Puerto Rico's Sovereign Debt Crisis

Update: PR official says that PFC will default on its bond payments.

Well, it's happened. Moody's says PR has defaulted. http://money.cnn.com/2015/08/03/investi … ndex.html.

Yes, I'd heard too.   I've also heard that tourism is really down...is this true?  It can impact PR economy, I believe.

Tourism is down? Can't tell that by the traffic on 3 and 66...

Schuttzie wrote:

Yes, I'd heard too.   I've also heard that tourism is really down...is this true?  It can impact PR economy, I believe.

I hear the cruise lines are increasing their ships out PR and the ones stopping in the island. I look at some of the pics posted in FB for this past weekend and it did not look like the internal tourism is down at all by the amount of people at the beach.

I swear I think that some stories that are out there are just to keep people from coming to the island and finding out what a wonderful place it is...

That is good to hear that tourism is not hurting.  Yes, there are probably bad rumors out there.

BearNVa wrote:

I swear I think that some stories that are out there are just to keep people from coming to the island and finding out what a wonderful place it is...

Unfortunate the press is very sensationalist, I read a news yesterday in the local paper with a header "cop gun down driver in adjuntas",  When you read the news, it specify that the guy pulled a gun and try to shot the cops during a traffic stop and that the guy was a career criminal with a long record . This is one of the examples how the press "describe" the incident to attract readers.

This news story, enlighten me on some details I didn't know. From my trip, i saw the cruise ships unloading people in old San Juan every day.

Juan González: Puerto Rico's Economic "Death Spiral" Tied to Legacy of Colonialism

The White House has rejected a bailout package for Puerto Rico days after the U.S. territory failed to pay a small portion of the massive $72 billion it owes to bondholders. It was the biggest municipal bond default in U.S. history. Unlike U.S. states and municipalities, Puerto Rico cannot declare bankruptcy. Juan González discusses how the roots of the crisis are deeply tied to Puerto Rico's colonial status.
on democracynow.

http://www.democracynow.org/shows/2015/8/5

Lay off public employees. We have 200k on this island. WAY too many, it costs 250 million per week in payroll.

labochinchosa wrote:

Lay off public employees. We have 200k on this island. WAY too many, it costs 250 million per week in payroll.

We go back to the stupid politicians, how you think they got to office? They buy votes with jobs, even when the government cannot support it.....

labochinchosa wrote:

Lay off public employees. We have 200k on this island. WAY too many, it costs 250 million per week in payroll.

The problem with laying off public employees is that then they go into unemployment and welfare. Money comes out of a different pocket but it still come out.

That is totally correct. Layoff is a short term solution causing long term problems. What does an unemployed workforce do? Either leave the island, start a business or consider desperate acts of crime.

Use less imports and use more domestic products, to reduce the cost on residents and have more money in the local economy. Then maybe by attrition the government should start downsizing, beginning with the elected officials.

Are there term limits in PR?

The payroll is unsustainable. It has to be cut, mathematically-speaking.

NomadLawyer wrote:

The payroll is unsustainable. It has to be cut, mathematically-speaking.

You are correct, but it will be political suicide. I don't think neither party will want to take that chance. One of the reasons (and there are plenty) the current administration is so reluctance to layoffs. Even with the tax increase the governor still have a chance in the elections if he don't start laying off people.

Although I am in no way comfortable discussing economics, and don't have a good understanding of how it all works, I did see this article taken from the opinion page of the "New York Post."  Here is one person's suggestion:

