Russia? What about US interference in Puerto Rico elections?

Highlights

  • There is broadening concern in the US as more evidence on interference of Russia in the November 8, 2016 presidential elections is revealed.
  • On the same day, elections for Governor were held in Puerto Rico. One of the candidates, Dr. Ricardo Rossello of the pro-statehood party (PNP) run on the platform that all outstanding debts (>$70,000,000,000) could be paid off.
  • Just months before the elections, the local federal prosecutor started a highly publicized and televised process against Anaudi Hernandez, a well-connected fundraiser for the sitting party (PPD), as a guilty witness in a pay-for-play scheme with various high-ranking politicians, leading to several convictions. (http://www.elnuevodia.com/noticias/tribunales/nota/juradoencuentraculpablealosamigosdeanaudi-2248826/)
  • The recently appointed Federal Control Board that currently controls all financial matters in Puerto Rico, has several members associated with a previous PNP government, one member even in the role as Chairman of the Board of the Puerto Rican Government Development Bank, and directly  involved in accumulating debts leading to the crisis (https://en.wikipedia.org/wiki/Carlos_M._Garc%C3%ADa).
  • High financial stakes from Wall Street contributors want to avoid at all costs that the debt will be audited in order to determine whether the debts aree legal or not (http://www.caribbeannewsnow.com/topstory-Commentary%3A-The-%2470-billion-Puerto-Rico-bond-fraud-34032.html).
  • Bond emissions above 15% of the average annual revenue of the preceding two years (maximum per PR constitution) could well become worthless. Other banking schemes in which generous banking fees were paid could as well found to be illegal. Notably, two of the members of the Federal Control Board, were high-ranking executives at Banco Santander, involved in several high-value transactions (http://periodismoinvestigativo.com/2016/12/bajo-la-lupa-dos-integrantes-de-la-junta-de-control-fiscal-por-su-pasado-en-banco-santander/).
  • Rosello won the elections with 42% of the vote (less than Trump in the US), after a controlled media-campaign, among others with the main newspaper El Nuevo Dia that also strongly favored the Federal Control Board (they still call it the “supervision” board), likely because of significant financial interests of its owners, the Ferre-Rangel group.
  • Rossello was favored by the bondholders and currently works in unison with all orders from the Federal Control Board to implement a severe austerity plan.

Comments:

While the US media, and the not Trump-related politicians are dignified by likely interference of Russia in the presidential elections, the interference of the US in Puerto Rican elections is ignored. Surely the decision to have public hearings of the pay-for-play scandal within the PDP party exploding right before the elections has damaged their candidate, that lost by ~2%. The plea-deal for testimony with the main culprit, and the timing of the trial can be considered suspect. It is not unlikely that just before the upcoming status plebiscite in June 2017, further suspects, among whom the previous PPD President of the House of Representatives Jaime Perello, will be prosecuted to again divert the media attention.

The interests of Wall Street are to take out us much of their investments as possible, even those taken on as high-risk junk bonds. In addition, some vulture funds have bought existing bonds for pennies to the dollar, while expecting full returns. Through their access (read: campaign donations) to the US congress  they convinced even deficit hawk its Speaker of the House Paul Ryan, to implement the Federal Government Board in Puerto Rico to grab as much as possible from the bankrupt Puerto Rican Government. Although the legality of at least 30% of these loans is highly doubtful, Rosello, likely after directions by the Federal Control Board, dismissed a Committee that was established to audit the debts. However, just today, in a legal court procedure this Committee  was ordered to be reconstituted (http://www.elnuevodia.com/noticias/tribunales/nota/restituyenamiembrosdelacomisioncreadaparaauditarladeuda-2308478/).

Conclusion:

The interference of the US in the Puerto Rico elections was clearly directed to benefit Governor Rossello as a willing accomplish of the Federal Control Board to serve the Wall Street interests.

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Private Universities need students: Cut the UPR

Highlights:

Comments:

As a consequence of migration out of Puerto Rico, combined with reduced birthrates, the pool of applicants to apply for university education continues to decline rapidly. This is especially noticed in the private universities. At least three Puerto Rico Governors have direct interests to prioritize private universities over the public University of Puerto Rico. The political investments of the Ana G. Mendez system now seem to be paying off. Drastic cuts in public funding (see previous post: cuts of $450,000,000 out of $834,000,000 in government subsidies) are designed to eliminate competitive programs, and possibly up to eight of the eleven campuses of the UPR system. The pay-for-play scheme significantly reduces opportunities for students to attend the public system, and they will have no other choice but to attend the private universities. Since most students receive support via Pell-grants, the private institutions claim these Federal Aid funds directly as tuition in order to fill their bank account.

CONCLUSION:

The UPR system needs to be cut drastically, in order to have a sufficient amount of students available to maintain the private institutions.

Rum Rebates to the UPR?

Highlights

  • The un-elected Fiscal Control Board, together with Puerto Rico Governor Ricardo Rossello decided to cut $450,000,000 from the annual commonwealth formula appropriation of $834,000,000 to the University of Puerto Rico (UPR) (http://newsismybusiness.com/moodys-difficult-absorb/)
  • In 2016 Puerto Rico received a tax rebate of $414,000,000 for the sale of locally produced rum in the US.
  • On threats that they might leave, in 2011 a law was signed that increased from 10% to 46% the amount that could be directly reimbursed to the rum producers. (http://sincomillas.com/generosidad-sin-limites-de-la-isla-del-encanto-hacia-las-empresas-de-ron/)
  • Reversing this law could provide more than $200,000,000 per year to the Puerto Rico government, which could be directed towards reduction of the proposed budget cuts to the UPR.

