Puerto Rico governor calls for unity to help commonwealth overcome economic crisis

Puerto Rican Gov. Alejandro Garcia Padilla on the weekend called upon residents of the island for unity to overcome the economic crisis that has beset the U.S. commonwealth for eight years and which is burdened by some $73 billion in public debt.

Garcia Padilla used the occasion of the 63rd anniversary of Puerto Rico's Commonwealth Constitution to say that the government's priority is to get out of the crisis, asking that - for the moment - the debate on the island's relationship with the United States be put on the back burner.

"We've inherited a colossal crisis that no other government has inherited. We have to attend to it to be able to develop the Commonwealth to the maximum," said the governor, emphasizing his administration's priorities.

"To make progress on any status formula we have to continue lowering crime and unemployment, as well as keep attending to the inherited crisis," he said.

He also said that it is necessary to acknowledged that "the Commonwealth has to grow," after noting that it is not acceptable for the federal judiciary to deny Puerto Rico the ability to legislate to restructure its debt.

Garcia Padilla emphasized that the island's commonwealth status grants Puerto Rico two of the greatest aspirations of its people: protecting their national identity while at the same time maintaining a very closer relationship, in a permanent union, with the United States.

The governor's comments made clear that his priorities are to strengthen the current commonwealth status with the United States, fight the economic crisis and deal with the huge debt that several weeks ago he publicly acknowledged could not be paid.

In a nonbinding plebiscite coinciding with his election as governor in 2012, 54 percent of the voters rejected the island's current status and, in a second question, 61.1 percent said they favored annexation to the United States, 33.3 percent said they preferred to be a sovereign commonwealth and 5.5 percent voted for independence.

Puerto Rico governor calls for unity to help commonwealth overcome economic crisis

Congress v. Puerto Rico: Modern Struggle for Equality

It’s ironic that on the heels of the celebration of America’s greatest achievement, the month when the land of the free and the home of the brave was forever liberated from the shackles of its colonial status, we now find one of its remaining illegitimate sons, Puerto Rico, on the cusp of a similar crossroads.

In an interview with the New York Times, the governor of Puerto Rico, Alejandro García-Padilla shocked the world by announcing that Puerto Rico could no longer pay its debts. A bold proclamation, given that for the first time, the governor admitted what was widely perceived as inevitable.

As expected, chaos ensued. The market dropped our local bank stocks around 10 percent to 15 percent, credit ratings agencies downgraded our credit rating once again, and the global media quickly compared the similarities between our financial crisis to Greece’s own meltdown, both spearheaded by poor fiscal administration by public leaders.

So how did we get here?
Historically, Puerto Rico had been able to access the capital markets via the municipal bond markets. Armed with a unique territorial status, being a U.S. territory, not a state, Puerto Rico Municipal bonds are triple tax-free, meaning that interest collected from these bonds are exempt from municipal, state and federal taxation. Mutual funds, pension plans, family offices and individual investors flocked to get piece of the action, evidenced by the fact that 70 percent of municipal bonds mutual funds held Puerto Rico bonds as of Feb. 6, 2014, according to Morningstar.

Business was booming!

Capital derived from these attractive bond sales were supposed to be re-invested in economic development activities, improving infrastructure and enhancing education. Instead, for nearly three decades, our public leaders used this capital to finance operational budget deficits to meet current obligations. This created a vicious cycle, where our government kept undertaking new debt to pay off the old obligations, until finally accumulating the now monstrous $72 billion in public debt.

Who’s to blame?
It’s easy to point straight at our public leaders for this mess. However, if during the 2008 housing crisis, Congress reprimanded big banks for their passive lending requirements and even enacted stricter regulation on capital requirements via the Dodd-Frank Act, then the same could be said of ambitious creditors that simply wanted to collect high yields while evading federal taxation.

You could also point to the greedy financial advisers, brokerage firms and hedge funds, which willingly duped unsuspecting investors into doubling down on Puerto Rico bonds, while understanding full well that Puerto Rico’s economic outlook was bleak at best.

Don’t get me wrong, a WHOLE LOT OF BLAME should be placed squarely on the shoulders of our past public leaders, who year after year kept borrowing irresponsibly to spend millions of dollars in an inefficient government structure. But to put it simply; if you keep lending money to a government that consistently missed on revenue projections without adjusting their high cost budget, while it operated in a shrinking economy that relied on a decreasing tax base where only 39 percent to 40 percent of the population worked, then what exactly are you banking on?

Was it simply that constitutionally Puerto Rico couldn’t go bankrupt?

Where do we go from here?
Recently, as part of the launch of the ALPFA (Association of Latino Professionals for America) Law Series, we organized a panel discussion centered on Resident Commissioner Pedro Pierluisi’s project HR 870, which is seeking that Puerto Rico’s insolvent public corporation’s have access to Chapter 9 bankruptcy protection, which is available exclusively for municipalities. This due to the fact that Puerto Rico was inexplicably excluded in 1984 by no logical or constitutional argument other than because we’re not a state.

This bill, which had already received bi-partisan support in Puerto Rico, something that rarely happens, would help ensure a fair and due process for debt negotiation between Puerto Rico’s public corporations and its creditors. The same tools that were pivotal to Detroit’s economic recovery as explained by bankruptcy law expert and event panelist, Jaime Vilariño.

However, Pierluisi then admitted during the Q&A, what was made public last week, that strong opposition from the Republican Party was both real and powerful. These conservatives, which currently control both the House and Senate, have effectively blocked the bill from even going to a vote in the House.

The lack of support has been completely disappointing, when you consider that it’s no secret that hired Wall Street lobbyists have heavily influenced the opposition. Sponsored in some cases by the same Bondholders that are actively sitting across the negotiating table with the most insolvent public corporation, the Puerto Rico Electric Public Authority (PREPA).

The frustration is even greater when serious contenders for the U.S. presidency, like Democratic favorites Hilary Clinton and Bernie Sanders, as well as GOP favorite, Jeb Bush, have been vocal in their support for the legislation. Unfortunately, I can’t help but get discouraged with Congress when I see politicians favoring Donald Trump’s campaign despite his hateful stance on Mexican immigrants or when I read in the papers that Senator Mike Huckabe is lobbying for a hands-off approach, going as far as stating “This Country is done giving out bailouts!”

Since when is having equal rights equal to a bailout? 
Maybe for him, it’s convenient to forget that Puerto Ricans were granted U.S. citizenship in 1917. Or maybe he’s not aware that we’ve fought in every American War since becoming U.S. property as a victory prize during the Spanish-American war of 1898. Or maybe he simply doesn’t care that from 2003 to 2009, we’ve suffered more casualties than 25 other states.

Why is it that North American politicians are always hell-bent on protecting human rights and the values of democracy in other countries, but yet, deny their own citizens, who battle valiantly to defend democracy, the right to choose their very own Commander in Chief?

What kind of Democracy is this?

To be clear, we aren’t asking for a bailout. In the words of Hilary Clinton, all we’re asking for is “a fair shot to succeed.”

For more than 100 years, we’ve been living in a status limbo, which allows us to be U.S. citizens that can’t vote for the president. Nor can we influence legislation since we don’t hold a vote Congress. This, while having to contribute financially, the same amount of Social Security and Medicare as the rest of the voting U.S. citizens, yet receive the least amount of federal reimbursement compared to the rest of the states. In fact, this year alone it was announced that the federal government planned to slash 3 percent of federal reimbursements for Puerto Rico, while increasing funding for the rest of the states of the Union.

Whose agenda is been favored? Not ours!

In addition, even though we aren’t treated equally, we still have to abide by the same federal rules that don’t even consider our economic well-being. Since 1920, Puerto Rico hasn’t been allowed to develop its own shipping industry thanks to the Marine Merchant Act, also known as the Jones Act.

These “Cabotage laws” require that all shipping between U.S. ports be performed by an aging, overpriced fleet of U.S.-flagged ships. The Government Accountability Office reported in 2013 that just 17 vessels belonging to four companies connect Puerto Rico’s 3.5 million inhabitants to the mainland U.S.