http://nypost.com/2015/08/31/to-save-pu … the-facts/

Hello Nomad Lawyer,

This thread has gone a little cold, but my two pesos.  Yes the make work, gov't employees are mathematically unsustainable.  But when one starts to get down to the crux, notice the "oh no, can't do that!" from the regular folks.  Gobernador Scott Walker in Wisconsin reigned in a little and got death threats to his family.  The richest counties in the USA are around Washington DC.  It is a corrupted system that passes out jobs and entitlements for votes.  The reason the USA can survive under a bigger debt load per person than Puerto Rico is that it prints its own money to buy up the debt that others don't.  And on and on.  Of all the major industrialized nations of the world, I know of none operating on real free market capitalism.  This month's "corrections" are only the start.  It is very difficult to say where we will all end up.  The average thinking American in the continental US thinks warmly of PR as part of us.  The incredibly restrictive Jones Act is a moral travesty to PR.  But the truth is the US is further in debt than Puerto Rico.  And the sovereign debt of the industrialized world, financed by their central bank systems, is about to come home to roost.  I'm guessing you're aware China, its markets in near free fall, have just started selling off their 2 & 1/2 trillion $ in US treasury debt.   Given where this situation is in playing out, a discussion of economics for near term future expats considering living in Puerto Rico MUST realistically think about this reality.  I wish to move to PR, and am trying to face a "what to do?" scenario thought process myself.  I'm hoping I might find my later years more fun in Puerto Rico than in my native, but even more desperately underfunded California.  I know not a pretty subject, but I will leave this thought: "Reality is always your friend.  Because everything else is a fantasy."  Here's to the possibility of living reality in a fantastic part of the world. 

http://www.nytimes.com/2015/12/20/us/po … .html?_r=0

Trying to stay on top of the issue, Worried about basics collapsing in the small town areas I am looking at after I get there.

I ran across this NY Times article yesterday. It's lengthy but well researched, insightful and I learned a lot more then my previous understanding (misunderstanding) of the complexity. Lot's of quotes from "those in the know"  about the dynamics of the current behind the scenes battle.

Marco Rubio sure takes a hit. I kind of liked him. But this article dampered that.

Interesting article, thank you for posting this.  It doesn't look good for Marco Rubio.

My belief is that Puerto Rico's governmental/fiscal woes are a smaller example of the larger.  It comes into focus precisely because of the limitation of not being able to declare bankruptcy, whereas Stockton, CA, Detroit, etc. can.  The NY Times story waxes on describing how the bonds were sold, making the buyers into a quasi villain before using the "bankruptcy" word well into the story.  Remember that the buyers of the bonds did so BECAUSE it was illegal for PR to use bankruptcy protection.  A bankruptcy indeed doesn't cost the American taxpayer a government funded bailout.  BUT, it is a wealth transfer bailout just the same.  Just that it's funded by the subset of taxpayers that bought PR municipal bonds.  What the NY Times doesn't present as well is that the government is corrupt with cronyism in both parties, the power company and other entities passing out unfunded freebies to the citizens.  Then they used long-term debt to finance inevitable operating budget shortfalls.  (The omnibus 1.1 Trillion $ spending bill just passed in the U.S. Congress is no different.)  Here the quote from Margaret Thatcher applies, "The trouble with socialists is they run out of other peoples money."
     Much more could be said of the political giveaway mentality.  The fact is Puerto Rico is a victim of the addictive drug being too easy to get.  PR is headed for even more difficult economic times.  But then the U.S. is not far behind.  As is Spain, Portugal, Italy, Greece, etc.  China, Russia, and all other profligate central bank nations with fiat currencies.  The U.S. of A. is a resilient country with a heritage as an exceptional representative republic in the world's history.  How it faces this coming crisis, and how it plays out with other emerging (Brazil, Venezuela, etc.) and industrial nations is impossible to predict.  It is highly likely that Puerto Rico's woes are not destined to be high on anyone's priority list in 2016.  (Marco Rubio is no saint, but there's plenty of blame to go around.)
     I think best to look at say the Dominican Republic for some insight.  70%+ of their GDP is based off tourism.  Meaning the money originates from off the island.  And much of the money goes to Punta Cana just 100 miles away because the tourist (Russia, Ukraine, Serbs, us, etc.) are shielded from U.S. scrutiny.  How much vacation money will Americans and Canadians have to spend in PR during 2016/2017 and on?  I think maybe at least overall not as much as now.  One best have a clear head, a thought out plan, and a sense of adventure if one is to try and make Puerto Rico work in the near future.  That said, number me among the adventurers for this beautiful place in the world that happens to be part of the USA. 

Thatcher would pop a good one now and then.

The NY Times article I cited and all of y'all's comments convince me that there is no way Congress is going to restructure or forgive the debt.

If they do, I guarantee you the US S Ct will get it, probably in 12-14 months if there is enough of an outcry and somehow get the trial court to certify it as constitutional issue that .....whatever.  Then skip kip the Appellate Court. If the Supremes want it, they'll take it. If not, the restructure/forgive law is upheld, and there will be a lot of hedge fund guys and private people who know what it is going to cost their portfolio. Transfer of wealth "ex post facto".

