Fed's Yellen says Puerto Rico faces economic crisis, matter for Congress

Federal Reserve Chair Janet Yellen on Wednesday said Puerto Rico faces a fiscal crisis but that a solution should come from the White House or Congress.

"This is really something that I'm not an expert on," she told a meeting of the House Financial Services Committee. "What the appropriate programs are for Puerto Rico to deal with its longstanding problems - I think that's squarely a matter for Congress and the administration to consider."

(Reporting By Patrick Rucker; Editing by Andrea Ricci)

Fed's Yellen says Puerto Rico faces economic crisis, matter for Congress

How Puerto Rican Farm Income Spiked 25 Percent

Puerto Ricans are buying rice produced on the island for the first time in nearly 30 years. They are also eating locally grown mushrooms, kale and even arugula, along with more traditional crops such as plantains and pineapples.

The U.S. territory is seeing something of an agricultural renaissance as new farms spring up across the island, supplying an increasing number of farmers' markets and restaurants to meet consumer demand for fresher produce.

Farming has become one of the few areas of growth on an island struggling to emerge from a 10-year-old recession and a still-unfolding debt crisis. The most recent statistics from the governor's office show farm income grew 25 percent to more than $900 million in 2012-2014. The amount of acreage under cultivation rose 50 percent over the past four years, generating at least 7,000 jobs.

"More and more people have noticed that this is one of the only successful ways of living on the island right now," said Tara Rodriguez Besosa, a farming advocate and owner of an organic restaurant in San Juan that buys from local farms, including one started by her mother several years ago.

Agriculture is a small part of the economy in Puerto Rico, well behind manufacturing, finance and tourism. But the growth is notable simply because things are so bad overall. Many businesses have closed, tens of thousands of people have decamped to the U.S. mainland, unemployment is at nearly 12 percent and the government is in default. Congress gave the territory some breathing room in June with legislation to enable the restructuring of what the governor has called its "unpayable" $70 billion debt, but the effects of that legislation have yet to be felt widely.

The agricultural rebirth can be seen in the aisles of supermarkets, where local rice went on sale in August for the first time since the last producer closed in 1989, and in the shimmering green fields where the grain is grown on the outskirts of the southwestern town of Guanica. The government helped launch Finca
Fraternidad, or "Fraternity Farm," by providing 1,350 acres of vacant public land.

The rice venture is one of about 350 farms that the government supported to reduce Puerto Rico's reliance on expensive food imports and spur the growth of a sector that dominated the economy until the 1940s, when the territory began a decades-long transformation into a more urban, developed society where few wanted to work on farms.

"It's satisfying to change the perspective of an island that once viewed agriculture as a thing of the past, as something for people without education," Puerto Rican Agriculture Secretary Myrna Comas said.

It can still be a challenge to find workers, especially for labor-intensive crops like coffee. But 25-year-old Jonathan Rodriguez, who has been working on the harvest at Finca Fraternidad, said the job appeals to him.

"I like it because it's something that we sow for the island," he said on a scorching recent morning. "And that's why we're here, to make Puerto Rico better."

In the west and the south, the government has launched a project to supply the local rum industry with homegrown sugarcane, which dominated the economy in the 19th century but all but disappeared as it became cheaper to produce elsewhere. About 870 acres of cane have been planted so far, and Comas said the plan is to expand to 11,600 acres.

In addition to the many small, independent farms, the island has seen investment in large-scale agriculture.
Bayer, the German medicine and farm-chemical maker, announced this month that it would spend $17 million to develop two agriculture biotech facilities in the U.S. territory. Monsanto, the Missouri-based seed and weed-killer company, has large fields of corn, soy and cotton in Puerto Rico and recently invested $5 million in its projects.

Even pot growers are looking to set up shop.

Following a 2015 executive order legalizing medical marijuana derivatives, GreenVision LLC, a subsidiary of Nevada-based StereoVision Entertainment Inc., announced plans in August to build a 40,000-square-foot (3,700-square-meter) cultivation and manufacturing facility in Puerto Rico.

But it's the small-scale farming that is most visible to consumers.

The number of farmers' markets has tripled in the past four years to more than a dozen across the island, said Mayra Nieves, president of a local nonprofit organic food cooperative. That has quadrupled overall business to some $35 million a year, spurred in large part by interest in organic produce, Comas said.

There are also urban community gardens popping up across the capital that cater to people who want something fresher than the shrink-wrapped imports that have long been standard at stores and restaurants.

"People are becoming more open-minded," Nieves said. "They no longer see us as 'those hippies.'"

How Puerto Rican Farm Income Spiked 25 Percent

Puerto Rico finds unexpected source of growth in agriculture

Puerto Ricans are buying rice produced on the island for the first time in nearly 30 years. They are also eating locally grown mushrooms, kale and even arugula, along with more traditional crops such as plantains and pineapples.