Comments:

The benefits to the Puerto Rican population of providing hundreds of millions of dollars annually to the rum producers are highly questionable. The benefits of this law seem not to be in proportion to its costs. The law should immediately be revised locally in Puerto Rico to significantly decrease giveaways to the rum producers. The “Captain Morgan” brand moved its production to the US Virgin Islands due to their offer to provide similarly high cashbacks before the 2011 Puerto Rico law was in effect. An agreement with the USVI to reduce these cashbacks will provide a windfall for both governments. Alternatively, a Federal law could limit payments to the rum producers to around 10% as they were before.

CONCLUSION:

The Puerto Rico government subsidizes the local Rum producers to an excessive amount. $100,000,000’s could be saved and destined to areas of need such as the avoidance of major budget cuts to the UPR to avoid its demise.

Coincidence???

Highlights:

Comment:

As explained in the linked article by CNE, a lending agency could provide $200 in cash to a citizen in order to pay an emergency bill, while asking for a signed personal check of $230. The check then will be cashed on the day that salary is credited to the account of the citizen. If the period between these transactions is 14 days, the Annual Percentage Rate (APR) would be 391%.

The legislature of Puerto Rico is now considering a project to allow these type of payday loans.  CFG (CommoLoCo in Puerto Rico), of which Carlos Garcia is Chair, looks interested to introduce these type of loans in Puerto Rico. Coincidence???

Conclusion: Increasing the number of poor, desperate people in Puerto Rico will increase the customer base of CFG, their potential profits, and personally benefit Carlos Garcia. Is this one of the purposes of the austerity measures of the Fiscal Control Board???

Purpose of the Blog

The purpose of his blog is to utilize publicly available information to comment on the current economic crisis in Puerto Rico.

The Caribbean island of Puerto Rico is in a deep economic crisis due to excessive debts – more than $70,000,000,00 in municipal bonds, utilities and other public agency debts, and another ~$40,000,000,000 in Government Pension responsibilities. Contributing to the debt were so-called Municipal bonds, which were especially attractive for investors due to a U.S. law that provided triple tax exemption for Puerto Rico bonds (no federal, state or local tax). Access of the local government to easy money, stimulated by banks that profited from transaction and underwriting fees, provided a perverse incentive to take out even more loans to finance the increasing annual government budget deficits. These loans were supported by favorable ratings of the major credit rating agencies (S&P, Moody’s and Fitch) until July 2014 (http://sincomillas.com/moodys-degrada-la-deuda-de-puerto-rico-2/), when the ratings were drastically lowered, and finally ended up in “junk” territory. During the preceding years, similar to a Ponzi scheme (https://en.wikipedia.org/wiki/Ponzi_scheme), new loans at increasingly higher discount and interest rates were taken on by the Puerto Rico government to refinance payments of existing loans, finance daily operations, and support government contracts for projects with dubious benefits to society, but sure to provide a windfall for contractors.

Continuously taking out new loans to pay existing ones could be compared with taking on a credit card loan at a 20% interest to pay for a mortgage loan at 5% interest, and, as a consequence of higher monthly payments not be able to save money to fix your leaking roof. As eventually all Ponzi schemes are bound to come to an end, last year the then governor of Puerto Rico (Alejandro Garcia Padilla) announced that the outstanding debts could not be paid, and the first debt payments missed were on May 3, 2016.(http://www.elnuevodia.com/noticias/locales/nota/comienzodeunacascadadeimpagos-2194392/).

An un-elected Governing Board has now been appointed by the U.S. government to extract as much as possible from the Puerto Rico population to pay for the debts of the bondholders via a federal law cynically called PROMESA (promise). In collaboration with the newly elected government led by Ricky Rossello, extreme austerity measurements are now being implemented which will affect pensioners, the public University, and the public health system, among others. New legislation already has taken away rights of workers in the private sector, and a recent law proposal will allow for further exploitation of those in the greatest financial needs via the extraordinary abusive payday loans (http://grupocne.org/2017/03/24/endeudando-al-de-aqui-los-prestamos-por-deposito-diferido-en-puerto-rico/). Wholesale of government owned island properties and institutions via so-called Public Private Alliances is proposed by the Rossello government. Previously, similar transactions in the Fortuno government (2008-2012) have been extremely opaque, provided unknown benefits to the public, but a windfall to the dealmakers (politicians and their “investors”) involved.

Meanwhile, the population of Puerto Rico is in steady decline, with a 6.8% loss of population from 2010-2015 alone (http://www.pewresearch.org/fact-tank/2016/03/24/historic-population-losses-continue-across-puerto-rico/). The United States Census Bureau estimates declines from 3.72 millions in 2010 to 3.41 million in 2016 (https://factfinder.census.gov/faces/nav/jsf/pages/community_facts.xhtml) with many educated and productive youngsters feeling forced to leave to the “mainland” for lack of fulfilling employment opportunities in the island.

The Fiscal Control Board that currently administers the colony of Puerto Rico has effectively recruited the main newspapers on the island (El Nuevo Dia, combined with their sister papers Primera Hora and Indice)  to manipulate public opinion. Other news sources are also owned by specific interest groups.

This blog will attempt to analyze news information related to the fiscal situation from multiple sources via active links (no warranty is provided that the sources will remain active) and non-objective comments on these articles.