How an island with the population similar to Chicago get so deep in debt with impunity.  They are only behind 2 major states, I'm in one, in deep doo-doo. I read in a reliable journal that the power and water companies kept firing the auditing firms they hired.  And now they can't get an auditing firm.

I've only been following PR economics 6 months but it was the best time to start.

Because their old "economics" will be gone and useless to know about. That's the only way they are going to get "new" money from Congress--giving complete control of all their major public utility stuff to some other entity beside PR. My 2 centavos.

Any guess is a good one. I think the small towns may suffer more, that's what a friend in Greece is tellin me. Makes sense, they concentrate their now limited assets where the large majority reside, Athens. He says barebones services in the boonies.

But maybe a lot different then what you guys who live IN PR are used to? Maybe better?

Thanks for your take on this situation. I have committed to creating a life here and I found a formula the has been working for me and I will share it not with the intention of duplication because lifestyles are not easily duplicated but by taking advantage of the resources available and working with that. My attraction to this Island was its natural beauty in mountain, beaches and mountain rivers. I found the people more likable than a lot of other Latin countries. My first investment was in a very affordable Spanish Colonial home in Ponce. Museums, coffee shops, food markets, etc. are all available within an easy walk from the house. I now have one room available to guests. This covers the operating cost of the house including  mortgage, electric, water and some profit along the way. Next I purchased a farm 12 minutes away and 1200 ft above sea level with Caribbean views. Here I grow organic fruits and vegetables for home use. I am in the process of constructing simple off the grid cottages with harvesting your own fruits and vegetables. i do have an online business that sells my products that I make here and sell directly to clients on he mainland cutting out a middleman of 30 to 50% cost. I use flat rate priority mail at a great savings as my products have accumulated weight. My market is directed to young professionals who are the yoga, vegan, organic types. Along the way we are making great friends and starting a sort of community with similar interests. I find opportunities abound here and the investment is a fraction of what I would pay on the mainland if I could find anything remotely close to this combination of factors.

Non-charter commercial flights (and tourism) from the U.S. will be ramping up rapidly to Cuba.  As the new guy, Cuba will enjoy tremendous inflow of USD from pent-up demand.  People I've talked to in PR tourism are quite sure Cuba tourism will negatively (and materially) affect PR -  an industry probably sustaining the country as it is.

Wow, thanks. Really good for guys in my situation. Those of us still on the runway. queued up, but still on the tarmac.

Would you mind telling us how the drought affected you this summer in Ponce and at the finca elevation? The drought monitor had your finca in pretty good shape through out the worst. As well as how it is now now because it currently has Ponce as Moderate Drought  and looks like your farm level at Abnormally Dry.

Maybe I should have asked you this in a current thread about the drought, but the opportunity struck here to at least invite a response in the current more relevant thread. The square hole thing.

So if it isn't too much trouble can you add your two cents if you would in that thread. It has recently been added to by me and by several others who unlike me have current actual info. The thread will be easy to find. It will give us a better indicator of the accuracy of the US Dept of Ag's Drought monitor.

Thanks

I will go to the drought post

Dom Rep afraid exactly same.

And how an island size of Chicago so deep in debt. Oh that's easy to answer.  Ask Chicago.  (Couldn't resist.  They're the next Detroit.)

OK Carlos aka Karl the Knife, I owe you one, jjjjj. Dan

You aren't Sicilian are you?  With a cousin Vinnie that might hurt me?

Tourist are and have been going to Cuba, Most of my guest are from Europe, some Americans, Mexicans, Chinese, etc. Cuba will need to build their infrastructure   Puerto Rico is easy to travel to with a US infrastructure. I think the only problem is that it is a bit on the costly side for what you get. Food choice is limited. No mass transportation for less heeled travelers. Hotel rooms can be a bit pricey to for what you get. I kind of offer what cannot be gotten elsewhere. On another note...a Chinese group have bought some nice sized buildings in the Historic district. I heard something about a language school. My friend thinks it has to do with the Port and they bought to old Fox Delicias building that has been a variety of things from a shopping mall to a Hotel. They are making a presence here in the Historic district. I see a lot of mom and pop businesses gone in the last few years but they have been replace with cafes, Bars and restaurants. in a time of crisis the centro Historico is doing better than it has in over 20 years. Go figure. Hey I recognized a diamond in the rough and I am reaping some benefits.

http://www.caribbeanbusinesspr.com/news … 27147.html

A tete- a-tete reported today between the head of the FBI SJ Office and Gov. Gone Padilla.

