Caribbean Business - December 24, 2015 by Latin Media House, LLC

THURSDAY, DECEMBER 24, 2015 | VOL. 1 EDITION 8

Prepa on the Verge of Deal With Insurers

Bernier Taking Some Heat for Autonomous Stance

Amended Restructuring Agreement in Works

PDP Factions at Odds Over Status Position

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EB-5 Amendments Unlikely to Affect P.R.

The 12 Days of Christmas in the Mambo Tropics

Program Obtains One-Year Extension

A Special Political Parody

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COVER STORY

pages

25-31

TOP STORY

State Elections Commission Rushes to Prepare New Budget Cost Unclear for 2016 Elections, but $36.6 Million Spent on 2012 Elections

The Year in Review

New electoral realities, such as the use of machines to tally votes, could increase the cost of the electoral process, even though there is an aggressive search to cut spending. The president of the State Elections Commission (CEE by its Spanish initials), Liza García

of the new electoral reality. The CEE has preliminarily mentioned that the entity could consider spending proposals for the coming elections of about $32 million. She said shutting down schools is something being worked on with the Education

Vélez, said that up to now the money assigned to that entity for managing the primaries remains at $1.2 million, even though it should receive $10 million, as agreed to by the Office of Management & Budget (OMB). She added that the CEE is working alongside electoral commissioners to identify needs and adjustments based on the demographic changes

Department in search of alternate voting centers to compensate for sites that have closed. The use of machines for the vote count, she said, requires electric power, which has led the team working on the issue to inspect schools to see what modifications have to be completed to use those installations as voting precincts.

P.R. Economy Stuck in Winterland As 2015 comes to a close, Puerto Rico’s economy is entering its 10th year of negative or flat growth, facing well-known challenges of the past, as well as some new ones. This year was characterized by several key events and issues that negatively affected the island’s economy and undermined any chances for growth—both short- and long-term, according to several economists interviewed by Caribbean Business. Additional credit downgrades into junk territory by the three

major credit-rating agencies in late June essentially closed the Puerto Rico government’s dim chances of accessing the capital markets for borrowing. This, in turn, raised the threat of a government default and shutdown, as the commonwealth is quickly running out of cash—and options. Meanwhile, a massive exodus of Puerto Ricans to the U.S. mainland, estimated at 1,200 people every month, is further shrinking the island’s population and tax base, which further

complicates the government’s tax revenue-raising efforts. The failed attempt at comprehensive tax reform last summer forced the government to approve new taxes, including raising the sales & use tax (IVU by its Spanish acronym) to 11.5% from 7.5%, becoming the highest sales-tax rate in all the U.S. In addition, the government imposed a new 4% business-tobusiness (B2B) tax in July, which is slated to go up to 10.5% on April 1, 2016. BY JOSÉ L. CARMONA pages 16-20

BY ISMAEL TORRES continues on page 4

Thursday, december 24, 2015

Editorial

Contents PicTure oF The Week PaGe 25

Another Milestone in Latin Media

advertising ...........................................................................................................42 advertising calendar............................................................................................42 autos ....................................................................................................................41 banking................................................................................................................12 column.................................................................................................................21 economy ......................................................................................................... 14-15 editorial .................................................................................................................2 energy ..................................................................................................................32 Front Page ...................................................................................................... 16-20 Government ..........................................................................................................33 Latin american affairs .........................................................................................13 Lead stories ................................................................................................... 6, 8-9 Politics .................................................................................................................10 Poll .......................................................................................................................21 Top story.............................................................................................................1, 4

FinanCial Data: stock comment ....................................................................................................15 Winners & Losers..................................................................................................15

spECial FEaturEs: 12 days of Xmas ............................................................................................ 25-31 car review ..................................................................................................... 38-39 Latin media house event ................................................................................ 34-36 caribbeanbusiness.pr