With government prohibiting free-market competition among shippers, these four firms can charge higher prices for freight to and from the island. The result: higher consumer prices for islanders. The shipping restriction also puts Puerto Rican products at a cost disadvantage in mainland markets.

Despite the fact that world renowned Economist’s Anne Krueger’s recently published report on the Puerto Rico fiscal crisis listed the Jones Act as one of the main foreign policies that negatively impacts our economy by making all import costs “at least twice as high as in neighboring islands,“ the Act is unlikely to be exempt from the island anytime soon. This due to the fact that the U.S. Shipping industry benefits greatly from the high volume of imports, estimated at around $62 billion a year, per the report.

Could all this resistance from Congress to change foreign policies that directly hinder Puerto Rico’s ability to navigate its crisis be a preview of Congress’s silent stance on the Commonwealth’s chances of becoming the 51st state?

How come for some cases, we are JUST a U.S. territory and therefore, are denied access the same benefits as other states, like Chapter 9 protection, yet when it comes to making sacrifices — like sending our soldiers to wars, continuing to finance a broken Social Security system or having to support the highly inefficient U.S. merchant industry — we are as American as apple pie?

Something has to give, but what can we do?
Let the record show that 52 percent of the Puerto Rican population has already rejected the current colonial status during a 2012 referendum. No matter if it’s as a sovereign nation or as a state, the fact is that the majority has clearly demanded a change from the existing rules of the game.

Nobody knows when that change will come. But what is certain is that it will not come easily. If past history is any indicator, the struggle for equal rights in America has rarely been resolved immediately. Women have been voting for less than a century. Martin Luther King’s iconic “I have a Dream” speech, which vouched for equal rights and legislation against discrimination, is barely 52 years old. Gay marriage wasn’t even legal until last month.

Point is that these monumental changes took years of struggle, in which visionary leaders remained patient and fought to influence societies to do the right thing. Whether you root for statehood or sovereignty, to reach a final consensus on this never-ending debate, pressure has to come from us, the people.

We can’t just wait for politicians to decide our future. From the approximately 5 million Puerto Rican living stateside, along with the 3.5 million living on the island, we have to unite under the same common goal: Push for a federally binding referendum within THIS decade to free Puerto Rico from the chains of modern day colonialism.

Whether through public demonstrations, peaceful protest, or simply spreading ideas through columns or blogs, we have to challenge politicians into doing what’s right. Now is the time to let our voices be heard.

Because in the fight for equality or political freedom, victory is never given.

It’s taken.

About the Author:

I'm a Licensed CPA working in the Private Equity industry, President of the ALPFA Puerto Rico Chapter, Occasional Speaker & Proud Father of a beautiful baby boy who has a passion for sharing stories and an insatiable craving to write about them. As an eternal optimist, my goal is to spread powerful, inspiring & positive ideas while actively contributing to Puerto Rico's

Raúl A. Palacios, CPA, CGMA

Congress v. Puerto Rico: Modern Struggle for Equality

Let Puerto Rico declare bankruptcy

How do we solve Puerto Rico's debt crisis? As Americans — both Puerto Ricans and citizens of the 50 U.S. states and the District of Columbia — watch as Greece stumbles ever deeper into economic catastrophe, many of us want to know what our government plans to do about the Puerto Rican debt crisis, which, whether one likes it or not, is America's problem.

A “bailout” is simply unacceptable to U.S. taxpayers. But a solution that provides fairness to creditors as well as debtors is at hand, if Congress is prepared to deploy its readily available constitutional powers. The Commonwealth of Puerto Rico should be authorized to restructure all its debts in a federal bankruptcy court.

On June 29, the governor of Puerto Rico announced that $72 billion of the commonwealth's debt was “unpayable.” This debt burden amounts to more than $20,000 for every man, woman and child — or roughly 70 percent of the commonwealth's per-capita gross domestic product. It is thus no exaggeration to characterize this as the most drastic fiscal crisis in Puerto Rico's history. This crisis threatens to inflict grave harm on the 3.5 million U.S. citizens of Puerto Rico and on the U.S. economy at large.

One proposal seeks to allow Puerto Rico's public utilities to declare bankruptcy, as they could if they were the instrumentalities of a state, rather than a territory. About one-third of Puerto Rico's debt burden is owed by such utilities. Chapter 9 of the U.S. Bankruptcy Code allows municipalities — with their states' permission — to restructure their debts through bankruptcy. “Municipalities” have long included public utilities of the type facing insolvency in Puerto Rico. However, the code allows only the municipalities of states to declare bankruptcy.

A bill proposed by Puerto Rico's nonvoting delegate in Congress, Pedro Pierluisi, would address this gap in the law by amending the code to allow Puerto Rico's utilities to enter Chapter 9. While the bill has stalled in the House, Sens. Chuck Schumer, D-N.Y., and Richard Blumenthal, D-Conn., recently introduced a similar bill in the Senate.

Such a solution has obvious appeal. It is straightforward and satisfies our basic commitments to uniformity and equality. There is no reason to withhold from the municipalities of the territories the same options in bankruptcy that are afforded those of the states.

Sadly, though, the Pierluisi bill does not go far enough. A significant portion of Puerto Rico's $72 billion in bonds was issued directly or indirectly by the commonwealth government, not by public utilities. A solution that addresses less than half of the total debt would simply kick the can down the road, leaving Puerto Rico with crippling payments on the other two-thirds and predictably smothering the economic growth that should be the goal of all concerned.

Meanwhile, others, including some of Puerto Rico's creditors, have proposed a federal “bailout” for Puerto Rico, along the lines of recent bailouts of banks and auto companies. But that would reward undue risk-taking and do nothing to get Puerto Rico's economy back on its feet.

There is a much simpler and more orderly solution that is well within Congress' constitutional authority over territories: Congress can and should allow all of Puerto Rico's debt — including its general-obligation bonds and pension obligations — to be restructured through bankruptcy.

Our federal bankruptcy system is designed to protect the interests of all relevant parties, including Puerto Rico's creditors, and has the power to ensure that these debts are restructured through a fair and binding process. This solution has the best chance of helping Puerto Rico work itself out of this crisis.

A clear-eyed view of the crisis reveals that the best solution to this difficult problem is to allow Puerto Rico and its creditors to restructure all these debts through the U.S. Bankruptcy Code.

This step would both extend the protections of bankruptcy to all of Puerto Rico's creditors and give the U.S. citizens of Puerto Rico their best chance to move beyond this crisis and toward a better future.

Jose A. Cabranes, a federal appeals court judge who also sits on the U.S. Foreign Intelligence Surveillance Court of Review, is author of “Citizenship and the American Empire,” a history of how the people of Puerto Rico became U.S. citizens.

By Jose A. Cabranes

Let Puerto Rico declare bankruptcy

What a federal financial control board means to Puerto Rico

Alejandro Garcia Padilla announced that Puerto Rico’s debt is unpayable.  Establishing a control board may be the easy way out for a wary Congress but it is not as simple as it seems and could backfire.

A federal financial control board for Puerto Rico was first proposed a year ago by supporters of Doral Bank in its dispute with the Puerto Rican government over a $230 million tax refund.  Most of Doral’s supporters are affiliated with the conservative Koch brothers.  They include Republican Reps. Jeff Duncan (S.C.), Scott Garrett (N.J.), Darrell Issa (Calif.) and Matt Salmon (Ariz.) who received Koch Industries PAC contributions and who prior to Doral had never been involved with Puerto Rico.

Last month, Duncan recommended to his House colleagues that a control board be established.  The 60 Plus Association, another Koch funding recipient, is lobbying for a control board.  While frustrated Puerto Ricans are increasingly talking about the need for a control board, the majority of the Island opposes it with good reason.

First, Puerto Ricans feel that given the right tools, they can fix the fiscal crisis on their own. Right now the most important tool is access to Chapter 9 federal bankruptcy.  From 1933 until 1984, Puerto Rico could allow its municipalities and public corporations to declare bankruptcy in the same way as the 50 states.  In 1984 Congress amended the bankruptcy code and excluded Puerto Rico for reasons unknown.  