The U.S. territory is seeing something of an agricultural renaissance as new farms spring up across the island, supplying an increasing number of farmers' markets and restaurants to meet consumer demand for fresher produce.

Farming has become one of the few areas of growth on an island struggling to emerge from a 10-year-old recession and a still-unfolding debt crisis. The most recent statistics from the governor's office show farm income grew 25 percent to more than $900 million in 2012-2014. The amount of acreage under cultivation rose 50 percent over the past four years, generating at least 7,000 jobs.

"More and more people have noticed that this is one of the only successful ways of living on the island right now," said Tara Rodriguez Besosa, a farming advocate and owner of an organic restaurant in San Juan that buys from local farms, including one started by her mother several years ago.

Agriculture is a small part of the economy in Puerto Rico, well behind manufacturing, finance and tourism. But the growth is notable simply because things are so bad overall. Many businesses have closed, tens of thousands of people have decamped to the U.S. mainland, unemployment is at nearly 12 percent and the government is in default. Congress gave the territory some breathing room in June with legislation to enable the restructuring of what the governor has called its "unpayable" $70 billion debt, but the effects of that legislation have yet to be felt widely.

The agricultural rebirth can be seen in the aisles of supermarkets, where local rice went on sale in August for the first time since the last producer closed in 1989, and in the shimmering green fields where the grain is grown on the outskirts of the southwestern town of Guanica. The government helped launch Finca Fraternidad, or "Fraternity Farm," by providing 1,350 acres of vacant public land.

The rice venture is one of about 350 farms that the government supported to reduce Puerto Rico's reliance on expensive food imports and spur the growth of a sector that dominated the economy until the 1940s, when the territory began a decades-long transformation into a more urban, developed society where few wanted to work on farms.

"It's satisfying to change the perspective of an island that once viewed agriculture as a thing of the past, as something for people without education," Puerto Rican Agriculture Secretary Myrna Comas said.

It can still be a challenge to find workers, especially for labor-intensive crops like coffee. But 25-year-old Jonathan Rodriguez, who has been working on the harvest at Finca Fraternidad, said the job appeals to him.

"I like it because it's something that we sow for the island," he said on a scorching recent morning. "And that's why we're here, to make Puerto Rico better."

In the west and the south, the government has launched a project to supply the local rum industry with homegrown sugarcane, which dominated the economy in the 19th century but all but disappeared as it became cheaper to produce elsewhere. About 870 acres of cane have been planted so far, and Comas said the plan is to expand to 11,600 acres.

In addition to the many small, independent farms, the island has seen investment in large-scale agriculture.

Bayer, the German medicine and farm-chemical maker, announced this month that it would spend $17 million to develop two agriculture biotech facilities in the U.S. territory. Monsanto, the Missouri-based seed and weed-killer company, has large fields of corn, soy and cotton in Puerto Rico and recently invested $5 million in its projects.

Even pot growers are looking to set up shop.

Following a 2015 executive order legalizing medical marijuana derivatives, GreenVision LLC, a subsidiary of Nevada-based StereoVision Entertainment Inc., announced plans in August to build a 40,000-square-foot (3,700-square-meter) cultivation and manufacturing facility in Puerto Rico.

But it's the small-scale farming that is most visible to consumers.

The number of farmers' markets has tripled in the past four years to more than a dozen across the island, said Mayra Nieves, president of a local nonprofit organic food cooperative. That has quadrupled overall business to some $35 million a year, spurred in large part by interest in organic produce, Comas said.

There are also urban community gardens popping up across the capital that cater to people who want something fresher than the shrink-wrapped imports that have long been standard at stores and restaurants.

"People are becoming more open-minded," Nieves said. "They no longer see us as 'those hippies.'"

Puerto Rico finds unexpected source of growth in agriculture

Dark Star: Puerto Rico Reels From 3-Day Blackout

Puerto Rico has emerged bewildered from a three-night national blackout, which affected 1.5 million customers, left 250,000 without water service, and prompted estimates of close to $1 billion in immediate economic losses, along with incalculable future repercussions.

Sleep cooled by air conditioning or electric fans in tropical temps of 80-plus degrees Fahrenheit became a sudden luxury over the weekend in this Caribbean country, now known as much for its debt crisis as for its salsa music.

For most — but not all — the nightmare ended over the weekend, shifting to the task of throwing out damaged food. Residents of the housing project Residencial El Prado in Río Piedras reported “que llegó la luz” or that the lights came back at about 3 a.m. this Monday morning.

Not surprisingly, and in the wake of $43 million in local public funds being paid to debt restructuring expert Lisa Donahue and the company Alix Partners, there is now talk of privatizing Puerto Rico’s electric utility. But with infamous examples of energy firms such as Enron, privatization has long stopped being seen as a panacea.