Volume 1, No. 8 • Thursday, December 24, 2015 PO Box 12130, San Juan PR 00914-0130 CARIBBEAN BUSINESS ® (USPS 313150) is published weekly, except the first two weeks of January, by Latin Media House, LLC, 1700 Ave. Fernández Juncos, San Juan, P.R. 00909-2938. Subscription rates: $45 a year + $4.73 state tax +.45 municipality tax = $50.18; $58 for two years + $6.09 state tax +.87 municipality tax = $64.96; $108 a year for foreign + applicable tax and shipping & handling. Customer Service/Subscription telephone: (787)728-8280, toll free 1-844-723-2351. Fax: (787)728-0195. Circulation Department telephone: (787)728-7670. General telephone: (787)728-3000. Fax: (787)268-1626. Periodicals postage paid at San Juan PR 00936-9998. Postmaster: Send address changes to CARIBBEAN BUSINESS, PO Box 12130, San Juan PR 00914-0130, (ISSN 0194-8326). Entire contents: Copyright ©2015 by Latin Media House, LLC

The edition of Caribbean Business that you are reading marks a historic milestone for this publication because it is the first fully digital version of this newspaper, which is taking a hiatus from printing over the holidays, as is standard at many national publications that publish year-end double issues. You will notice a revamped website that is much more agile, thus matching the retooling of our print edition. As is customary, Caribbean Business publishes its Year in Review cover story, but in typical Latin Media House style, we have added a political parody titled the “12 Days of Christmas” just to spice things up. Drafted along the lines of Esquire magazine’s “Dubious Achievement Awards,” this newspaper pulls no punches—we are equal opportunity offenders on that front. “On the first day of Christmas, the Three Kings Gave to me: One Lame Duck in a Palm Tree; On the Second Day of Christmas, the Political Parties Gave to me: two Political Primaries; On the Third Day of Christmas, the Government Gave to me, Three Nasty Clawbacks…” and so on. You surely get the point. Each of the verses serves as the headline to short humor pieces backed by hard facts and statistics. Humor is underpinned by good research because much truth is said in jest. Todo el mundo coge su aguita; You will find all the major players here— Gov. Alejandro García Padilla, Jim Millstein, Steven Rhodes, the dissident five among the populares (not to be confused with the Jackson Five), monoline bond insurers and the Puerto Rico Electric Power Authority (Prepa) with its multiple deadlines and extensions. This is a nasty Christmas Party if we have ever seen one—for adults only. Such is the case with this economy, which is discussed on a more

serious note by some of Puerto Rico’s top economists in our Front-Page cover story. Their take is no surprise—things are looking horrendously dire for Puerto Rico, as a confluence of events has put Puerto Rico’s economic development in a devastating spiral. Igniting economic development in these times has been a near impossible task—overcoming the mass exodus of our young and professional class to the tune of more than 1,200 people leaving every week and a huge drop in net job creation to numbers below the 1 million mark, a low point that has hit the jobs market particularly hard. As this newspaper was being put online, the term sheet that would bring monoline bond insurers into the fold of the Restructuring Support Agreement—essential to the Prepa deal—is hugely important because it is a key step to stave off default. This would be one bit of good news for the García Padilla administration’s debtrestructuring brigades, but it certainly shouldn’t be a sign that Puerto Rico can finally relax, as significant challenges lie ahead in the New Year. As Puerto Rico and the U.S. enter an election year, it would be refreshing to hear someone be specific about a plan to reverse outmigration—to bring back all the talent that has left, return access to the capital markets and create jobs that will lead to sustainable economic development for the island. n

Thursday, december 24, 2015

Top Story State Election Commission continued from cover

Regarding possible substantial amendments to the Electoral Law, which have received comments from the Legislature and some electoral commissioners, she claimed not to have knowledge about any changes to the law. “At the moment, we are working alongside the commissioners on the bill filed in the House of Representatives to give the vote to foreign residents in Puerto Rico,” she said. Before appearing before the Legislative Assembly regarding the legislation, she said the commissioners decided to wait for the analysis from different units regarding the logistical, legal, sustainable and economic points of view. She added that a Advertising Board has already been created and is receiving materials such as advertisements from the parties to be evaluated, because an electoral advertising ban goes into effect from January on, and the board has to evaluate all materials. Regarding the budget issue, she said the entity is preparing to present to the OMB in February, and to have a clearer picture about spending, using the 2012 electoral cycle as a base.