Most agree that overall losses to investors will be higher if Puerto Rico is not given access to Federal bankruptcy and defaults.  To avoid this scenario Puerto Rico passed its own bankruptcy law which was challenged by bondholders of electricity provider PREPA which owes $9 billion.  The law was recently struck down in Federal court.  The Puerto Rican government may appeal to the U.S. Supreme Court.

The same group of creditors is fighting bankruptcy legislation introduced in Congress.  Issa, who sits in the subcommittee reviewing the bill, opposes it.  The conservative Heritage Foundation calls it a bailout even though it supported Chapter 9 for Detroit.

Second, Puerto Ricans are distrustful of any financial control board established by a national government that has denied it political representation for 117 years.  The distrust is heightened by knowledge that the chief supporters of a control board are members of the conservative Koch brothers’ network and creditors whose objective is to make money off Puerto Rico rather than enable Puerto Rico to remake itself.

Third, Puerto Ricans fear a federally mandated board would threaten their hard-earned sovereignty. Washington DC’s board powers were expanded from fiscal control to every aspect of the District government.  It took 54 years for Puerto Rico to achieve self-rule after being “liberated” by the U.S. in 1898. It would be very hard for Puerto Ricans to give up control over their affairs and imposition of a control board could even lead to political violence.

Going forward there are two plausible paths for Puerto Rico to take.  The first alternative is a Federal financial control board including majority membership of individuals representing Puerto Rico. The New York City Financial Control Board was made up of the governor, the mayor, the city and state comptrollers and three business executives appointed by the governor.  New Yorkers may have felt a loss of sovereignty but at least the board included some of their elected officials.

The second alternative is Governor Garcia Padilla’s action plan to restructure the debt, produce a five-year budget, and create a non-partisan fiscal board to guarantee that the government keeps its commitments.  Regrettably, the working group appointed to direct this plan is comprised only of members on the governor’s pro-commonwealth party.  The governor himself is running for reelection.  This arrangement is suspect to the opposition which can easily undermine it.

For this plan to be credible and successful it needs to be depoliticized.  The governor should include the opposition in the working group. He should also propose limits on the length of the 2016 campaign period.  Emphasis must be placed on transparency.

But the most important condition for Puerto Rico to succeed is for all its elected officials to show commitment to economic reform even if means losing the next election.  This is what Washington and Wall Street expect.  This is what the people of Puerto Rico deserve.

Not since 1952, when Puerto Rico ratified its own constitution, have Puerto Ricans of different political stripes been asked to take on a challenge of equal magnitude.  The stakes are high and there is much to lose.  Failure to act judiciously and in concert will serve as justification for the imposition of a Federal financial control over which Puerto Ricans may have little influence and which could put the interests of Puerto Rico’s creditors before the interests of its people.

Sierra-Zorita is a public policy and advocacy specialist working on media diversity issues for the National Hispanic Foundation for the Arts. She is curator of Puerto Rico En Serio, an online community focused on issues affecting Puerto Rico and the diaspora. 

What a federal financial control board means to Puerto Rico

Puerto Rico seeking liquidity to make Aug. 1 GDB payment -gov. office

Puerto Rico is working on ways to increase liquidity at its Government Development Bank (GDB) to make a debt service payment due Aug. 1, the governor's chief of staff said on Friday.

The GDB, which has reported dwindling cash reserves, faces $169.6 million in debt service on notes on Aug. 1.

"We are taking steps to provide liquidity to the bank so it can meet these payments," said Chief of Staff Victor Suarez.

GDB President Melba Acosta has informed the government the initiatives are in a very advanced stage but need to be finalized, he said.



The GDB has reported that liquidity fell to $777.9 million as of May 31, down 24 percent from $1.02 billion at the end of the previous month.

Puerto Rico's Governor Alejandro Garcia Padilla dropped a bombshell on creditors in June by saying the island needed to restructure debts to solve its fiscal problems, while an adviser to the island said the U.S. territory would soon run out of cash.



Suarez reiterated that the commonwealth does not have the current cash to make a separate payment due from its Public Finance Corporation (PFC) that is also scheduled for Aug. 1.

Its Public Finance Corporation (PFC) disclosed in a filing earlier in July that it failed to transfer $93.7 million in funds to pay the principal and interest on its bonds.



Default to bondholders on the Aug. 1 payment will occur unless the legislature reconvenes and approves a payment, director of credit analysis at HJ Sims, Richard Larkin, said in a research note last week.

In answer to a question on whether the PFC would make its upcoming payment, Suarez said the situation had not changed from when he previously said the commonwealth did not have enough cash to make the transfer.

By Megan Davies

Puerto Rico seeking liquidity to make Aug. 1 GDB payment -gov. office

Hedge Funds to Benefit Most in Puerto Rico Proposal, Sims Says

Puerto Rico Electric Power Authority bondholders would be hit with a 33 percent loss of interest income over eight years under an investor group’s restructuring proposal, according to Richard Larkin at Herbert J Sims & Co.

“If that’s the deal that’s struck, clients that bought these bonds at par are getting sandbagged,” Larkin, director of credit analysis in Boca Raton, Florida, said in a telephone interview.

A group representing owners of 40 percent of the securities, including OppenheimerFunds Inc. and hedge fund BlueMountain Capital Management LLC, unveiled a $8.1 billion debt exchange Thursday that would delay payments for several years and give the junk-rated agency, called Prepa, $2.5 billion to upgrade the utility’s system. The agency called the plan unworkable.

Investors would receive $1.96 billion of interest payments from 2016 through 2023, according to the bondholder plan. That’s about $984 million, or 33 percent, less than what Prepa is currently obligated to pay on interest during that time, Larkin wrote in a report Friday.

That may be fine for distressed-debt investors who purchased the securities at 60 cents on the dollar or less, Larkin said. Other bondholders who bought the debt at full value would feel some pain, he said.

Forbearance Agreement

Under the proposal, debt-service payments would be suspended on existing securities and interest costs reduced by selling new obligations that would be repaid from a surcharge on Prepa’s customers. Those changes would free up about $2.5 billion through 2025 to modernize plants and diversify fuel sources for commonwealth’s main electricity provider.

Puerto Rico and its agencies racked up $72 billion of debt by borrowing to fix budget deficits as the island’s economy has struggled to grow since 2006. Governor Alejandro Garcia Padilla last month said the commonwealth can’t afford to pay its debts, igniting concern an island issuer will default. Officials are set to draw up a restructuring proposal by Sept. 1.

The utility in August 2014 signed a contract with investors, banks and bond insurers that keeps negotiations out of court, called a forbearance agreement. Prepa must craft a debt-restructuring plan by Sept. 1 or that accord will expire. The utility avoided defaulting on a July 1 bond payment with the help of a loan from bond insurers.

The utility’s bonds rallied following news of the latest bondholder proposal. Prepa debt maturing July 2042 traded Friday at an average 57.2 cents on the dollar, the highest since June 8 and up from 49 cents on Wednesday, data compiled by Bloomberg show. The average yield was 9.4 percent.

by Michelle Kaske

Hedge Funds to Benefit Most in Puerto Rico Proposal, Sims Says

Exclusive: UBS backs away from its Puerto Rico funds after downgrades

UBS AG is backing away from its own Puerto Rico bond funds, warning clients that they can no longer use them as collateral for certain loans after the island's financial troubles resulted in downgrades by major credit rating agencies.

In a July 13 letter to clients, reviewed by Reuters, UBS’ Puerto Rico arm said it would contact investors to discuss alternatives.

“The firm will also reduce to zero the collateral value assigned to all Puerto Rico closed-end funds shares,” UBS wrote to investors.

Puerto Rico’s Governor Alejandro Garcia Padilla dropped a bombshell on holders of its $72 billion debt in June saying that he wants to restructure debt and postpone bond payments. The fiscal problems have investors and credit rating agencies fearful the island will default on payments and not reach an agreement with creditors by an Aug. 30 deadline.

The UBS funds, many of which were stuffed with UBS underwritten Puerto Rico debt, have been a source of ongoing legal headaches for the firm.

