The Governor of Puerto Rico recently announced a $16 Billion gap over the next 5 years (up from $14B previously forecasted). Furthermore, the gap has been extended from 5 to 10 years. The committee assembled to balance the budget and draft an economic recovery plan (in collaboration with the General Obligation committees) have not been able to accurately realize the true nature of the economic disaster since its inception. Any plan or budget will be futile as the Island only faces an uphill battle with an exodus of the working class and shrinking tax base. These are mere gestures to try to please bondholders (2 have recently filed suit against the Island).
In the last weeks of 2015, Democratic members of Congress tried to persuade members to include bankruptcy protection for the island in a year end spending bill. Speaker Paul Ryan has called for a "responsible" solution by March of 2016. The language was not included and the bill barely passed due to Democratic (and some rebel Republican) pushback.
The Island is using clawback measures to desperately try to meet obligations. Instead of income tax returns, the Island is issuing IOUs. Residents can use tax return credits to pay other municipal fines, fees, and bills. For example, a resident won't get a tax return but they can pay a parking or speeding ticket with funds they should have received.
So the questions remains, who is responsible? Well, everyone is responsible. The banks are responsible, the bondholders are responsible, and the Island lawmakers are responsible. In any agreement there are obligations and each party has risk. Bondholders and lawmakers on both sides (US and Puerto Rico) failed to adequately calculate risk. This seems to be more prevalent in recent times. The only difference is that Puerto Rico doesn't have a golden parachute (i.e. bankruptcy protection or the ability to print money). Should they have protection? This writer thinks YES but that is to be determined. How can other municipalities within the US declare bankruptcy and go on about their daily lives.
At the very least the Puerto Rican people are LEAST responsible because they after all didn't have any say in their territory status (yes it was voted on about 70+ years ago but only after the issue was forced onto the Island). Corruption and an inefficient government have plagued the Island for as long as anyone can remember. Taxes, fuel, and energy prices, unemployment, and the shrinking middle class have plagued the island. The pharmaceutical tax incentives of the 1990s and the recent Act 20/20 legislation are good attempts to draw outside investment but they are also not enough to tackle the whole problem.
What we are witnessing now is just a game of back and forth, a dance, an exhibit of smoke and mirrors, awkward and puzzling actions to keep everyone wondering on the edge of their seats. There is no need to be anxious if you are living on the Island. It can only get better. It can't get worse. The US won't let it become a humanitarian crisis. Not on their watch. The money will come. Puerto Rico will be bailed out in one way or another. The likely source is long duration bonds to restructure debt and reduce obligations outstanding. A general restructure of debt will be necessary. Someone will have to take a haircut.
In the last weeks of 2015, Democratic members of Congress tried to persuade members to include bankruptcy protection for the island in a year end spending bill. Speaker Paul Ryan has called for a "responsible" solution by March of 2016. The language was not included and the bill barely passed due to Democratic (and some rebel Republican) pushback.
The Island is using clawback measures to desperately try to meet obligations. Instead of income tax returns, the Island is issuing IOUs. Residents can use tax return credits to pay other municipal fines, fees, and bills. For example, a resident won't get a tax return but they can pay a parking or speeding ticket with funds they should have received.
So the questions remains, who is responsible? Well, everyone is responsible. The banks are responsible, the bondholders are responsible, and the Island lawmakers are responsible. In any agreement there are obligations and each party has risk. Bondholders and lawmakers on both sides (US and Puerto Rico) failed to adequately calculate risk. This seems to be more prevalent in recent times. The only difference is that Puerto Rico doesn't have a golden parachute (i.e. bankruptcy protection or the ability to print money). Should they have protection? This writer thinks YES but that is to be determined. How can other municipalities within the US declare bankruptcy and go on about their daily lives.
At the very least the Puerto Rican people are LEAST responsible because they after all didn't have any say in their territory status (yes it was voted on about 70+ years ago but only after the issue was forced onto the Island). Corruption and an inefficient government have plagued the Island for as long as anyone can remember. Taxes, fuel, and energy prices, unemployment, and the shrinking middle class have plagued the island. The pharmaceutical tax incentives of the 1990s and the recent Act 20/20 legislation are good attempts to draw outside investment but they are also not enough to tackle the whole problem.
What we are witnessing now is just a game of back and forth, a dance, an exhibit of smoke and mirrors, awkward and puzzling actions to keep everyone wondering on the edge of their seats. There is no need to be anxious if you are living on the Island. It can only get better. It can't get worse. The US won't let it become a humanitarian crisis. Not on their watch. The money will come. Puerto Rico will be bailed out in one way or another. The likely source is long duration bonds to restructure debt and reduce obligations outstanding. A general restructure of debt will be necessary. Someone will have to take a haircut.
Islote, PR (near Arecibo) October 2014
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