The State Election Commission faces substantial fiscal challenges in 2016

She added that to determine the budget for the general elections depends on the fiscal analysis because, among other concerns, the voting booths in the electoral precincts will be more costly because they would include electronic machines. In addition, the number of voters by precinct hasn’t been

In the 2012 elections, some $36.6 million was allocated, with an average of 325 voters per precinct at some 1,533 units, where about 1.86 million people voted. Electronic voting machine determined yet, although the fact that there are some 6,000 machines available has to be considered. In the 2012 elections, some $36.6 million was allocated, with an average of 325 voters per precinct at some 1,533

units, where about 1.86 million people voted, with an overall participation rate of 78%. The electoral commissioners of the registered parties have expressed their concerns about the CEE’s fiscal situation and the many

commitments the entity has to fulfill for the next electoral cycle, which begins with internal party primaries and culminates with the general elections in November 2016. As the CEE president has said, these electoral events

call for the purchasing, hiring, or contracting, of essential materials and services such as equipment for voting booths, voting machines, computers and the coordination of an educational campaign, which are essential in voter orientation, mainly in the registration of new voters. “I’m concerned that this lack of funds affects the campaigns because it is through them that we bring new voters to the electoral registry and can update the information on those voters already in the electoral registry,” said Roberto Iván Aponte, electoral commissioner for the Puerto Rican Independence Party (PIP). The electoral commissioners for the New Progressive Party (NPP), Jorge Dávila, and the Popular Democratic Party (PDP), Guillermo San Antonio, have expressed their confidence that the commission will be up-to-date to comply with its legal commitments, such as the parties’ internal primaries, presidential primaries and the general elections in November 2016. The use of computers for the general vote count on Election Day is the new element in this process, and all agree they will help with both the expediency in obtaining the results and the accuracy of the results. n

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Thursday, dECEMBEr 24, 2015

Lead

As another ‘drop-dead’ date approaches, new Prepa deal in the works

Prepa Inches Closer to Deal With Monolines Term Sheet Undergoing Changes BY PHILIPE SCHOENE ROURA & LUIS j. VALENTÍN

p.schoene@cb.pr; l.valentin@cb.pr

As of presstime Wednesday, the Puerto Rico Electric Power Authority’s (Prepa) restructuring brigades, led by Chief Restructuring Officer Lisa Donahue, were on the verge of signing a term sheet that would serve as the basis for a new restructuring support agreement (RSA) that finally brings monoline bond insurers—MBIA’s National, Syncora and Assured— into the fold, Caribbean Business sources said. The utility and restructuring advisers AlixPartners, of which Donahue is the managing director, have been living from extension to extension trying to bring monolines onboard an RSA struck in November with its other main creditor constituencies—a group of Prepa bondholders, fuel line lenders and the Government Development Bank (GDB). The financially troubled utility had recently extended several deadlines under this restructuring agreement until Dec. 23, including the drop-dead date to reach a deal with the monolines. “The deal includes surety to guarantee funding of the debt-service reserve fund—that is benefit No. 1. And they are going to have new securitization bonds, also known as mirror bonds.