Reuters reported last June that the FBI was investigating allegations about UBS' sales practices that touted the funds' high yields and tax advantages.

A UBS spokesman declined to comment on the letter or the funds. Some funds with AAA-rated debt are exempt from the policy, UBS said in the letter.



The funds are not traded on exchanges and UBS sets their value.

It is unclear why UBS declared the value of the funds' shares at zero for collateral purposes, but still lists share prices on its website. For example, one of the riskiest funds was worth $3.46 per share as of Thursday, according to UBS.

UBS' unwillingness to accept the funds as collateral reveals how risky the firm believes they are, said Craig McCann, an economist in Fairfax, Virginia, who is testifying on behalf of investors in arbitrations against UBS.

UBS clients now face potential liquidation of their assets with UBS and even legal actions against them if they fail to produce more collateral to replace the funds, said Jeffrey Sonn, a lawyer in Fort Lauderdale, Florida, who represents some of the investors.



    That would exacerbate problems for investors who have already taken heavy losses on the Puerto Rico funds, Sonn said.

UBS has offered programs for buying back fund shares, but investors' lawyers say another program is now unlikely.

But while this latest move by UBS is likely to cause problems for many investors in the short term, it could substantially boost the hundreds of investor arbitration claims against UBS over the funds, said Lisa Bragança, a lawyer for Stoltmann Law Offices in Chicago representing some of the investors.

"This is a real pickle for UBS to say the collateral value assigned to the closed-end fund shares is zero," Bragança said.



By doing so, UBS is effectively admitting that it sold a bad product and that the funds are too risky for the firm itself, let alone average investors, lawyers said.

Many UBS brokers had misgivings about the funds even as UBS’ Puerto Rico chairman was pushing them to sell the bonds, according to a voice recording, reported by Reuters in February.

Many of those investors bought even more fund shares with money they borrowed through credit lines from another UBS unit, after several UBS brokers may have improperly advised them to do so, according to a $5.2 million settlement between UBS and Puerto Rico’s financial regulator in 2014.



(Reporting by Suzanne Barlyn; Additional reporting by Megan Davies; Editing by Charles Levinson and Lisa Shumaker)

The waning moon is seen behind a logo of Swiss bank UBS in Zurich February 10, 2015.

Reuters/Arnd Wiegmann

By Suzanne Barlyn

Exclusive: UBS backs away from its Puerto Rico funds after downgrades

Renewable Energy in Puerto Rico: A Way Forward

Puerto Rico’s economy is laboring under the twin burdens of outsized debt and exorbitant energy costs. The island territory owes private creditors approximately $72 billion, but the inadequate energy infrastructure is just as serious a problem. The cost of living in Puerto Rico is naturally higher than the US national average, and no category is as dangerously lopsided as energy and electricity.

ASP has written about the importance of energy in Puerto Rico’s economy before, and will explore the issue in greater detail in a briefing note to be released soon.

Energy costs more than 2.5 times the average cost on the US mainland on a monthly basis, mostly as a result of Puerto Rico’s main fuel source. In 2013, 55% of Puerto Rican electricity came from petroleum, all of which must be imported. Though liquefied natural gas makes up a larger share of the energy supply than it did only a few years ago, Puerto Rico remains overwhelmingly dependent on imported oil. This is both an expensive and a dirty source of energy, the use of which is contributing to the island’s economic problems.

Puerto Rico Electric Power Agency (or PREPA) is the government-owned power utility. PREPA’s debt of more than $9 billion is the largest single portion of Puerto Rico’s $72 billion total, and poor management has led PREPA to neglect modernization and the potential of renewable energy. Only 1% of Puerto Rico’s energy comes from renewable sources, and the fossil fuel plants are decades out of date and built to serve a manufacturing industry that no longer exists. This results in a large amount of fixed production costs borne by the part of the population that does not receive subsidized rates.

According to Executive Director Julian Herencia of the Puerto Rico Renewable Energy Producers Association, PREPA is holding back progress on the limited number of renewable energy projects that have been permitted by requiring all of them to be renegotiated. Herencia explained how PREPA’s refusal to advance renewable energy projects is hurting the future of renewable energy in Puerto Rico:

“It’s regrettable that this is happening when we know that in addition to making a new investment that [PREPA] really needs, these projects will help meet the energy objectives with which [PREPA] must comply.”

Instead of starting construction, these projects are mired in an inefficient bureaucracy that is preventing compliance with legal renewable energy targets recently enacted by the Puerto Rican government.

If Puerto Rico is to solve its energy cost problem, it will need to embrace renewables. Unlike petroleum, natural gas, or coal, renewable energy could be produced on the island, reducing the expense of importing the entire fuel supply. In Hawaii, renewable energy supplements electricity generated from fossil fuels and provides approximately 13% of the state’s power. A Puerto Rican effort to match Hawaii’s level of renewable energy production – which would also meet the Puerto Rican legal target for the end of 2015 – would be an economic boon to the struggling territory.

Developing a renewable energy infrastructure in Puerto Rico would be a public investment. Construction of new power plants would employ local workers, and stimulate demand for US-produced energy equipment. As the proportion of electricity generated from expensive imported petroleum and other fossil fuels declined, the cost to consumers of Puerto Rican electricity would decline as well. This could stimulate demand in other sectors of the Puerto Rican economy by boosting residents’ disposable income, which would help the territory return to a path of growth.

Unfortunately, PREPA’s poor management and high debt burden make investment in a renewable energy future difficult. The ability to use the legal process of bankruptcy would help PREPA restructure debts into a more sustainable repayment schedule and free up funds for investment, but the agency also needs the right leadership. With proper conditions in place, renewable energy could be the key to Puerto Rico’s future economic development.

By Clark Derrington

Renewable Energy in Puerto Rico: A Way Forward

Hilton closes Puerto Rico hotel casino amid economic crisis

The Condado Plaza Hilton laid off 144 workers from the seaside casino located in the popular tourist district of Condado, managing director Raul Bustamente told The Associated Press. He said the closure follows a 40 percent drop in the use of slot machines over the past decade.

The former 24-hour casino, which opened in 1975, will likely be turned into a ballroom, he said in a phone interview.

“We now want to focus on areas where we’ve had good business: rooms and banquets,” Bustamante said.

Puerto Rico’s Hotel & Tourism Association said it is the seventh casino to close in the past five years on the island of 3.5 million people, which is entering its ninth year of recession and is struggling with a 12.6 percent unemployment rate.

Gambling taxes represent the majority of revenue for Puerto Rico’s Tourism Company, which is responsible for promoting the island. A portion of that revenue also goes to the University of Puerto Rico, the island’s largest public university.

“This is a significant impact,” tourism association President Miguel Vega said in a statement.

Jason Rivera, president of a local gastronomy union, rejected the newest round of layoffs and said workers were unfairly paying for an economic crisis caused by the government.

“We are not going to remain with our arms crossed in the face of so much injustice,” he said.

Government officials have said previous casino closures caused a $6 million drop in revenue.

Critics in part blame the closures on an estimated 45,000 illegal gambling machines that operate across the island, with the government seizing hundreds of machines in occasional raids. About 90 percent of casino clients in Puerto Rico are locals, not tourists, according to the Hotel & Tourism Association. There are currently 20 casinos now operating on the island.

SAN JUAN, Puerto Rico (AP) — One of Puerto Rico’s biggest and best known casinos closed Wednesday after 40 years of operation in another blow to the U.S. territory’s struggling economy.

Hilton closes Puerto Rico hotel casino amid economic crisis

Hilton Closes Longtime Hotel Casino in Puerto Rico

The Condado Plaza Hilton in Puerto Rico is closing its longtime casino in another blow to the U.S. territory's struggling economy.

Managing director Raul Bustamente told The Associated Press Wednesday that 144 workers have been laid off. He said the closure comes after a 40 percent drop in the use of slot machines in the past decade.

Bustamante said the former 24-hour casino that opened in 1975 will likely be turned into a ballroom.

Puerto Rico's Hotel & Tourism Association said it is the seventh casino to close in the past five years in Puerto Rico. Government officials have said the previous closures led to a $6 million drop in revenue.