The historic collapse of basic services — caused by a fire Wednesday afternoon at a major plant initially blamed on poor maintenance — culminated fittingly on Friday, September 23, known as Grito de LaresDay, an unofficial holiday in this U.S. territory of 3.4 million American citizens, which officially marks U.S. and local holidays, from Thanksgiving to Abolition of Slavery Day. Sacred to the country’s independence supporters, el Grito de Lares, or the Cry from Lares, is named for the rural town of the interior where in 1868 an insurrection against Spanish colonialism briefly declared Puerto Rico independent before being crushed by the authorities.

Thousands of independence supporters traditionally make the pilgrimage to Lares every year to commemorate the day with speeches, music and traditional food and artisan vendors.

The most memorable of recent history was in 2005, when the FBI chose that date to raid the home of and kill Filiberto Ojeda Ríos, a militant leader of the Ejército Popular Boricua (Boricua Popular Army), who had lived underground for many years. Leaders across Puerto Rico’s political spectrum decried his killing at the time, as the FBI reportedly acted without informing local authorities, and a wounded Ojeda Ríos bled to death without medical attention.

In the aftermath, photo exhibits and artistic tributes repeatedly featured a searing image of the blood-stained steps at the doorway of his home where he died.

On this year’s Grito de Lares, the entire country seemed to be mortally wounded and being left for dead.

The blackout spells the collapse of the Free Associated State — or “Commonwealth” as Puerto Rico has been called euphemistically — in even more tangible terms than all the seismic events of the past year, including two U.S. Supreme Court rulings that annulled Puerto Rico’s Constitution and sovereignty — or exposed it as the apparent lie it always was.

The blackout also portends the coming storm of the federally-imposed fiscal control board, instituted as part of PROMESA, the Orwellian-sounding law named for its acronym, Spanish for “promise.” President Obama’s recently announced appointees to the fiscal control board promise neoliberal economic austerity to do the bidding of vulture hedge funds, as well as social unrest.

The first conference for collaborators of PROMESA, sponsored by the Puerto Rico Chamber of Commerce at the Condado Plaza Hotel on August 31, was shut down by hundreds of protestors who confronted riot police, some brandishing home-made shields emblazoned with black Puerto Rican flags, a motif started by local artists who stripped the flag of its bright colors on a popular public art display in Old San Juan to signify resistance.

And a protest occupation has set camp for the long haul at the federal courthouse in San Juan since PROMESA was signed into law on June 30.

PROMESA was passed with a proverbial gun to the country’s head, as a July 1 default deadline loomed on payment to the $72 billion debt, with more layers of creditors than top experts involved claim to have ever encountered. Yet the law’s one clear benefit, to temporarily delay a tsunami of lawsuits, is now being challenged in federal court, with the same judge presiding who months ago ruled against Puerto Rico’s attempt to file bankruptcy for its embattled electric utility.

PROMESA’s fiscal control board is now set to convene at Hamilton Custom House this Friday in New York, home to 850,000 Puerto Ricans from a politically established stateside diaspora, which for over a decade now has outnumbered residents on the island, with a record 89,000 leaving last year.

The board became even more controversial with President Obama’s recent appointment of Carlos García, a key figure in the administration of previous Governor Luis Fortuño, who was booted out of office by a long-standing tradition in Puerto Rican elections called voto de castigoor punishment vote.

García was a key figure in Fortuño’s administration, president of the now nearly insolvent Government Development Bank, and an architect of Law 7, used to lay off thousands of public employees and annul public sector union contracts, later mirrored in the policies of Wisconsin Governor Scott Walker. Because of García’s involvement in issuing predatory debt for Puerto Rico, his appointment has been characterized as a conflict of interest.

A federal fiscal control board in Puerto Rico is often compared to previous incarnations in Washington, D.C. and Detroit, an attempt to normalize what the United Nations defines in international criminal terms as colonialism. But Washington, D.C. and Detroit are not U.S. territories; while D.C. has clamored for statehood, it does not have an independence movement. Yet one telling parallel is that the hardest hit communities in both cities are African-American, as Puerto Rico is treated in federal terms as an ethno-racial “minority” population.

It’s no accident that Black Lives Matter uprisings, along with indigenous occupation against the Dakota Access Pipeline by the Sioux at Standing Rock, coincide with Puerto Rico’s crisis.

This was recently made explicit in a widely-publicized speech by federal judge Juan R. Torruella, who traced the legal lineage of PROMESA to such past infamous U.S. Supreme Court rulings that justified and perpetuated the Jim Crow era. He concluded by calling for Puerto Ricans to organize an economic boycott of U.S. businesses and imports.

That’s a tall order for a country so steeped in consumption, and where 85 percent of food is imported, evident during the blackout with long lines for ice, gas and other goods, wherever businesses with generators managed to stay open.

Such purchases seemed an ephemeral consolation. Even the customary hospitality and humor of Puerto Ricans could not blunt the shock of a nation-wide blackout that lasted three plus days. “The damage now is to the psyche,” said one municipal employee reporting to work this Monday morning.