To protect their cash position, they are creating these mirror bonds. Everything is wrapped in the same deal,” a source with knowledge of the negotiations told Caribbean Business. “The mirror bonds have a very similar structure to the legacy bonds, with the same securitization mechanisms. They will help replace the legacy bonds.” Among the last details that were being ironed out, Prepa and its creditors were discussing how debt payments totaling about $302 million due in January would be made. The latter would most likely include a relending mechanism, as was done back in July when the insurers bought bridge bonds that provided liquidity to the utility and helped it meet a $415 million payment. “[Prepa] would have a binding agreement with the creditor groups that also includes a relending so that Prepa can have its cash position protected and the monolines can minimize their risk. They are going to do a scoop and toss so that the Series 2015A [bonds] can be paid without a problem. Prepa would be paying those $200 million and then the monolines would be doing a relending,” a source told this newspaper. “That scoop and toss will be backed by several insurers who are participating in the deal,” the source added. The

relending mechanism would help Prepa meet its scheduled January payment separate from the deal. This way, the insurers would provide the utility with liquidity while simultaneously reducing their risk. PREPA BILL AwAITS THE NEw YEAR Although Caribbean Business sources had previously said the utility was aiming to finalize several targets by Dec. 29, that timetable stands to be pushed further as the Prepa Revitalization Act—key legislation that would enable the utility’s restructuring agreements with its creditors—still awaits the Puerto Rico Legislature’s approval. While the utility and its creditors were hoping Gov. Alejandro García Padilla would call a special session for the bill before

during the past few weeks that the legislation would be considered when lawmakers reconvene in January. Sources have indicated there is no way an extraordinary session would be called because there are too many lawmakers who have already gone on Christmas break. What’s more, all creditor groups are aware that the discussion and debate to pass the amended Prepa Revitalization Act would likely take place in early 2016. “Securitization needs

Prepa and its creditors were discussing how to make debt payments totaling about $302 million due in January. the end of the year, they will have to wait until the next session begins in January, as La Fortaleza has yet to show signs it will convene a special legislative session for the Prepa measure. Various legislative leaders, including Senate President Eduardo Bhatia, have been hinting

to happen [for the RSA to hold] and the Revitalization Act is essential to that. Without it, we would have to start from scratch with yet another deal. The creditors are giving Prepa room for the measure to make it to the floor, and they realize how messed up things are right now

within the context of Puerto Rico politics. It is a complicated deal,” a source told Caribbean Business last week. At least two separate sources have added there still are significant concerns over legislative support for the Prepa bill, as it has been already heavily amended, something that is causing serious concerns to the utility’s restructuring team as it may hinder any RSA reached with its creditors. Donahue had previously stressed to Caribbean Business the importance of approving—with minor changes—the proposed legislation for the restructuring agreement to hold. Several majority lawmakers, including Bhatia, have previously indicated the bill—if approved—would face significant amendments. TENTATIVE dEAL On Dec. 18, Bloomberg and Wall Street Journal sources said a tentative agreement had been reached with Prepa’s bond insurers, but sources told Caribbean Business that although conversations were in

an advanced stage, a deal had yet to be finalized, as of that day. On Dec. 22, sources added that an agreed upon term sheet with the monolines had been agreed upon by both the Prepa and GDB boards, sources added. However, sides were still finetuning details on the term sheet, prompting the 24-hour extension to the RSA until Dec. 23. Late last week, a published commentary by Florida-based investment firm Cumberland Advisors, shed some light on details of the alleged tentative agreement. “As part of the agreement, Prepa will be selling securitized bonds backed by power surcharges to refinance prior indebtedness. To sweeten the deal for securitized bondholders, the insurers have agreed to provide a $450 million first-loss equity buffer in case revenues fall short, in order to redeem principal and pay interest.” Reports over a potential deal with monolines spurred a market rally for MBIA and Assured Guaranty’s shares, Bloomberg reported Dec. 18. n

Thursday, dECEMBEr 24, 2015

Lead

EB-5 projects in P.R. need not worry about proposed changes to program due late next year