In my neck of the woods, when the feds start with that kind of noise, a lot of guys start not sleeping so good at night.

All part of the sovereign debt crisis but my question is where were the Fed's where when the sordid stuff was being openly discussed in the media and from what I can tell for a long, long time already.

Well, Florida, New York, & Texas were tops for prosecuted corruption according to the article.  Doesn't measure per capita.  And this Leff guy is new.  Lotsa feds made big names being federal prosecutors in New York.  Guys like Spitzer & Guliani.  Mr Leff began his career in the New York field office and specialized in organized crime, money laundering and the like.  Investment laws/tax haven kinda stuff to draw big U.S. players to Puerto Rico?  Then there is that the 80 miles between the Dom Rep and PR are the most heavily monitored water by the U.S. Coast Guard anywhere.  Kids from the communists that just lost power in Venezuela are recently in jail in New York for cocaine on the plane in Port-Au-Prince.  Big drug bust at one of their homes near La Romana, DR just a few miles from where I vacationed twice.  I guess if I'm gonna file for capital gains tax advantages or register a series LLC I'd better be extra careful.  Might have to look you up or Nomad Lawyer, DGD Law.  Or, maybe Vinnie if I get messed up on a RICO charge.
     Definitely a good reason to try a smaller town and not San Juan.  One doesn't want one's name popping up anywhere in a federal report.  Life is hard enough.
     Seriously, it always seems they come in way after the the fact like it's a good place to get notches on the gun barrel.  If he's trying to stop the drug trade, okay.  Hopefully the Puerto Ricans working desperately to find some way to make businesses work and preserve their culture to some degree won't get strong-armed by the feds.  It's not like they don't have enough to look after on the mainland.  If the FBI were to give the police some extra teeth against the well-armed small time gangs around the capital, that would be an excellent start on being useful.  One can hope.  Guess I'm reminded of one of Reagan's quotes on a most feared thing to hear, "We're here from the government and we're here to help."

Reagan would pop a good one now and then, also.

Here's my two cents on how one of the ways the financial sovereignty crisis is beginning to evolve

The new SJuan FBI head who was appt Dec 15, sure came out swinging quick with a shot across the bow 7 days later when he said more corruption in SJ then his last assignment, NYC.   Oooohhhh, pretty strong lingo. And he's one of their top doggies.

The unusual thing about Doug Lett is that although he was/is/was/is an FBI agent, he almost immediately began to get assigned more as an Asst US Attorney/prosecutor and not as Investigator as the bulk of FBI guys are.

In years gone by, you had to be an attorney or CPA to get in the FBI door. Long gone. Now the way in is if you speak a language of a country where we feel heat. Swahili? College Degree? Hired, go direct to Quantico, VA Training Division tomorrow morning.

But this new Head of Section is a throwback in that he came in as an attorney, and is unique in the way he has matriculated thru, in and out, and back into the FBI but almost always serving as a litigator, not investigator, as the norm. And always in jurisdictions or positions where they put the cream of their crop. Now he's back as investigator, I guess. But they ain't sending one of their top 2  financial crime dogs to PR as The Boss so he can snoop around bullshit stuff.

Nope. this is going to be almost all FBI financial and political stuff with less emphasis on what has been looked at unless they have to do so which they will at times, my prediction. My prediction is also this is going to turn PR into a Ponzi version of a criminal prosecution, one flipper after flipper. With wide nets.  High end Fed white collar defense lawyers are in for a huge improvement in their lives.

You guys who have been there awhile--has the female US Attorney, forget her name, but she's been the US Atty for an unusually long time for any US attorney in any jurisdiction--has she ever prosecuted a public corruption case other then lower rung scams. I read her press release of what her office has done the last two months. They work hard: nailed a judge fixing a vehicular homicide; a SJ cop for trying to smuggle a Domincana in; a Rico prosecution of 50 drug and murderer gang bangers in the hood; some bank fraud check kiting stuff; and a bunch of other good jobs--they work there, but. 