Outside, a candle-lit gathering Thursday night, a neighbor from an exclusive enclave near the governor’s mansion in beautiful Old San Juan looked up at his darkened balcony and remarked, “I thought the country was developed.”

It is as if Puerto Rico was submitted to what Naomi Klein calls “shock doctrine,” only without electricity.

A common phrase among anti-colonial activists here ¡Despierta — Wake Up — Boricua! invokes Puerto Ricans echoing the island’s long colonial history with its original Taino name, Borinquen.

The silent, pitch-black nights of this national power outage have been a rude awakening indeed.

Maritza Stanchich, Ph.D. Professor of English, University of Puerto RicoDark Star: Puerto Rico Reels From 3-Day Blackout

Addressing Puerto Rico’s Medicaid Funding Shortfalls Would Help Ensure Fiscal Stability and Growth

In June, President Obama and Congress enacted legislation — the Puerto Rico Oversight, Management, and Economic Stability Act, or PROMESA — to help address Puerto Rico’s immediate debt crisis.  Unfortunately, the law didn’t address the island’s inadequate federal Medicaid funding, which is critical to remedying Puerto Rico’s short- and long-term budgetary and economic problems. 

Although Congress should also consider some Medicare policy changes to assist Puerto Rico, Medicaid should be the clear priority.  Nearly half of Puerto Rico’s residents are enrolled in Medicaid, leading Puerto Rico’s severely stressed health care system to rely disproportionately on Medicaid payments.  As Treasury Secretary Jacob Lew and Health and Human Services Secretary Sylvia Burwell recently wrote to the Congressional Task Force on Economic Growth in Puerto Rico, which PROMESA established to develop federal policy recommendations for Puerto Rico, any “serious proposal for Puerto Rico’s future growth starts with addressing the inadequacies of Puerto Rico’s treatment in the Medicaid program….”[1]  Congress should seriously consider an Obama Administration proposal to increase Puerto Rico’s federal Medicaid funding, which would better ensure that the island’s Medicaid beneficiaries have access to needed care while also helping shore up its health care system. 

Fixing Puerto Rico’s Inequitable Federal Medicaid Financing Is Essential

Unlike the 50 states and the District of Columbia, Puerto Rico is limited to a low, fixed amount of federal Medicaid funding each year irrespective of its actual Medicaid costs.  This is a major cause of Puerto Rico’s long-term budget troubles.  The federal government generally pays a specified share of states’ total Medicaid costs (known as the federal Medicaid matching rate or FMAP).  The regular matching rate varies by state based on per-capita income and averages 57 percent.  Puerto Rico’s FMAP was 50 percent until 2011, when the Affordable Care Act (ACA) raised it to 55 percent.  But for Puerto Rico (and the other territories), that rate applies only up to a very low capped dollar amount of federal Medicaid funding each year; Puerto Rico must cover all costs above the cap. 

Under this cap, Puerto Rico’s effective matching rate — how much of its total Medicaid costs the federal government actually pays — has generally been between 15 and 20 percent.  If there were no funding cap and Puerto Rico’s FMAP were based on per-capita income, the federal government would pick up approximately 83 percent of its total Medicaid costs.[2]

These steep federal Medicaid funding shortfalls have contributed to Puerto Rico’s troubled fiscal situation and added substantial stress to the island’s struggling health care system.  Health care providers in Puerto Rico heavily rely on Medicaid for reimbursement because the program covers a large share of their patients. 

In 2015, Puerto Rico’s residents’ low incomes and relative lack of access to private insurance resulted in more than 1.6 million people, or nearly half of Puerto Rico’s population, being enrolled in Medicaid.  That’s despite the program’s much lower income eligibility levels for certain populations like children and pregnant women than the federal minimum levels required of all states.[3] 

The current fiscal crisis has exacerbated these problems.  Media reports have documented serious health care provider shortages as physicians leave Puerto Rico, floor closures and elimination of services by hospitals, and significant delays in Medicaid payments to health plans and providers serving Medicaid beneficiaries.[4]  And that’s before taking account the effects of the Zika epidemic on Puerto Rico’s health system and its Medicaid program; as of September 7, the number of individuals in Puerto Rico infected with Zika had risen to 15,600, according to estimates from the Centers for Disease Control and Prevention (CDC).[5]  Zika could infect up to one-quarter of Puerto Rico’s population in the epidemic’s first year, the CDC’s director has indicated.[6]

Along with modestly raising Puerto Rico’s federal matching rate on a permanent basis, health reform provided a one-time Medicaid boost of about $6.4 billion available to be spent through 2019.  But Puerto Rico is expected to exhaust those funds by the end of calendar year 2017, and up to 900,000 people in Puerto Rico — more than half of total Medicaid enrollment — could lose their health coverage when the funds run out, according to estimates cited by the Obama Administration.[7]