Critics in part blame the closures on an estimated 45,000 illegal gambling machines that operate across the island.

Hilton Closes Longtime Hotel Casino in Puerto Rico

4 Lessons From the Puerto Rico Debt Crisis-Kiplinger

t first blush, most mainland U.S. investors probably see Puerto Rico's financial woes as remote and unimportant. But have you taken a look at your municipal bond fund lately?

More than half of all muni bond funds have investments in Puerto Rican tax-exempt bonds, even though the sunny Caribbean island is an economic basket case. Its outstanding municipal debt of $72 billion amounts to $30,000 for each of the commonwealth's residents, almost three times average annual per capita income. Puerto Rico's ratio of debt to gross domestic product is more than triple that of any other U.S. state or territory, and the island's economy has been mired in recession for nine years.

Why would muni funds invest in Puerto Rico? Because yields are high and because U.S. taxpayers don't have to pay state, local or federal income taxes on interest payments from Puerto Rican bonds. Mutual funds and hedge funds have snapped up much of the island's debt—much of which Governor Alejandro Javier García Padilla says cannot be repaid. "This is not about politics," he says. "This is about math."

Below are four crucial lessons for all investors from the Puerto Rican debt crisis.

1. Corporate culture matters.

Corporate culture sounds like mumbo jumbo invented by consultants, but to me it means quite simply: Does the firm that manages your fund view you as a customer or as an investment partner?

How can you tell one kind of firm from the other? Low expense ratios are a great indicator—and, not coincidentally, a first-class predictor of future returns. So are significant investments—at least $1 million—by managers in their own funds. Other signposts: Does the company launch fad products? How well did its funds hold up during the 2007-09 meltdown? Do managers and analysts leave after a few years or often stay for their entire careers?

You may be wondering what this has to do with the Puerto Rican quagmire. According to Morningstar, 16 of the 20 funds with the highest percentage ownership of Puerto Rican bonds turn out to be owned by one firm: OppenheimerFunds. Oppenheimer muni funds own $4.6 billion in Puerto Rican bonds—almost half of the $10.3 billion owned by all U.S. muni funds combined! None of the big fund sponsors I admire—the American Funds, Fidelity, T. Rowe Price and Vanguard—invest more than about 1% of muni fund assets in Puerto Rico.

(The percentages and total dollar amounts funds have invested in Puerto Rican bonds that I'm citing in this article are probably understated. Fund tracker Morningstar scoured all bond fund holdings for securities with "Puerto Rico" in their names as of their most recent reporting date—April 30, in the case of Oppenheimer funds. But not all Puerto Rican munis have Puerto Rico in their names.)

Oppenheimer's muni managers vigorously contest Padilla's assertion that Puerto Rico can't pay its debts. In a posting on the OppenheimerFunds Web site, they say that Puerto Rico's "ability to pay remains intact." What's more, they say that Puerto Rico can't declare bankruptcy or otherwise shirk its debt obligations under current law. They declined to comment further.

But laws—in this case, bankruptcy laws—can change, and most independent analysts doubt that Puerto Rico can avoid a major restructuring (that is, a reduction) of its debt obligations. That's why Standard & Poor's Municipal Bond Puerto Rico index has plunged an annualized 8.1% over the past three years through July 17, including 8.7% so far this year alone. The yield to maturity of the index is a stratospheric 9.8%—fair warning that investors are going to take a haircut on these bonds.

2. Corporate culture rarely improves.

Once a fund firm's culture sours, it often stays that way. OppenheimerFunds is again Exhibit A. Oppenheimer Core Bond (symbol OPIGX), then part of five state 529 college-savings plans, lost a stunning 36% in 2008 through disastrous investments in low-quality bonds and commercial mortgages. You'd think OppenheimerFunds would have learned.

3. Know what you own.

Oppenheimer Rochester Maryland Municipal Bond A (ORMDX) has a whopping 37% of its assets in Puerto Rican bonds—the highest percentage of any Oppenheimer fund, according to Morningstar. Of course, you should look carefully at a fund's holdings before you buy it. But if you only know that a bond fund's holdings have an average credit quality of double-B, putting it squarely in "junk" territory, you'd know to be careful about investing in the fund. In the case of this Oppenheimer Rochester fund, which is designed for Maryland residents, more than half the fund's bond assets are rated single B or below—or not rated at all.

4. Beware funds with high yields.

The Oppenheimer Maryland fund yields 5.0%. By comparison, T. Rowe Price Maryland Tax-Free Bond (MDXBX), a superb fund for Maryland residents, yields just 2.3%. Its average credit quality is single A. "Higher yield means higher risk," says Morningstar's Russ Kinnel. "And in the bond world, even a little higher yield often comes with a lot more risk."

I warned of the danger in Puerto Rican munis almost two years ago. Since then, the commonwealth's economy and its debt load have gotten much worse. I'll repeat the warning I gave then: If you own a fund with a big slug of Puerto Rican debt, I'd sell now, even after recent losses. Municipal bonds, in my view, are meant to be low-risk. Puerto Rico's debt is anything but.

Steve Goldberg is an investment adviser in the Washington, D.C., area.

The island's ongoing muni meltdown can teach you a lot about your bond funds.

By Steven Goldberg

4 Lessons From the Puerto Rico Debt Crisis-Kiplinger

Opinion: We, the people of Puerto Rico, continue to live in a state of subordination

In remarks following the United States Supreme Court’s recent decision on marriage, President Obama said, “When all Americans are treated as equal, we are all more free.” The president went on to recognize that “progress on this journey often comes in small increments, two steps forward, one step back, compelled by the persistent effort of dedicated citizens. And then sometimes there are days like this, when that slow, steady effort is rewarded with justice that arrives like a thunderbolt.”



We, the people of Puerto Rico, are American citizens, and have been proud to be citizens for nearly a century. We celebrate the legitimate civil rights victories the Nation’s Constitution enables, even if they sometimes come, as President Obama observed, in small increments. And yet we, the American citizens of Puerto Rico, continue to live in a state of indefinite political subordination.

Due to Puerto Rico’s subordinate status as a territory, the public corporations of the Government of Puerto Rico cannot legally restructure their debt through a state-enacted bankruptcy code, nor through Chapter 9 of the federal Bankruptcy Code. So far, the island has been left to its own devices to address its tens of billions of dollars of public debt (43 percent of which corresponds to public corporations and municipalities).

Similarly, while the states have seen increases in federal funds for Medicare Advantage, Puerto Rico’s funds were slashed by 11 percent. This comes at a time when the only growing segment of the island’s population is seniors. Not only can the people of Puerto Rico not vote for our nation’s commander in chief, who sends our sons and daughters to fight shoulder to shoulder with their stateside brethren, but they still have no voting representation in Congress.

Still, the people of Puerto Rico continue to pay federal payroll taxes, social security taxes, Medicare taxes and income tax on U.S. mainland source income. In fact, Puerto Rico currently accounts for the payment of more federal taxes than six states. This, too, constitutes taxation without representation.

President Obama has said America is a place where you can write your own destiny. Yet, that opportunity has not been fully extended to Puerto Ricans, even after voters rejected the current territorial status in 2012 and voted in favor of statehood.

How can it be that even after expressing our will, Congress is still silent? The answer is simple: territorial status inherently breeds neglect from the Federal Government. That is why, at this historic juncture, I am issuing this call to President Obama to defend the civil rights of the 3.5 million American citizens in Puerto Rico whom he pledged to defend when he campaigned for the presidency in 2008 and 2012, as well as to the Congress to act on H.R. 727, the Puerto Rico Statehood Admission Process Act, and to the people of Puerto Rico, both on the island and those who live on the U.S. mainland, and all our fellow citizens who see the righteousness of our cause, to join forces in demanding change.

This is a call to rise from inequality with the same zeal and persistence that led to all the other stunning advances in civil and human rights that have been achieved under the American flag. Ours is yet another unfinished chapter in the long story of American democracy. Justice and equality for Puerto Rico must also arrive like a thunderbolt.