Proposed Changes to EB-5 Program Unlikely to Affect Puerto Rico U.S. Congress Grants One-Year Extension to Investor Program; Local Increase in EB-5 Filings Expected for First Quarter 2016 BY DENNIS COSTA

d.costa@cb.pr

On Dec. 15, as part of the omnibus spending bill, Congress extended the EB-5 program— which essentially grants visas to foreigners in exchange for a sizable investment stateside— without any changes until Sept. 30 of next year. The extension marked a turning point after discussions of the issue in Washington, with lawmakers such as Sen. Chuck Grassley (R-Iowa) eager to reform the EB-5 (Employment-Based, Fifth-Preference Category) program following concerns about national security and fraud allegations. Despite Congress essentially kicking the can down the road regarding the program’s extension, the move has given much-needed stability to projects that depend on EB-5 as a source of capital, said attorney Rogelio Carrasquillo, a partner at New York City-based law firm Fox Rothschild LLP. Moreover, the program’s proposed changes, although due for discussion next year, are nevertheless unlikely to affect EB-5 projects in Puerto Rico, Carrasquillo said. Partly as a result, he expects an increase in EB-5 applications on the island during the first quarter of next year.

The commonwealth has increasingly relied on EB-5 as a source of funding for capitalimprovement projects amid an economically and fiscally turbulent environment. To that end, various EB-5 regional centers have been established on the island to help manage investments and spur development of projects related to the program. There are about 800 EB-5 regional centers nationwide and at least seven in Puerto Rico. One of the local centers, run by the Economic Development & Commerce Department, is among the few public regional centers in the U.S., joining similar ones in Vermont, Michigan and the city of Miami. Several tourism-related projects reportedly being developed in Puerto Rico using EB-5 funding include a Marriott hotel at the Mall of San Juan, a $30 billion redevelopment of the

former Roosevelt Roads Naval Station in Ceiba, a transshipment port in Ponce and construction of Science City, a research & development facility at the former Oso Blanco prison in San Juan’s Río Piedras district. “Now that there’s some stability in the program, and we know the rules of the game in the medium term, we’ll see movement on some projects that the Puerto Rico regional centers were looking at,” Carrasquillo noted. “We’ll see a lot of projects in advanced stages filing for EB-5 soon.” One of the issues that Congress has discussed about EB-5 involves the designation of Target Employment Areas (TEAs). Investing in projects located in TEAs allows foreign nationals to spend less in exchange for a green card, with a minimum investment of $500,000 under the EB-5 program compared to a

minimum of $1 million anywhere else. The U.S. Immigration & Customs Service (USICS), which runs EB5, defines TEA as either a rural or an urban area with an unemployment rate of more than 150% the national average. State governments such as California came up with stricter definitions of TEA in an attempt to close loopholes, and some lawmakers sought to expand the measure nationwide. However, even with more stringent TEA definitions, Carrasquillo said Puerto Rico wouldn’t be affected by the change. “Unfortunately, the island has a very high unemployment rate,” said the EB-5 expert, who recently joined Fox Rothschild after a lengthy stint at Ackerman LLP. Puerto Rico’s unemployment rate hovered at 12.5% in November, per the local Department of Labor. This is more than double the

“Now that there’s some stability in the program, and we know the rules of the game in the medium term, we’ll see movement on some projects.” —Rogelio Carrasquillo, a partner at New York City-based law firm Fox Rothschild LLP

Rogelio Carrasquillo, a partner at law firm Fox Rothschild LLP, who specializes in the EB-5 program.

U.S. national unemployment average, which remains at 5%, according to the U.S. Bureau of Labor Statistics. Another proposed amendment—which would have increased minimal investment in TEAs from $500,000 to $800,000—could have had a more lasting effect on Puerto Rico and other U.S. jurisdictions. “It would have made it more difficult to raise projects,” Carrasquillo explained. “There were also problems in the way the bill was drafted because it didn’t establish any kind of transition for the process; the hike in minimum investment would have taken place overnight.” Each year, the USICS issues 10,000 visas under the EB-5 program, which is a limit that has remained unchanged. “We’ve lobbied to

increase or relax the concept of defining what constitutes an investor under EB-5,” the Fox Rothschild partner explained. “For example, if an investor brings a wife and two children, those are four visas against a 10,000 limit [overall]. Lobbying for that person qualifies as one visa against 10,000, so we can increase the number of investors.” About 85% of the investors taking advantage of EB-5 are Chinese, the attorney said. “Now there’s been a refocus due to immigration issues and the fact that China maximized its quota of visas,” he went on. “There’s now an increase from Latin America, Europe and other areas, and that gives Puerto Rico an advantage partly due to its geographical and cultural proximity to those regions.” n