To ensure that Puerto Rico has sufficient federal funding to sustain Medicaid, the Obama Administration has proposed (as part of its fiscal year 2017 budget) eliminating the funding cap and eventually setting Puerto Rico’s (as well as the other territories’) federal Medicaid matching rates in the same manner as the matching rates are set for the states.  The proposal also would raise minimum Medicaid eligibility levels and strengthen benefit standards in Puerto Rico and the other territories.[8]  The Administration’s proposal would increase federal Medicaid expenditures by $28.2 billion over the next ten years, according to Congressional Budget Office estimates.[9]  This proposal would help ensure that Puerto Rico’s Medicaid beneficiaries have access to needed care and shore up the island’s health care system.  Congress should give very serious consideration to this proposal as part of legislation following up on PROMESA, as it would help considerably in addressing Puerto Rico’s short- and long-term budgetary and economic challenges.

Boosting Medicare Advantage Payments Would Be Poorly Targeted and Inefficient

Policymakers may consider other health policy options in addition to or instead of addressing Puerto Rico’s Medicaid financing issues, including raising payments to private Medicare Advantage plans.  Increasing Medicare Advantage reimbursement rates, however, wouldn’t directly benefit Puerto Rico, as the higher payments would accrue to insurance companies, rather than the island’s government, and thus be a far less targeted and efficient way to help its residents and health care providers than increasing its federal Medicaid funding. 

Medicare has historically paid Medicare Advantage plans substantially more per beneficiary than it would cost to cover the same beneficiaries in traditional Medicare; the ACA curbs but does not eliminate such overpayments nationwide over time (including in Puerto Rico).  Moreover, the largest Medicare Advantage overpayments have historically been in Puerto Rico — with payments well above the island’s Medicare costs per beneficiary (which are well below the U.S. average).  Raising the payment “benchmarks” in Puerto Rico, which help determine the overall payment rates, would increase the amount of overpayments, effectively reversing some of health reform’s Medicare Advantage reforms.

Research shows that much of Medicare Advantage overpayments goes to insurance company profits and administrative costs rather than enrollee benefits, so such a proposal may do little to directly benefit Puerto Rico’s Medicare beneficiaries.[10]  While larger payments to Medicare Advantage plans could eventually lead them to pay higher reimbursement rates to very financially stressed hospitals, physicians, and other health care providers, there would be no assurance that Medicare Advantage plans would actually do so or to what degree such reimbursements might rise.

Medicare beneficiaries in Puerto Rico rely disproportionately on Medicare Advantage — in 2015, nearly three-quarters of Medicare beneficiaries were enrolled in Medicare Advantage plans, compared with about 32 percent nationwide.[11]  But even so, those in Medicare Advantage constitute less than one-sixth of the island’s population.  As discussed above, far more Puerto Rico residents are enrolled in Medicaid.[12]  Moreover, the Administration, as part of its announcement of Medicare Advantage payment rates for 2017, has already adopted several policy changes that will increase payments to Medicare Advantage plans in Puerto Rico starting next year.[13]

Other Medicare Proposals Deserve Consideration

Policymakers should, however, consider two other Medicare proposals that would directly benefit Puerto Rican Medicare beneficiaries and also provide some indirect fiscal relief to Puerto Rico’s Medicaid program:

• Establish automatic Medicare Part B enrollment for residents of Puerto Rico.  Unlike states, the District of Columbia, and the other territories, Puerto Rico residents who are Medicare-eligible are not automatically enrolled in Medicare Part B.[14]  Instead of an “opt-out” enrollment process, Puerto Rico residents have to “opt-in” to Medicare Part B coverage.  This leads not only to a greater share of Medicare beneficiaries in Puerto Rico paying late Part B enrollment penalties (4.2 percent compared with 1.4 percent of Medicare beneficiaries nationwide) but also to some eligible beneficiaries going without Part B entirely.  That has resulted in a Medicare Part B participation rate of only 78 percent, which is well below the national average of nearly 95 percent.[15] 
  This, in turn, has likely placed fiscal pressure on Puerto Rico’s Medicaid program because it has to provide Medicaid-covered services for some individuals who would otherwise be covered by Medicare.  (Medicaid would then continue to cover other health services that Medicare doesn’t cover, as is the case with people in the mainland United States who are enrolled in both Medicare and Medicaid.)  Automatic enrollment could be applied to residents of Puerto Rico, just as it is for the rest of the United States.[16]  This would benefit seniors in Puerto Rico as well as the providers and plans that serve them.
• Expand the Medicare drug benefit’s Low Income Subsidy (LIS), for which residents of Puerto Rico and the other territories are now ineligible.[17]  That would reduce fiscal pressures on Medicaid in Puerto Rico, to the extent that it is now picking up drug costs for Medicare beneficiaries that the LIS would otherwise pay for.  It also would make drug coverage more affordable for low-income Medicare beneficiaries in Puerto Rico, increasing access to needed medications and improving health outcomes.