Zoé Laboy, a former attorney with the United States Department of Justice, is a candidate for Puerto Rico’s sole non-voting seat in the United States Congress.







By Zoé Laboy

Opinion: We, the people of Puerto Rico, continue to live in a state of subordination

How a debt crisis is drowning Puerto Rico

PUERTO RICO'S Gov. Alejandro García Padilla has declared the island's $72 billion debt "unpayable" and is calling on the U.S. government and Puerto Rico's creditors to negotiate debt relief and other measures to restore Puerto Rico's economic viability.

In a Western Hemisphere replay of the debt crisis strangling the Greek economy, attempts by Puerto Rico's government to stabilize its economy through a combination of harsh austerity measures and further borrowing has created a vicious circle that chokes off economic growth, which only makes the debt overhang bigger.

Among the cutbacks and other measures imposed by Garcia's Popular Democratic Party (PPD), which is aligned with the Democratic Party in the U.S., are massive closures in the public school system; a sales tax increase from 7 to 11.5 percent; the rollback or elimination of public-sector pensions; cuts in teachers' health care benefits; an increase in the tax on a barrel of oil from $9.25 to $15.50; and steep increases in water and electricity bills.

Puerto Rico's gross national product has fallen on average by 2 percent each year for the last eight years. Some 270,000 jobs have been eliminated. The rapid deterioration in Puerto Rico's economic climate led 140,000 residents to flee the island in 2014 alone.

The government's austerity measures amount to an all-out offensive in the war against all working class people in Puerto Rico. But make no mistake: the colonial government is merely a "front man" for Corporate America and the wolves of Wall Street, which have been extraordinarily successful at compelling a string of governors to implement various neoliberal packages during the past two decades.

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Puerto Rico's Shock Doctrine

The year was 1993, and the pro-statehood New Progressive Party (PNP), which is aligned with the U.S. Republican Party, was in power. The governor, Pedro Rosselló González, was the most extreme neoliberal voice the island had ever experienced. He was our native Ronald Reagan, our Margaret Thatcher. With an iron fist, he implemented dramatic changes in the colonial government and society.

One of his first laws, known as "Mano dura contra el crimen" ("Strong hand against crime")--led to the occupation of poor and working-class barrios and projects by the National Guard and militarized police. Cops set up checkpoints at the entrances and exits of targeted communities and, from these strategic strongholds, directed a campaign of brutality, harassment and intimidation against thousands of individuals and families throughout the island. The government's decapitation of the chief organized crime syndicate in Puerto Rico created one of the bloodiest gang wars ever seen, as various players vied for control over the suddenly headless drug trafficking business.

Puerto Rico used to have a relatively robust public-health system that depended on infrastructure all across the island. It was fairly accessible and affordable. If a person got sick, he or her could simply go to the hospital and get treated--no insurance card needed. But Gov. Rosselló privatized the whole system.

He did that by selling off hospitals at almost half their market value and issuing the island's residents private insurance coverage paid for out of public revenue (something like Obamacare). Nowadays, the Puerto Rican health system is on the edge of collapse. Doctors are fleeing the island, which is further raising the cost of health care, and the government's constant scramble to keep up with its health care bills has the entire system sinking in quicksand.

In 1998, the PNP government privatized what used to be one of the island's wealthiest public corporations: Telefónica de Puerto Rico (Puerto Rico Telephone). Telefónica's militant unions waged a fierce battle to maintain the company as a public asset, enjoying active solidarity from many unions in both the public and private sectors, as well as university students and the public generally.

The telephone workers organized a 41-day strike that became known as "La Huelga del Pueblo" (The People's Strike) because it inspired the participation of thousands of people across the island and beyond, including a two-day general strike and dozens of direct actions and work stoppages at various strategic workplaces. But it still wasn't enough. A heavily repressive governmental response defeated the strike and paved the way for privatization of the Telefónica.

In 1999, Rosselló cut $40 million from the University of Puerto Rico's budget. He was now on the offensive, and no social movement seemed capable of stopping him.

His administration also passed "Ley 40" (Law 40), which represented a broad attack on the rights of public-sector workers. In 2008, the governor used the provisions of that law, which made it illegal for teachers to go on strike, to decertify the grassroots Federación de Maestros teachers union after a 10-day strike.

Rosselló wasn't the first or the only governor to implement neoliberal policies, but until he took power, no one had done it so effectively or widely. Rosselló's neoliberal "reforms" contributed $10 billion of debt to the current $72 billion debt crisis.

After Rosselló's rule, the PPD won the next two gubernatorial elections, and continued to advance the neoliberal agenda, but in a more populist fashion. During the first two weeks of May 2006, the island government shut down because the executive branch controlled by the PPD and the House and Senate dominated by the PNP couldn't agree on which form of regressive taxation to implement in order to balance the budget.

The PPD preferred a value-added tax, which is a common form of taxation in Latin America, while the PNP preferred a U.S.-style sales tax. The successive PPD administrations of Sila María Calderón Serra, the first woman elected governor of Puerto Rico, and Aníbal Acevedo Vilá added to Puerto Rico's debt by $13.3 billion and $10.1 billion, respectively.

When the PNP returned to power in 2009, Gov. Luis Fortuño Burset quickly became a contender for Pedro Rossello's legacy as the island's foremost neoliberal heavyweight. Fortuño was a card-carrying member of the U.S. Republican Party and public admirer of Milton Friedman. He held up Ronald Reagan as the best president in American history. With that pedigree, it wasn't difficult to envisage his plans for Puerto Rico.

During his four-year term, a two-month-long student strike shook the island to its roots. An $800 increase in student fees was the detonator for this historic struggle that led to the student occupation of all 11 campuses of the University of Puerto Rico. While public and private police forces meted out violence and repression, the students fought back--with street art, political strategy, ingenious solidarity campaigns and, of course, self-defense.

But Fortuño's greatest neoliberal legacy was the "Special Law Declaring a Fiscal State Emergency and the Establishment of an Integral Plan of Fiscal Stabilization to Save Puerto Rico's Credit." No one in Puerto Rico knew the law by this ridiculous name--we just called it "La ley 7" (Law 7).

Law 7 resulted in the dismissal of 30,000 public employees, the freezing of all collective bargaining agreements in the public sector, massive tax credits for corporations, and on and on. Law 7's shock waves still reverberate in the collective consciousness of the people of Puerto Rico.

Fortuño's contribution to the debt was the most generous of all--he added as much to the debt as the previous two PPD governors combined: $23.4 billion. By the time he left office, the debt of Puerto Rico stood at $70 billion.

Last but not least, the current neoliberal in the Fortaleza (the governor's mansion) is Alejandro García Padilla. He represents the PPD's most conservative wing and has distinguished himself through his poor leadership, his marriage of the interests of national and international capital, and his shameful acceptance of the notion of Puerto Rican "democratic self-government" under the terms of U.S. military occupation.

His victory in the 2012 election was based on the logic of "lesser evilism." A lot of independentistas (people who support Puerto Rico's political independence), nonpartisans and even the PNP's working-class militants joined together to defeat Fortuño's bid for reelection. But the honeymoon with García Padilla was short-lived. A few weeks after his inauguration, García Padilla consummated Fortuño's efforts to privatize the island's international airport.

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The Greece of the Caribbean

Alejandro García Padilla's rule has coincided with the worst economic crisis in Puerto Rican history. For good reason, Puerto Rico is now known internationally as "The Greece of the Caribbean." Puerto Rico's debt is roughly $72 billion, which amounts to nearly 70 percent of GDP. Greece's debt stands at 177 percent of GDP.

Besides the difference in their debt proportions, there are other significant factors to take into account. Since 1898, the year that the U.S. Navy bombarded Puerto Rico and began the occupation that continues to the present day, the island's economy has existed to serve the military, political and economic interests of the North American empire. For example, Puerto Rico's imports more than 80 percent of its consumer goods. Want to guess where they come from? That's right: the United States of America.

