Tag Archives: Puerto Rico

Puerto Rico debt crisis will impact U.S. investors

Which financial companies hold Puerto Rica debt?
Which financial companies hold Puerto Rico debt?

Pay attention to this article from Investors Business Daily if you have investments.

It says:

With the financial world transfixed by Greece’s debt-driven meltdown, Puerto Rico announces it can’t pay its $73 billion in debt. Once again, we’re learning that welfare statism is no replacement for fiscal responsibility.

Compared to Greece’s $353 billion in debt, Puerto Rico’s $73 billion doesn’t sound so big. On a per capita basis, it’s about a third less.

But appearances deceive. Puerto Rico is in deep, owing actually much more than that amount.

We learned this after a report on Monday, co-authored by former International Monetary Fund No. 2 Anne Krueger, revealed the island’s finances are a shambles.

The devastating analysis noted that some 150 agencies ran up deficits that couldn’t even be accurately counted, so the true indebtedness might be even higher — as much as $100 billion by some estimates.

Now Republicans favor privatizing state-owned organizations because the private sector is more efficient. Democrats want to nationalize private sector services so that they can control access to it and use their monopoly to buy votes.

What does Puerto Rico do?

The government has funneled public money to state-owned enterprises that are supposed to be financially independent. Worse, the report said, many workers no longer even look for jobs, since welfare benefits pay more than actual work.

Now guess whether a Republican or a Democrat is to blame for this. Which party likes to borrow money from future generations in order to buy votes with spending right now?

In short, the government has been horrendously mismanaged.

[…]The problem is, Puerto Rico’s dysfunctional economy means the debts only piled higher, with no way to pay them. Deficits grew, too, since spending was never really cut.

Now, as a commonwealth, it can’t declare bankruptcy. It can default, however. That would be messy, creating a financial crisis in the territory, causing businesses to close and sending thousands fleeing to the U.S. mainland. Yet the Democrat-led government has said that, while it hopes to avoid default, it won’t cut either pensions or spending. So disaster looms.

Wow, just like Greece – they refused to cut pensions, raise retirement ages and cut spending, too. There is some good news – we probably won’t have to bail them out:

A bailout? Even President Obama rules that out. If the White House couldn’t bail out union-run Detroit, it sure couldn’t do it for Puerto Rico.

And, despite Padilla’s denials, politics is very much a part of the equation. Just like Greece and dozens of other financial basket cases, Puerto Rico has become a welfare state run by leftist bureaucrats and politicians that overspends on public pensions without having the money to pay for it all.

It’s a story repeated over and over around the world.

If Puerto Rico defaults, it won’t suffer alone, however. As the New York Times notes, “much of Puerto Rico’s debt is widely held by individual investors on the United States mainland, in mutual funds or other investment accounts, and they may not be aware of it.”

So better check your 401(k). Or your hedge fund. Because virtually all of that $73 billion is held by the U.S.

This is not to time for you to quit your job and go on vacations or focus on fun in any way. There is a world-wide financial crisis brewing. It’s nothing to panic over, but this is serious enough for us all to focus on our careers and savings, and cut our own spending. It’s not just Greece or Puerto Rico either, there are other warning signs from other countries, e.g. – China, Japan, etc.

Look:

Meanwhile, across the globe, we’re headed toward a reckoning on excessive debt, and it won’t be pretty. The welfare state model with big pensions for all and lavish unemployment benefits is dead. We’re watching its death throes now. Only the politicians don’t get it.

Even here, many states have severe debt problems with underfunded public sector obligations, as well as other problems. There’s just this problem with people wanting to depend on government. There are too many people wanting a free ride, and too few people willing to work and raise the next generation of workers.

Mitt Romney’s pandering to Puerto Rico shows that he will say anything to win

From the Weekly Standard.

Excerpt:

CNN has projected that Mitt Romney will win Sunday’s primary in Puerto Rico, and Romney will most likely receive all 20 of Puerto Rico’s delegates. Romney had the support of Puerto Rico’s Republican governor, Luis Fortuño, and was expected to win handily.

But Robert G. de Posada, the former president of the conservative Latino Coalition, has an op-ed at the Daily Caller charging that Romney “sold out his conservative principles” in order to win big in the Caribbean territory. De Posada points out that Congress has often required territories with large non-English speaking populations to agree to use English officially within government and in schools before allowing those territories to achieve statehood. Romney, he says, pandered to pro-statehood sentiments in Puerto Rico while ignoring this precedent as well as his own position back on the mainland:

On Thursday, Romney called a radio station in San Juan (Noti-Uno) for an interview with a local reporter. When asked if he would support requiring that English became the principal language of government as part of a petition for statehood, Romney said no. When asked if he thought the legislature should have English as the principal language, once again Romney said no. He even opposed requiring English in the courts and public schools.

In Louisiana and Alabama, Mitt Romney is for English as the official language of the United States. In 2008, when Romney sought the GOP nomination, he was upfront about his opposition to bilingual education and his support for ending it in Massachusetts. But in Puerto Rico, he is a strong advocate of bilingualism and opposes requiring the state to make English the principal language of the legislature, courts and public schools. This only makes sense in the Romney World of Flip Flops.