Addressing Puerto Rico’s Medicaid Funding Shortfalls Would Help Ensure Fiscal Stability and Growth

United Airlines Expanding Flights to Puerto Rico

United Airlines is significantly ramping up its service to Puerto Rico, the carrier announced this week.

The airline said it would be increasing its flights from Newark Liberty International Airport to San Juan’s Luis Munoz Marin International Airport to six times a week, up from just one flight per week.

More crucially, the route will operate with Boeing 777 aircraft offering 344 seats.

The expanded service will begin Dec. 18, according to United.

“For the last 25 years, United Airlines has been a proud member of the San Juan business community and has played a vital role in connecting Puerto Rico to the world,” said Millie Uriarte, United’s regional director of Sales for Puerto Rico. “Today’s announcement is just the beginning and we look forward to continuing to do business with customers throughout the island.”

The launch is a major lift for Puerto Rico, which has been seeing a steady increase in new airlift both from domestic airlines and from international carriers like Air Europa and Norwegian Air Shuttle.

Old San Juan.

Are you heading to Puerto Rico?

Check out some of CJ’s recent features on the island, from a new House of Rums to the Best Hotels in Puerto Rico.

And check out our Puerto Rico page.

United Airlines Expanding Flights to Puerto Rico

Puerto Rico Economic Activity Index Increases for First Time in 17 Months

Puerto Rico Economic Activity Index Increases for First Time in 17 Months

Bond market puts its hopes in Puerto Rico oversight board

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It has been more than a year since Puerto Rico first defaulted on its obligations. While there has been a cascade of missed payments and ratings downgrades since last August — including at the start of this month — and a near constant airing of the intensifying fiscal and humanitarian crises, Puerto Rican debt has proved among the best performing within the $3.7tn municipal bond market.

It is somewhat confounding that the US territory — struggling with a near $69bn debt burden and a vastly unfunded pension system — has bubbled to the top of the closely scrutinised performance tables.

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The island’s paper has been lifted by the appointment of an oversight board by US President Barack Obama that will have sign-off over its restructuring plans and future budgets as a part of emergency legislation that set out a path for the commonwealth to slash its obligations.

Creditors have widely viewed the seven-person team as technocratic selections, with a deep understanding of both Puerto Rico and insolvency proceedings. It includes Arthur González, the judge who presided over the Enron and WorldCom bankruptcies, and Carlos Garcia, a former head of Puerto Rico’s Government Development Bank. Holders of the debt hope that the board will not subsume the bonds they own entirely to pensioners, and that recoveries may fare better than in Detroit.

That has enticed asset managers such as BlackRock back to the asset class, who had avoided Puerto Rican debt after Governor Alejandro García Padilla warned it was “not payable” last year, sparking a broad sell-off.

“A significant amount of bad news has been priced into the market and we’ve had a preview of how Puerto Rico thinks of these credits by the interest payments it has or has not been making,” says Peter Hayes, head of BlackRock’s municipal bonds group. “We have started to buy again.”

Investment grade bonds issued by Puerto Rico, worth roughly $8bn, have returned more than 10 per cent this year, according to Barclays. The broad municipal market gauge is up less than 4 per cent by contrast. Junk rated debt sold by the US archipelago has advanced 12.5 per cent over the same period. 

Barclays removes bonds from the indices if an issuer defaults, leaving mostly insured debt in its high grade marker. For investors holding that insured paper, companies such as Ambac, Assured Guaranty, and MBIA unit National Public Finance Guarantee have stepped in to cover missed interest payments, propelling a rally in the debt.

General obligation debt insured by National Public Finance traded at 109 cents on the dollar at the start of the week, up from 100 cents one year ago. Insured bonds that do not pay a coupon and mature in 2044 have advanced 40 per cent since the end of May to trade at 21 cents on the dollar.

“It comes from confidence that people have gained in the insurers after the defaults in January and July,” says Craig Brandon, the co-director of municipal investments at Eaton Vance. “The insurance companies made good on their policies.”

But even for debts that are no longer being serviced by the commonwealth, prices have climbed. Some $3.5bn of debt issued in 2014, in a sale that attracted a wave of hedge funds, has advanced 3 per cent since the oversight board was named. Portfolio managers and strategists say they are betting on what they will ultimately recover after a restructuring is agreed.

“It is a recognition that the board will focus on the real causes of the ailment, not the symptoms,” adds Ambac chief executive Nader Tavakoli. 

Mr Hayes estimates a haircut of as much as 55 per cent of the $69bn debt burden may be necessary. While sources familiar with negotiations say informal meetings between creditors and advisers to the commonwealth have taken place, substantive talks are not expected until the oversight board gets fully acquainted with the peculiarities and priorities of the different debt-issuing groups on the island. That includes the differences between general obligation debt that is guaranteed by Puerto Rico’s constitution, which it has defaulted on and is considered sacrosanct by investors, and sales-tax backed bonds that it continues to pay.