And that's not all. The Jones Act passed by the U.S. Congress in 1920 requires that all shipping to and from U.S. ports be conveyed by U.S. vessels and crews. As Nelson Denis, author of War Against All Puerto Ricans: Revolution and Terror in America's Colony, explains in a recent blog post:

This includes cars from Japan, engines from Germany, food from South America, medicine from Canada--any product from anywhere. In order to comply with the Jones Act, all this merchandise must be off-loaded from the original carrier, reloaded onto a U.S. ship and then delivered to Puerto Rico. It all makes as much sense as digging a hole and filling it up again. This is not a business model. It is a shakedown. It's the maritime version of the "protection" racket.

As a result, Puerto Rico's imports cost at least twice as much as neighboring islands.

Added to this burden, Puerto Rico can't establish trade relations with other countries without U.S. permission. A few years ago, for example, former Venezuelan President Hugo Chávez offered Puerto Rico a generous deal that would have brought a steady flow of Bolivarian crude oil to the island on very favorable terms. It didn't take long for the U.S. Congress to forbid such an arrangement.

The structure of the debt itself also distinguishes Puerto Rico from Greece. Puerto Rico's lack of sovereignty means that it cannot secure loans from the International Monetary Fund or World Bank. As a result, its debt takes the form of lines of credit and bond issues traded on the open market. In June 2015, Fortune magazine reported that more than 50 percent of the island's debt is owned by the infamous vulture funds. According to the hedge fund watchdog site Hedgeclippers.org, the debt vultures have a take-no-prisoners strategy for the island:

Hedge funds and billionaire hedge fund managers have swooped into Puerto Rico during a fast-moving economic crisis to prey on the vulnerable island. Several groups of hedge funds and billionaire hedge fund managers have bought up large chunks of Puerto Rican debt at discounts, pushed the island to borrow more, and are driving towards devastating austerity measures. At the same time, they are also using the island as a tax haven...They are fueling inequality by demanding low taxes on wealthy investors, higher taxes on working people, lower wages, harsh service cuts and privatization of public schools...The spoils they ultimately seek are not just bond payments, but structural reforms and privatization schemes that give them extraordinary wealth and power--at the expense of everyone else.

But perhaps the starkest difference between Greece and Puerto Rico at the moment is the character of the ruling political party. The agreement of Greek Prime Minister Alexis Tsipras to a new round of austerity measures has left the people of Greece and the international left with a bitter taste of betrayal after the historic July 5 referendum against austerity. Yet trying to compare Tsipras' left-wing SYRIZA government with García Padilla's PPD government would be like comparing Chile's former President Salvador Allende with the general who overthrew him in a coup, Augusto Pinochet.

While SYRIZA members are arguing in workplaces and communities for social revolt against austerity, García Padilla commissioned former IMF official Anne Krueger to issue a report on the island's economic situation as well as to propose solutions to the debt crisis. In keeping with the IMF's record of further impoverishing poor countries around the world with its program of "structural adjustment," the Krueger report prescribes the same bitter medicine to "improve" Puerto Rico's health:

-- Restore competitiveness by lowering labor costs, including eliminating the federal minimum wage and other deregulation of labor markets;

-- Cut federal welfare payments because they are "too generous" relative to Puerto Rico's low wages;

-- Allow private companies to compete with the public sector in generating electricity while keeping public electrical transmission and distribution, which are the least cost-effective sectors of the energy industry;

-- Reduce subsidies for the University of Puerto Rico;

-- Cut Medicaid benefits in excess of minimum standards on the U.S. mainland.

If Puerto Rico decides to impose the utterly predictable economic policy proposals of an IMF veteran like Anne Krueger, the island will most definitely follow Greece's path toward an ever-greater debt crisis.

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Fight Like a Greek

If the people of Puerto Rico, including those who have recently fled in search of a better life, don't want the island's destiny placed in the hands of vulture-fund managers, transnational corporations, the U.S. and its colonial puppet government, we must fight--as the Greek people have been for some years now.

The Puerto Rican left has been evolving and transforming itself in recent years, but it still has yet to congeal into any semblance of a coherent social force. At this juncture, different groups have been organizing assemblies to assess the current situation and call for the development of a social movement capable of reaching beyond the organized labor and student movements in order to challenge the austerity regime.

At the beginning of June, more than 100 young activists from across the island participated in a youth assembly. In July, there was a progressive artists assembly as well as a women's assembly. These meetings are taking place in the run-up to a rally outside the island's Capitol on July 24.

The Puerto Rican nation is made up of roughly 8 million Puerto Ricans; only 3 million currently live on the island, while a majority of the rest lives in the U.S. Any serious political contribution to challenging U.S. imperialism and neoliberalism and to fighting for independence and socialism on the island must base itself not only on Puerto Ricans living in the colony, but also those living in the belly of the beast.

How a debt crisis is drowning Puerto Rico

Une famille traverse à pieds Madagascar et aide les populations démunies

C’est ainsi qu’un beau matin, une famille française part du cap de Bonne Espérance pour rejoindre le mont des Béatitudes, dans les pas des premiers Hommes, le long de la vallée du Rift. Objectif : traverser l’Afrique à pied ! 3 ans et 3 mois plus tard, après 14 000 kilomètres parcourus et 1200 familles rencontrées, leur « Africa Trek » prendra fin en donnant naissance à deux best-sellers, à un documentaire et surtout à une petite fille, Philaé (hommage à l’île égyptienne dédiée à Isis), conçue durant leur traversée de l’Égypte. Leur souhait à l’époque : donner une image plus positive du continent africain et de ses habitants, une mission largement réussie.

Le père, Alexandre Poussin, n’en était d’ailleurs pas à son coup d’essai. Celui à qui on annonce, à l’âge de 13 ans, qu’il ne marchera sans doute plus jamais suite à une chute, se lance 10 ans plus tard dans un tour du monde à bicyclette pour voir le monde de ses propres yeux. Véritable casse-cou, il passe ensuite de l’escalade nocturne des monuments parisiens à la traversée de l’Himalaya, du Bhoutan au Tadjikistan; 5000 kilomètres parcourus à pieds durant 6 mois.

Aventuriers chevronnés ayant le voyage dans la peau, ils ont décidé, 10 ans après « Africa Trek », de réitérer l’expérience à Madagascar, « l’île continent », accompagnés cette fois-ci de leurs deux enfants, Philaé, 11 ans, et Ulysse, 8 ans (prédestinés, donc, à faire un beau voyage). Mada Trek est un périple de 16 mois avec pour objectif de mettre en lumière douze associations humanitaires œuvrant à la reconstruction du pays, à la préservation de l’environnement et à l’amélioration des conditions de vie des populations locales, des laissés pour compte et des plus vulnérables.

Au rythme d’une charrette construite de leurs mains avec l’aide de menuisiers locaux, et tirée par Babord et Tribord, leurs deux zébus, la famille Poussin a lancé ce pari fou de récolter des fonds en faveur des missions d’urgence réparties sur le territoire malgache. L’étape symbolique des 1000 kilomètres de marche vient d’être franchie et 10 000 euros de dons ont d’ores et déjà été récoltés grâce à de généreux donateurs sur le site de financement participatif Ulule, puis reversés sans attendre aux associations locales.

Parmi elles : l’ASA, qui offre un métier, un avenir et 5 hectares de terres cultivables dans l’ouest de l’île à des familles déshéritées des bidonvilles; l’Ar-Mada, une mission médicale comptant 15 professionnels de la santé qui prodiguent des soins aux populations les plus modestes et qui luttent contre la malnutrition des jeunes enfants et des nourrissons; Trait d’Union Humanitaire, qui offre chaque jour un repas aux enfants des rues et qui souhaite louer un dortoir afin de les extraire de la violence, du froid et de la prostitution qui les guettent; La mission franciscaine de Berev et sœur Miranda qui prévoient de construire un dispensaire afin d’accueillir les familles en état d’urgence; Grandir Dignement, qui améliore les conditions carcérales des mineurs vivant dans des conditions déplorables et leur offre éducation et formation professionnelle en vue de leur réinsertion dès leur sortie de prison; Aïna enfance et avenir, qui s’occupe des très jeunes filles-mères souvent rejetées par leur famille en accueillant leurs nourrissons à la crèche, leur permettant ainsi de poursuivre des études et de chercher du travail et enfin Asmada, qui prévoit la reforestation de la commune rurale de Masindray avec le ravintsara, une sorte d’eucalyptus et Humada, qui travaille à la construction d’un bloc chirurgical, d’établissements scolaires et de structures sanitaires.

