almost everything. There’s no denying the fact that the government’s finances are in shambles. Puerto Rico has an overall accumulative debt of around 72 billion dollars, and we have been in a recession since the last quarter of 2005 with no end in sight.

Because of the deceleration in the economic activity, almost 100,000 Puertorricans have migrated to the states, most particularly, Florida, since 2013. That’s a huge hole in our labor force as well as in our tax collection base.

Plain and simple, with fewer people to share the burden, the new tax hike will end almost all profitable enterprises, at least in the beginning. The problem is that we can’t sustain even a month of stagnation. Puerto Rico’s economy is based almost exclusively on consumption. An increase of 100 percent in taxes will kill whatever chance we have of getting out of this prolonged recession.

If passed, the new tax increase will cut deep in retail sales, which is the backbone of our economy. We can expect a major dip in the Gross Domestic Product output and Consumer Expending Index for the third quarter of 2015, if the Added Value Tax of 12 percent, for example, becomes law this month. This will basically end any hope for a recovery in the next two years.

Anyway, tax increases alone will not do much to reduce the government’s terrible debt burden, unless the administration takes real and concrete actions towards downsizing.

The only way to reduce the enormous size of our debt is to stimulate the economy. We need to diversify our product output and to reengineer the labor force in order to achieve a sustainable base in which revenue could start flowing back to the Treasury.

Instead of raising taxes, it’s time to cut them.

Tax cuts really do provide a stimulus. The main reason for it is flexibility: people who want to consume more can use their tax cut for that purpose; people who want to save more can use theirs to buy up the new government bonds at discount prices. This is the perfect scenario during a recession and one that we should implement immediately.

Tax cuts for everyone are a much more effective path to job creation as well. Lower-income taxpayers tend to spend a higher share of their tax cuts in consumer goods and services, prompting the hiring of people and the development of new businesses.

After two years of tax hikes with less than stellar results, it’s time for a change. Puerto Rico has gone the way of raising taxes and the result is a near collapse of the economy. Pumping money into the people’s pockets, instead of taking it, would prop up the market and stimulate our labor force and tax base. It’s time to do it.

Rodríguez has been a member of the Puerto Rico House of Representatives since 2008.

By Ángel ‘Gary’ Rodríguez

Puerto Rico’s dilemma

Puerto Rico Set to Become Medical Tourism Hub

As I've said before, Puerto Rico's legitimacy as a major destination for business is often tarnished by its unfortunate fiscal deficit. Business media outlets' fixation with the island's debt has completely overshadowed Puerto Rico's unprecedented drive for economic development. The island's tax-incentives for research, development and technology manufacturing have proven to yield impressive results; while tourism has made a powerful comeback. However, there is one particular type of tourism-market that Puerto Rico is resolved to conquer: medical tourism.

Though medical tourism is an emerging market for Puerto Rico and other countries are years ahead of the island, the competitive advantage of Puerto Rico cannot be underestimated.

The cost of medical and dental services in Puerto Rico is 40% to 60% lower than in the continental U.S. Hospitals and clinics are accredited both by the Joint Commission (TJC) - a U.S based non-profit organization that accredits more than 20,000 health care organizations and programs in the United States; and by the Accreditation Association for Ambulatory Health Care (AAAHC) - an American organization which accredits ambulatory health care organizations, including ambulatory surgery centers, office-based surgery centers, endoscopy centers, and college student health centers, as well as health plans.

Also, under the state Tourism Development Act, businesses engaged in medical tourism can enjoy up to 90% tax exemption on income tax, up to 90% tax exemption on personal property, real property and licenses, and up to 50% in tax credits for any person who acquires an equity interest or contributes land to an entity that develops an exempt tourism business.

The Puerto Rico Medical Tourism Corporation (PRMTC) recently announced that Nueterra Global Alliance, a company that creates medical exchange journeys through a global collective of healthcare providers, would partner with Puerto Rico to facilitate the access of patients to Puerto Rico's health care facilities.

Nueterra's vast network of provider-partners has improved access to best-in-class healthcare and treatment options, effectively revolutionizing patient mobility and the medical exchange industry. Nueterra Global Alliance was chosen as the top candidate upon evaluation of several industry leaders who also submitted proposals, among them, the Hospital Association of Puerto Rico, IKON Solutions, Inc., Management Temporary and Contract Employment Services, Inc., Premium Professional Health Group, P.S.C., Puerto Rico Global Health Corporation, Puerto Rico Medical Tours Corp., Quality Improvement Professional Research Organization, Royal Medical Group Corp. and Trinexus, Inc.

Spearheading the efforts to foster medical tourism in Puerto Rico, Francisco Bonet, Executive Director of the Puerto Rico Medical Tourism Corporation, is optimistic on Puerto Rico's competitive edge.

Having completed the evaluation process for proposals means that we will soon have a centralized mechanism to market Puerto Rico's healthcare services to a global pool of medical tourism patients. This entity and our promotion efforts will secure a larger share of the medical tourism market, placing Puerto Rico in a uniquely advantageous position for both Latin America and the U.S - Bonet stated.

Although Puerto Rico's goals are nothing short of ambitious (30,000 patients and $300 millions in 3 years), current statistics light the way for a very profitable future. An Advantage Business Consulting study commissioned by the government identified a wealth of opportunities in a variety of specialties including: dental, cardiology, orthopedics, bariatric surgery, cancer treatment, neurosurgery, gynecology and infertility, pediatrics, ophthalmology and certain cosmetic procedures. Data shows that global health tourism generates some $35 billion in economic activity annually and is growing at a faster rate than the overall travel and tourism. Statistics show that some 15,000 medical tourists come to Puerto Rico every year, spending an average of $10,000. Family members or friends who make the trip with the patients represent a further economic injection of almost $1,000 each in spending on lodging, meals and transportation.

Alberto Bacó, the Department of Economic Development (DDEC) chief is not shy of Puerto Rico's ambitions with medical tourism.

Our focus is on training a select group of providers -- from clinics, to logistics firms to tourism services -- to help make medical tourism one of the drivers of our economy, boost the export of services and create jobs. We are a world-class tourism destination and are presenting a medical tourism offer that equally attractive to the Caribbean, U.S. mainland and Latin America. - Bacó said.

Certainly, Puerto Rico's debt crisis might seem insurmountable. On a daily basis, debt stakeholders spend million of dollars in researchers and public relations strategies that prioritize a strict and absolute repayment schedule over public services and economic development. This aura of apparent insecurity will loom over medical tourism investments, but numbers don't lie.

I think Puerto Rico's medical tourism industry will soon impress quite a few.

Adrian Brito                                                                          

Puerto Rico Set to Become Medical Tourism Hub