While Puerto Rico has been something of its own island within the municipal market this year, it has benefited tangentially from the hunt for income, as $12.6tn of sovereign and corporate bonds now trade with a yield below zero. Municipal portfolio managers have been inundated with fresh capital — 48 consecutive weeks of inflows.

“It is a hunt for yield,” says Mr Brandon. “Those [insured] bonds are paying significantly more than the market rate.”

Bond market puts its hopes in Puerto Rico oversight board

Pitt, University of Puerto Rico engineers build upon NSF grant to apply materials science research to bamboo as a nonconventional building resource

Although bamboo has been used as a building material for millennia, only recently have public and private organizations studied the plant’s mechanical properties and worked toward developing construction standards. To further that research, engineering faculty at the University of Pittsburgh’s Swanson School of Engineering and University of Puerto Rico at Mayaguez(UPRM) received a $300,000 National Science Foundation award to develop materials- and mechanics-based models for the behavior of full-culm bamboo as a functionally graded, fiber-reinforced material. 

Principal investigator of the grant, “Collaborative Research: Full-culm Bamboo as a Full-fledged Engineering Material,” is Kent Harries, associate professor of civil and environmental engineering and Bicentennial Board of Visitors Faculty Fellow at Pitt. Co-investigators are John Brigham, senior lecturer of applied mechanics at Durham University, and Christopher Papadopoulos, associate professor of engineering sciences and materials at UPRM. 

According to Dr. Harries, this is believed to be the first “materials science” study focused on bamboo funded by NSF, and is the first collaborative grant between the Swanson School and UPRM. The research is part of the recently formed Nonconventional Engineering Materials Initiative (NocEMat) at Pitt. 

“In its natural full-culm (hollow tube) state, bamboo has evolved to efficiently resist a variety of environmental loads, which is why it makes a superb building material. However, only in the past few decades have we begun to apply engineering principles to its use so that we can expand its application as a sustainable construction material,” Dr. Harries said. “This award will enable us to apply materials and mechanical engineering principles to modeling, field tests, and design equations, thereby placing bamboo on the same engineering footing as more conventional materials such as wood.” 

Dr. Harries notes that in developing regions, standardization of non-conventional building materials serves technical, ecological and social goals which empower rural communities to directly participate in construction of safe and reliable housing as well as to sustainably develop local economies. In particular, this project will leverage local resources in Puerto Rico and Haiti to sponsor a variety of training and educational activities deployed in four languages (English, Spanish, French, and Haitian Creole). 

“In many areas of the world, traditional building materials such as timber, concrete and steel are too expensive or simply unavailable for everyday use, especially within developing countries,” Dr. Harries said. “Full-culm bamboo provides the potential of utilizing a sustainable, durable and affordable resource for housing, emergency shelters, and other traditional building applications.”

Pitt, University of Puerto Rico engineers build upon NSF grant to apply materials science research ...

Governor Cuomo Announces First-Ever Agriculture Trade Forum Between New York and Puerto Rico

Governor Andrew M. Cuomo today announced the first-ever Agriculture Trade Forum in San Juan, Puerto Rico. During the forum, which began today and lasts until Friday, representatives from business, government and agriculture will come together to find opportunities to facilitate trade, expand markets, and grow the economic impact of agribusiness and agritourism in New York and Puerto Rico. Additionally, forum participants will tour coffee, cacao and dairy farms and find potential for future collaboration between New York and Puerto Rico.

"New York and Puerto Rico have always had a special relationship and during the past year, we have worked hard to strengthen it to grow both our economies," Governor Cuomo said. "We launched the Office of Trade and Tourism in Puerto Rico which has already created successful partnerships and has introduced many New York State products to Puerto Rico. This Agriculture Trade Forum will build off that success and play a critical role in further developing the influence of the agriculture industry in both of our economies."‎

The forum builds on the growing trade relationships between New York and Puerto Rico, as highlighted by last year's opening of the New York State Office of Trade and Tourism and the New York State Discovery Center in Puerto Rico. The Discovery Center features Taste NY products and I Love NY merchandise, and marks another important step in forging partnership opportunities outlined in Governor Cuomo’s aggressive action planlaunched last year.

During several meetings and informational panels, industry experts will focus on developing strategic ways to bolster economic ties between New York State and Puerto Rico. Discussions will center on existing resources and supply chains, the potential to leverage underutilized USDA funds that are currently available for Puerto Rico's farmers, and alternative distribution networks to optimize ways in which New York and Puerto Rico can work together to grow the industry.

Already, producers from Puerto Rico and New York State have made connections with retailers including Whole Foods, FreshDirect, Supermercados Econo and Walmart/Sam's/Amigo, the New York State Vegetable Growers Association have developed ties to wholesale buyers in Puerto Rico and the Brooklyn Roasting Company has begun to explore Puerto Rico’s specialty coffee market. 