She very well may not have had the advantage of a strong FBI office to bring her good cases. That ended Dec 15 with Doug Lett's appointment.

PS: I may sound pro-FBI, I am not. Mixed bag like any BIG local state or federal agency, a lot of great people, a lot of complete dogs, a lot of them think they are the "real police" which they ain't. Rank and file big city cops laugh at them--bully them--when they walk into a street scene, insult them to their faces. (Unless they are taking the copper for a perp walk,jjjj)

And many perjure themselves regularly. For example, it is a fed crime to lie to an FBI agent. They are supposed to take notes of any field interview. They make a few notations that leave the interpretation of what was said wide open. Then they come into court and before the jury and tie up all the loose ends of the prosecution's case by saying the interviewee told me that. "Really where do your interview notes say that"? Sad, but regularly occurring. In fact, one of the counts Blagojevich was convicted on involved that very scenario. That was their only proof.

Juries believe cops, FBI, IRS, DEA agents, authority figures. hard to persuade many jurors that they are not always what the jurors think they are. That's why the prosecutors, state or federal, will use all of their challenges in jury selection to get rid of blacks. They have to show a neutral reason, but that's easy to do.

PR is in for a 5 year (the statute of limitations on most financial crime) wild ride. Which means they can go back five years from today and probably find a way to extend the S/L further back based on continuing events.

My 2 cents on how one of the ways the financial sovereignty crisis is beginning to evolve.

I

Wow.  Sounds like big time wild ride coming up.  I wouldn't think they're sending Mr. Lett unless they mean business.  Sleepy to top dog from headquarters.  Sounds like a pre-emptive clean house before case gets started to SCOTUS.  If that's true, and it probably is, gotta wonder who is pulling the strings.  Tiny little me?  Something to watch, stay out of the way, but be aware of collateral effects.
     For real, thank you so much for the heads up.

     Add'l:  BTW The current FBI head, Comey(?) seems like a stand up guy.  I wouldn't think he'd send Lett/spend a resource like that without a specific plan.  But then I've been naive before.

Here's the FBI press release re Douglas A. Leff's appointment. Read like his resume, so judge for your self if he's been sent out to pasture to finish out his career in PR. My guess at looking at what years he was where, he is in his mid 50's.


I give him 6 months to get his guys that he wants in PR and he'll get most of who he wants, and then grand jury subpoenas will be floating around SJ like confetti at the Super-Bowl victory parade.

https://www.fbi.gov/news/pressrel/press … n-division

I sure hope that this new FBI guy will investigate corruption and get corrupt politicians in court.

What you don't hear or read a lot concerning the debt crisis is how did it get so far, how could the guys in power get away with keeping on borrowing money that they should have known PR could never pay back?
A lot of money must have landed in the wrong place to keep that idiocy going...

You may be right Gary, but I think this whole thing happend because of votes. Yes there was some stealing and preferential contracts in the mix, but I think it was about votes mostly.
You give to the people parcels, keep property taxes down, throw fun parties, and the people will vote for you. Never mind that they had to borrow the money to pay for those favors.
This end up getting them the votes but it screwed future generations for many years to come.
I could be wrong, but people have had the gime-me decease for a long time, welfare, food stamps, free stuff, have changed proud hardworking people in the worst ways and politicians want their vote, so happily give more than they can afford.

Add to that giving people free medical, while the US shorts the medicare funds and we got royally screwed.

Hola Rey,

     Si, you are quite correct in my view.  Votes, power, gov't control.  No diff on the mainland.  Pile up the unfunded liabilities, fat gov't pensions, sec 8 housing, etc.  Stockton, CA & Detroit, etc can go bankrupt.  It is like a drug addiction and ends up destroying the communities supposed to help.
     Maybe I can help a little in my small way when I get there.

Carlos when in RD wrote:

Hola Rey,

     Si, you are quite correct in my view.  Votes, power, gov't control.  No diff on the mainland.  Pile up the unfunded liabilities, fat gov't pensions, sec 8 housing, etc.  Stockton, CA & Detroit, etc can go bankrupt.  It is like a drug addiction and ends up destroying the communities supposed to help.
     Maybe I can help a little in my small way when I get there.

How you planning on helping?