But Romney took it a step further. He stated that a simple majority of 50% + 1 was enough for him to aggressively support statehood for Puerto Rico. As Rick Santorum said during his trip to Puerto Rico, “We need a significant majority supporting statehood before it’s considered. Why would we want a state where nearly half of its residents do not want to be part of the Union?”

Santorum should be commended for staying true to his conservative principles even when it was not politically convenient. Santorum could have pandered to the pro-statehood governor of Puerto Rico in order to get the 20 delegates at stake, but instead the former senator spoke the truth and told Puerto Rican voters a reality they needed to hear. Immediately after, Romney’s campaign started attacking Santorum and maliciously twisting his comments, telling voters that the former senator was advocating “English-only” and was against Spanish.

In contrast to what the Romney campaign said, Santorum Puerto Rico would have to stress English in addition to Spanish, before getting statehood.

Excerpt:

Rick Santorum Wednesday became the first Republican presidential hopeful in this election to visit Puerto Rico before the island commonwealth’s Sunday primary, taking a controversial stand on statehood that he was forced to defend this morning after losing a key supporter.

[…]“What I said is English has to be learned as a language and this has to be a country where English is widely spoken and used, yes,” Santorum told reporters, stating that the use of English should be a “condition” if Puerto Rico is to become a state. The island, he said, “needs to be a bilingual country, not just a Spanish speaking country.”

“I think English and Spanish – obviously Spanish is going to be spoken here on the island – but this needs to be a bilingual country, not just a Spanish-speaking country, and right now it is overwhelmingly just Spanish speaking. But it needs to have, in order to fully integrate into American society, English has to be a language that is spoken here also and spoken universally,” Santorum explained.

“I think that would be a condition. I think it’s important. And I think if you talk to most parents, they want their children to learn English. It is essential for children in America to be able to speak English to fully integrate and have full opportunities,” he added. “I don’t think we’re doing any more than, you know, people who come to America on the mainland. We’re not doing them any favors by not teaching them English.

There is a clear contrast between these two men: Mitt Romney is not a good man. He just says what people want to hear in order to win, and then when elected he will govern like a pro-abortion, pro-gay-marriage, tax-and-spend liberal – that’s what he did in Massachusetts.

Environmentalists and protectionists block economic growth in Puerto Rico

Puerto Rico Map
Puerto Rico Map

Here’s a story from Mary Anastasia O’Grady at the Wall Street Journal. She interviewed Puerto Rican Gov. Luis Fortuño and learned about his plan to boost the island’s economic growth.

Excerpt:

If [Luis Fortuño’s] plan to boost the island’s competitiveness by switching electricity generation from oil to natural gas is to succeed, he’s going to need relief from the pernicious 1920 Jones Act. It prohibits any ship not made in the U.S. from carrying cargo between U.S. ports. There are no liquefied-natural-gas (LNG) tankers made in the U.S. Unless Puerto Rico gets a Jones Act exemption, it cannot take advantage of the U.S. natural gas bonanza to make itself more competitive.

The Jones Act is good if you are a union shipbuilder who doesn’t like competition, or a member of Congress who takes political contributions from the maritime lobby. But it’s bad if you are a low-income Puerto Rican who needs a job. And there are plenty of those.

Puerto Ricans are American citizens but they are significantly poorer than the rest of the country. Per capita income on the island in 2010 was roughly $16,300 compared to just over $47,000 for the nation as a whole.

Life on the island is also expensive, in part because of the high price of electricity, 68% of which is produced using imported oil. The governor’s office says that the price of electricity here went up 100% from 2001 to 2011.

[…][B]ringing down high energy costs remains a fundamental challenge, and one that is exacerbated by new costly federal regulations on emissions that would require the installation of scrubbers on oil-fired electricity plants. To meet those regulations affordably, Mr. Fortuño wants to convert the island’s oil-fired plants to cheaper, cleaner natural gas. To that end, he proposes a pipeline from the southern LNG terminal at Punta Guayanilla across the island to San Juan. The U.S. Army Corps of Engineers has assessed the proposal and said it would produce no significant environmental impact.

It sounds like a plan to help the poor and unemployed. There are only two problems. First, the Sierra Club and local environmentalists have ginned up fears about the project and promised to sue to stop construction. Second, the Jones Act is still in the way.

The governor admits that his administration could have done a better job communicating the pipeline plan to Puerto Ricans, but he also points out that “some of the same groups that have opposed the pipeline have also opposed wind-power and solar projects. They are opposing everything, including waste-to-energy” projects which he maintains are less polluting than landfills.

Mr. Fortuño says that he expects Washington to give him a carve-out for LNG tankers, but he doesn’t have it yet. He also says that a large part of the environmentalist push-back is political, suggesting to me that he ought to be more worried than he is. This kind of politics needs to preserve the status quo of the welfare state. And that implies blocking Mr. Fortuño’s development agenda no matter what it means to the poor.

I thought this article was a neat little way to see how groups of people who understand economics try to pull themselves up out of messes, and who stands in their way. It’s something to think about when you think about poverty – what will really work to lift people out of poverty? And what is the real effect of labor unions and environmentalists on economies?