Comme l’expliquent très bien les Poussin : « Famines et crises sanitaires chroniques font partie intégrante de leur vie. Nous ne pouvons pas nous contenter de passer et d’en être les témoins impuissants. Nous voulons aussi témoigner et nous rendre utile en faisant connaitre, par cette collecte, ces projets. Leur point commun est qu’ils essaient tous d’être un îlot de résistance dans cet océan d’abandon. »

Sonia et Alexandre Poussin s’intéressent d’ailleurs particulièrement aux phytothérapies locales et aux praticiens traditionnels capables de mettre au point des traitements tirés des plantes endémiques. Ils ont emmené avec eux des gélules d’artémisia annua faites maison, une plante aux propriétés permettant de se protéger du paludisme qui sévit sur le continent africain et à Madagascar. Diffusée à plus large échelle, l’artémisa annua permettrait, selon eux, aux populations les plus pauvres de se prémunir à moindre coût de la malaria sans dépendre des traitements médicamenteux difficilement accessibles en zone rurale.

Et s’il ne fallait garder qu’un seul visage de ce voyage fort en rencontres et en émotions, ce serait certainement celui de Teza. Cette petite fille, malgré les apparences, avait 8 moi et ne pesait que 2,4 kilos. Elle mourut 5 jours après que cette photo ait été prise par Alexandre Poussin, en dépit des soins qui lui furent prodigués par les médecins de la mission Ar-Mada et le lait en poudre auquel elle n’avait jamais goûté depuis sa naissance. Sa maman étant décédée, elle était élevée par sa grand-mère qui ne la nourrissait que de 3 cuillères de lait 3 fois par jour. L’enfant n’était pas malade, simplement affamé. Il est difficilement concevable que des enfants puissent encore mourir de faim et de soif au 21e siècle, c’est pourtant une terrible réalité à laquelle la famille Poussin fut confrontée à Madagascar.

Une nouvelle collecte est en cours sur Ulule afin d’aider 4 nouvelles associations avec l’objectif de récolter 8000 euros de fonds. « Sur les sentiers du malheur, il faut parfois marcher longtemps au pas des mulets. Celui qui chemine ainsi va à la rencontre des Hommes. Il approche d’eux lentement, s’assoit à leur côtés, leur parle, touche leur peau, panse leurs plaies, les regarde vivre et, souvent, sans pouvoir les sauver, les assiste dans la mort. Leur détresse est peut-être le prétexte, la justification de l’aventure humanitaire. Mais ce que découvre celui qui rôde, armé de compassion là où les Hommes souffrent, c’est en même temps que leur malheur, leur dignité, leur beauté, leur humanité. Tous les partis divisent les Hommes, sauf le parti de l’Homme qui les rassemble. Non sans ambigüité, non sans renoncement, mais avec courage et espoir. » Jean-Christophe Rufin.

On pourrait titrer cet article « Le fabuleux destin de la famille Poussin » ! En effet, ce n’est pas une famille tout à fait comme les autres…. De 2001 à 2004, Sonia et Alexandre Poussin traversent l’Afrique à pieds du sud au nord, nous livrant une histoire exceptionnelle, riche en humanité, en rencontre et en expériences riches de sens. Quelques années plus tard, ils réitèrent l’expérience à Madagascar…

18 juillet 2015 / Catégories: Articles, Rédaction / Tags: afrique, famille, humanitaire, madagascar, poussin, traversée, voyage / Réclamations et signalements

Une famille traverse à pieds Madagascar et aide les populations démunies | Mr Mondialisation

No, Puerto Rico is not our Greece

We’re told that Puerto Rico is our Greece, and sometimes it seems so. The U.S. territory (its residents have been American citizens since 1917) has a heap of economic problems. Gov. Alejandro Garcia Padilla recently told the New York Times that its $72 billion debt is “not payable.” To buttress the point, he commissioned a study of the island’s economy by Anne Krueger, a highly respected economist who was a top official of the International Monetary Fund. Her report makes for grim reading.

Since 2005, Puerto Rico’s economy has shrunk by about 10 percent. Its population is also declining, from 3.8 million in 2005 to 3.5 million now. People move to the mainland where prospects are better. The poorest U.S. state (Mississippi) has a per capita income 50 percent higher than Puerto Rico’s. The economy is fundamentally uncompetitive because labor is overpriced (a point also made recently by my Washington Post colleague Charles Lane).

Here’s Krueger’s acid appraisal:

“The single most telling statistic in Puerto Rico is that only 40 percent of the adult population — versus 63 percent on the U.S. mainland — is employed or looking for work; the rest are economically idle or working in the gray economy. ... The result [is] massive underutilization of labor, foregone output, and waning competitiveness.”

Krueger cites two causes.

First, an unrealistically high minimum wage dampens hiring. In 1974, Congress decreed that Puerto Rico should adopt the U.S. minimum wage (now $7.25 an hour), despite much lower skill levels. Someone working full time at the minimum wage in Puerto Rico earns 77 percent of the island’s per capita income; in the United States, the comparable figure is 28 percent.

Second, generous safety-net benefits discourage working. Puerto Ricans qualify for welfare, food stamps, Medicaid (government health insurance for the poor) and some utility subsidies. Even with the high minimum wage, benefits can be more attractive. One estimate found that a three-person household can receive $1,743 in monthly benefits compared with $1,159 in take-home pay for a minimum-wage worker.

Of course, Puerto Rico’s distress also has other causes. The phasing out of a tax break (IRS section 936) in 2006 for drug companies and other manufacturers is often blamed. Jeffrey Farrow, who handled relations with Puerto Rico in the Clinton White House, thinks its role is exaggerated.

More important, he argues, was the rise of oil prices in the 1970s because oil was — and still is — the major fuel used in generating Puerto Rico’s electricity. High electricity rates resulted. (On the mainland, little oil is used to produce electricity). The Jones Act of 1920 compounds the disadvantage; it requires that cargo carried between Puerto Rico and U.S. ports go in American vessels — more costly than foreign ships. Finally, U.S. trade agreements have benefited foreign rivals. Puerto Rican exports enter the United States duty-free; now, so do many of its competitors’.

What Greece and Puerto Rico share is a desire for debt relief. But there are also big differences. For starters, Greece’s debt (as a share of its economy) is more than double Puerto Rico’s. As a matter of arithmetic, Puerto Rico’s case for relief is weaker. Puerto Rico’s challenge is to get economic growth up more than to get debt down. The current situation can’t last indefinitely; that is, its economy can’t continue shrinking while its debt continues expanding. Lenders won’t lend.

Puerto Rico’s debt differs from Greece’s in other ways, too. Most Greek bonds were general obligations of the government. By contrast, Puerto Rico’s bonds are a bewildering array of securities issued by different agencies with varying legal protections and funding sources. “There are 17 different bond issuers in Puerto Rico,” says Farrow. This complicates matters. It virtually eliminates the prospect of a general default — or the likelihood of across-the-board debt relief. Still, Congress should pass legislation (H.R. 870) permitting Puerto Rico to put some agencies into bankruptcy. This would give it more bargaining leverage with some creditors; creditors would still retain the protection of courts against debtors’ unjustified refusal to pay. But the legislation should also address the deeper causes of Puerto Rico’s problems: The minimum wage should be frozen; the Jones Act requirement should be repealed; some or all of the publicly owned corporations (for power, water and roads) should be privatized.

All this is contentious. It may not come to pass. Or it might trigger a debate over Puerto Rican statehood. If Puerto Rico doesn’t revitalize its economy, it risks running out of cash and flirting with chaos. But the impact will fall mainly on Puerto Rico. Greece’s fate was said to affect the future of the euro and even the European Union. There is no comparable spillover here. Puerto Rico is not our Greece.

By Robert J. Samuelson

No, Puerto Rico is not our Greece