It’s about that time…to believe again Issues NewsMarch 13, 2014 PRBT Editorial: Another day, another Puerto Rico story in the global media full of misleading information. This time, the dubious honor belongs to Time magazine, in a story posted yesterday entitled: “The next financial catastrophe you haven’t heard about yet: Puerto Rico,” and subtitled: “On Tuesday, the island sold $3.5 billion in new debt. But the crisis still poses a danger to everyday U.S. investors.” After laying out the island’s economic challenges, the article concludes, in the very last line: “Solving the economic puzzle will determine whether Puerto Rico will be for the U.S. what Greece was for the European Union.” What? Or as my kids would say in textspeak: WTF! This is utter nonsense. Not to belittle the “economic puzzle” — of course it’s challenging. But…Greece? I think I hear a little Ronald Reagan voice telling Jimmy Carter, in their 1980 presidential debate, “There you go again.” Let’s first put this Greece thing to rest. Puerto Rico’s constitution places bond payments ahead of every other government obligation. Ahead of every other government obligation. Ahead of public schools and the health insurance card and salaries and the police. Greece defaulted, exactly two years ago, to be exact — a default caused by high debt levels and out-of-control government spending, but triggered in the end by a run on the Greek currency and a drain on foreign reserves. In Puerto Rico, by glorious contrast, defaulting is unconstitutional. And we don’t have our own currency to play with. This is a U.S. territory. Our currency is the U.S. dollar. Puerto Rico is not Greece. And this isn’t some banana republic whose leaders can change the constitution at will. Democracy here is as firmly rooted as anywhere on the planet. A change in the constitution is a long and arduous process, and there is absolutely nothing in the works — zero, zilch, nada — to as much as suggest that an amendment to allow for default will EVER happen. So it won’t. Period. But not just because it’s unconstitutional. Even as they downgraded Puerto Rico’s bonds last month, all three rating agencies praised the steps the local government has taken to restore sanity to the island’s fiscal management and anticipated further progress going forward. They also lauded the administration’s economic strategy and the focus on attracting capital and companies from outside the island to spur renewed growth and job creation. The man responsible for that renewed growth, Economic Development & Commerce Secretary Alberto Bacó Bagué, told Puerto Rico Business Today that “we are focused on doing what has to be done to stabilize the fiscal scenario and give a new boost to our economy.” He called the Time piece “incomplete, repetitive, superficial and one-sided.” We couldn’t agree more. There is, to be sure, an intense debate going on within the administration and between the administration and the legislature on how exactly to slash another $800 million or so in government spending to produce a balanced budget and end deficit spending once and for all — the practice that brought us today’s bulged debt levels. All sides are hell bent on pulling this off without yet another tax hike or forced government-employee layoffs. Both would dampen whatever stimulus is being created on the economic development side. So we seem to be headed for the government-obesity diet that has been long overdue, which will put a damper on growth, as well, but rating agencies are the first to agree that it’s the least bad of all available options. And after this week’s stunning $3.5 billion bond issue, there can be no doubt that investors are in full agreement. They spoke loud and clear. In the markets, votes of confidence are delivered with money! The yield obtained by the government and the enthusiasm exhibited by investors, despite the downgrade, has been described by analysts as surprising, unbelievable, unexpected, a sign of Puerto Rico’s resilience, and other such acclaim. The money has bought the government some time, about two years or so, according to most observers. But Time chose to ignore that side of the story, opting instead for a rehash of what led to the crisis. It reads so 2013. Puerto Rico has clearly turned a corner here. Oh, sure, the curve is long and extended. But just like the downgrade sparked talk of gloom and doom barely a few weeks ago, this bond issue and the excitement surrounding it in investment circles, has sparked a different kind of talk altogether. It is now heard — out loud, even — that the government has hit a genuine stride in its handling of this entire matter. That the worst may very well be behind us. That hope is lurking right over that beautiful Caribbean horizon. Voices like those of Cedar Ridge Partners and Richard Larkin, quoted last September 3 in what now turns out to have been a prescient story by Caribbean Business (“Bond analysts still bullish on Puerto Rico”), are suddenly not so lonely anymore. The key going forward, for sure, will be the economy’s performance. No one in or out of the government is under any illusions there. The curve is not only long; it’s fairly uphill. But the good signs are all around us, the bond issue being only one. Consider also the other investors, the ones who put their money in physical projects on the island. The government is succeeding beyond anyone’s expectations in persuading dozens of them to bet on Puerto Rico and invest hundreds of millions of dollars. Nicholas Prouty and John Paulson may be the most celebrated, but there are others moving to Puerto Rico with their spouses and kids and creating some pretty significant opportunities. The tourism season has been amazing. Credit the most brutal U.S. winter in memory, yes, but also a highly effective campaign to draw those visitors here when they could have chosen other Caribbean destinations. The Puerto Rico Industrial Development Co. (PRIDCO) also deserves tremendous credit for finally positioning the island as a serious competitor in the furious global battle among investment sites to draw multinational companies and create jobs. Particularly impressive has been the agency’s refreshing clear-sightedness on advanced manufacturing and the formula that has once again placed Puerto Rico on the map, focused as it is on such emerging, high-tech industries as aerospace, infotech and business process outsourcing, with our longer-running segments — life sciences, medical devices, electronics, agbio, even textiles — showing healthy vital signs. The island really does boast the leading-edge talent and supplier ecosystem that every study highlights as having become the key competitive advantages in landing those companies, more important these days than tax incentives and labor costs. Again, none of this is to say that we are without challenges, nor that the recovery will be swift. Puerto Rico still has not adjusted to the huge job erosion created by the inevitable — and in other respects highly positive — shift from small shops to big-box retail. The struggle with 28-cent (per kilowatt-hour) energy remains a thorny hurdle. Crime and its effect on quality of life continues to provoke a population exodus to the states, and keeps the entry of investors from flood to tsunami. Yes, that is all true. And more, even. But the big story this week, the countershock created by the success of the $3.5 billion bond issue and the forces behind it, is that Puerto Rico is on that curve. We can finally see the light at the end of the tunnel we’ve been in. Things are starting to click; 2014 is now authentically different from 2013 and every year since this mess began in earnest in 2006. We will recover. We will not go bankrupt. And for Christ’s sake, we will not default.
Posted on: Tue, 18 Mar 2014 07:56:22 +0000
Trending Topics
Recently Viewed Topics
© 2015