Groundwork has also been laid for future co-ventures between New York State juice producers and Puerto Rico's juice manufacturers, creating opportunities for New York State retailers to carry Puerto Rican foods and expand the Puerto Rican exotic foods market, which is in demand with more than 1 million Puerto Ricans residing in New York State. 

One of the main participants in the forum has been the New York Food Venture Center at Cornell University which has helped commercialize over 13,000 food products since the mid-1990’s, and regularly receives over 3,000 requests for food safety consultation annually from New York farm and food entrepreneurs. Center representatives discussed best practices in food and beverage safety and standards and have committed to provide technical guidance to the University of Puerto Rico, Mayagüez, in order to establish a similar program. 

Empire State Development President, CEO and Commissioner Howard Zemsky said,"Today's Agricultural Trade Forum is evidence of how much progress we’ve made in the past year, thanks to Governor Cuomo and the efforts of our Office of Trade and Tourism. Our continued work to strengthen economic ties and focus on grassroots economic development will pay dividends for New Yorkers and after today’s successful discussions, we look forward to seeing growth in trade and economic investment for our agricultural industries for years to come."

State Department of Agriculture and Markets Commissioner Richard A. Ball said, "We are very pleased to share our business practices, resources and advice with the investors, buyers and small farmers of Puerto Rico. The Agriculture Trade Forum is a great opportunity to expand on Governor Cuomo’s vision to grow New York’s mutually beneficial relationship with Puerto Rico."

Secretary Departmento de Agricultura Dr. Myrna Comas said, "This forum represents a meeting point to strengthen commercial ties between New York State and our farmers, as well as to provide investment opportunities to our island."

Secretary of the Department of Economic Development and Commerce Alberto Bacó Bagué said, Agriculture will become a powerful engine for Puerto Rico’s economic recovery. Our economic development strategy incorporates every driver of economic growth: fiscal measures, spending restraint, industrial development, investment incentives, support for existing businesses and also reenergizing our anchor industries, tourism and agriculture. 

New York State Office of Trade and Tourism Director Betty Enriquez said, "This has been a very exciting year for the new Office of Trade and Tourism and we are seeing direct results from our showcasing New York State products in our New York State Discovery Center. Two of our featured products, North Fork Potato Chips and Bronx Hot Sauce found distribution throughout Puerto Rico thanks to an introduction to the product at our Taste NY store and today's forum provides a great opportunity for more partnerships and success stories."

Associate Dean for Cornell University, College of Agriculture & Life Sciences Julie Suarez said, "Cornell University’s College of Agriculture and Life Sciences and the Food Venture Center is privileged to help farmers and food entrepreneurs develop new products while ensuring excellent food safety compliance and quality control. Thanks to the leadership of Governor Cuomo, Empire State Development and the New York State Department of Agriculture and Markets, today's conference is a significant step in developing Cornell’s advisory partnerships with the University of Puerto Rico, and with Puerto Rican farmers and food processors, for the food safety and training programs needed to successfully market today’s food products."

University of Puerto Rico, Mayagüez, Department of Agro-Environmental Sciences Dr. Fernando Pérez said: "The University of Puerto Rico, Mayagüez is looking forward to working with Cornell University’s College of Agriculture and Life Sciences and the Food Venture Center. This is an important step in continuing to grow Puerto Rico’s agricultural industry." 

About Empire State Development 
Empire State Development is New York’s chief economic development agency. The mission of ESD is to promote a vigorous and growing economy, encourage the creation of new job and economic opportunities, increase revenues to the State and its municipalities, and achieve stable and diversified local economies. Through the use of loans, grants, tax credits, and other forms of financial assistance, ESD strives to enhance private business investment and growth to spur job creation and support prosperous communities across New York State. ESD is also the primary administrative agency overseeing Governor Cuomo’s Regional Economic Development Councils and the marketing of “I Love NY,” the State’s iconic tourism brand. 

For more information on the Regional Councils and Empire State Development, visithttp://www.regionalcouncils.ny.gov and www.esd.ny.gov.

About Taste NY
Taste NY is an initiative launched by Governor Cuomo in 2013 to promote New York’s food and beverage industries. It is overseen by the Department of Agriculture and Markets and has created opportunities for local producers to showcase their goods at large public events such as the Great New York State Fair and Super Bowl XLVIII. The program has also opened stores at highway rest stops and transportation hubs, enabling travelers to buy New York State’s homegrown and homemade products. Approximately 1,100 local companies have participated in these opportunities, further linking their products and the state’s growing food and beverage market to consumers from across the globe. For more information about Taste NY, please visit www.taste.ny.gov, or connect with Taste NY through Facebook, Twitter, Instagram and Pinterest.
Industry experts from New York and Puerto Rico to tour coffee, cacao and dairy farms and discuss potential business collaborations
Governor Cuomo Announces First-Ever Agriculture Trade Forum Between New York and Puerto Rico