Thursday, dECEMBEr 24, 2015

Lead

Sovereignty issue leads to major resignation in the PDP

Bernier Makes Official his Candidacy for Governor for the PDP Ticket and Promotes a Sovereignty Agenda By Ismael Torres

During a colorful event at the Caguas municipal plaza on Dec. 20, exSecretary of State David Bernier made official his candidacy for governor for the Popular Democratic Party (PDP) ticket and promised that the issue of the future political relations between Puerto Rico and the U.S. from a soberanista, or sovereignty, approach would be a top priority for his administration. Without going into details about his plan to deal with the thorny issue of Puerto Rico’s political status or the areas in that relationship that he would seek to change, Bernier said he would promote a noncolonial, nonterritorial commonwealth, which would give the island the powers needed to manage the current fiscal and economic crisis. “This crisis has taught us that we have to once again reconsider our relationship with the U.S., looking to establish [a relationship] that is dignified, based on clear elements, and provides Puerto Rico with the necessary powers to find our solutions for this crisis,” Bernier said. “I believe in a noncolonial, nonterritorial commonwealth, with the bond of U.S. citizenship, based on respect and a search

for the needed tools so that together, with unity of purpose, we can solve our problems.” The soberanistas (prosovereignty) in the PDP advocate for developing the commonwealth outside of a federal territorial clause, with a maximum degree of autonomy regarding the federal gov-

power would lie in fundamental issues such as U.S. citizenship as well as Congress’ powers related to Puerto Rico. Hernández Mayoral’s recent resignation signals disgust with the pro-sovereignty position expressed by Bernier. Hernández Mayoral supports the traditional

ex-secretary of state David Bernier

ernment, in areas such as trade and international relations, among others. Meanwhile, the traditionalists within the PDP defend the current commonwealth relationship and call for changes in federal law in areas such as tax benefits and federal aid. Attorney José Alfredo Hernández Mayoral, who until last week held the federal affairs secretariat of the PDP, has questioned the autonomist proposals because they don’t detail important facts such as where

position of the commonwealth status within the current politicaljudicial framework with the U.S. Meanwhile, New Progressive Party (NPP) Sen. Larry Seilhamer said the pro-sovereignty proposal shows that Bernier has a total lack of knowledge about the White House reports on the viable status options for Puerto Rico. “A White House interagency report in 2011 already dismissed an improved commonwealth as an option to solve

the island’s status due to constitutional defects. The report clearly defined the options to solve the status as statehood, free association and independence,” he said. For his part, Puerto Rican Independence Party Executive President Fernando Martín expressed skepticism about Bernier’s declaration and challenged him to take advantage of the next legislative session that begins in January to introduce a bill calling for a Constitutional Assembly on Status. He added that Bernier’s proposal, mixing the Constitutional Assembly issue with a “Statehood yes or no” plebiscite, is a strategy to achieve nothing because the PDP will use the pro-statehood NPP as an excuse if his party doesn’t accept the initiative. “The experience has been that the invitation to the NPP is [for that party] not to accept it, and then nothing will be

done under the excuse that the NPP rejected participating in the process,” Martín said. Defending his political proposal, Bernier said he is convinced the Constitutional Assembly on Status is the adequate mechanism to definitively address the problem of the island’s political status, although he was open to receiving proposals from other parties and sectors within his own party on a possible referendum in which voters would express their status preference. In this sense, he said he is open to receiving the “Statehood yes or no” proposal “if there is space and the will to incorporate important amendments and define the ‘no’ [option].” “If the electoral result would be in favor of annexation, it would have my complete backing and that of my government to obtain an answer from the U.S. in a determined time-

frame,” Bernier said. He added that if the “no” option were to prevail in the referendum, he would call for a Constitutional Assembly on Status to conduct direct negotiations with the U.S. government. The result of those negotiations would be submitted to the people of Puerto Rico for their ratification or rejection, as well as to the U.S. Senate. Bernier didn’t explain the role, if any, of the U.S. president in that government, since today, the Puerto Rico governor is subordinate to the political and administrative figure of the president. Meanwhile, he mentioned the 10 points that will guide his gubernatorial agenda, which include education, security and reforming the government to establish a more agile and efficient structure. He didn’t provide details or explain how he would do this. n

Thursday, dECEMBEr 24, 2015

Politics

Three names bantered around for resident commissioner candidate

PDP Going Through Tough Times By Ismael Torres

The Popular Democratic Party (PDP) is going through some tough times due to the commonwealth government’s fiscal and economic crisis, and the decisions it has made as the governing party, such as raising the sales tax from 7% to 11.5%; implementing a new 4% business-to-business tax; delaying tax refunds to thousands of taxpayers; and possibly not paying the legally mandated

Christmas bonuses to public workers. Certainly, according to most published surveys, Gov. Alejandro García Padilla’s popularity has been registering very low. However, the governor’s decision not to seek re-election to concentrate on dealing with the government’s crisis, should allow the gubernatorial candidate from that party—namely former Secretary of State David Bernier—to refocus his message and

proposals ahead of the 2016 general elections. One of the people who espouse this opinion is Sen. Aníbal José Torres (PDP), who has previously served in positions such as the party’s secretary general, executive director and candidate for mayor for the municipality of Orocovis, his hometown. “After this situation, the gubernatorial candidate will be able to communicate that the PDP is still the option ahead of 2016,” he said.

For the senator, Bernier’s candidacy for La Fortaleza settles an important issue for the PDP, although he did acknowledge that the candidacy for resident commissioner is still an open matter.

sen. Ángel rosa

To date, among the names of possible PDP candidates for the resident commissioner’s office are Sen. Ángel Rosa; ex-representative and ex-PDP president Héctor Ferrer; and Senate President Eduardo Bhatia. “This is interesting because they are beloved figures with the party base,” Torres said. However, he noted that comments by some mayors regarding their preference for one candidate or another seem untimely because the issue should be for a more defined outlook. sen. rosa runnIng for resIdenT commIssIoner Over the weekend, Rosa made his candidacy official for resident

commissioner for the PDP, which makes him the first and only candidate vying for that position with the procommonwealth party. The candidacy, according to the legislator himself, has the support of the majority of the island’s PDP mayors and even committee presidents in municipalities where there isn’t a PDP mayor. “The moment has arrived for Puerto Ricans to unite and make known our ability and honesty to walk toward the future. We can’t move ahead with the leaders of the past and their ideas of the past century,” Rosa said. With this candidacy, the PDP seems to have formed its ticket with Bernier as the candidate for governor and Rosa for the office of resident commissioner. However, it remains to be seen if others will announce their candidacies for the Washington post. Regardless, it seems the PDP is facing some problems with candidacies for district and at-large legislators because the recent announcement by the governor that he wouldn’t seek re-election may have discouraged some candidates who hoped the decision would have been announced sooner. Another issue that has many in the PDP very concerned is the federal investigation regarding government corruption and its effect on legislators, particularly in the House of Representatives. On possible changes to the Electoral Law, with

the primary process in political parties having already started Dec. 1, Torres believes there won’t be fundamental changes to the statute, although he said it was possible there could be an amendment on the way candidates’ committees manage their finances. He explained that the Legislature, during its ordinary session in January, would be working on an amendment to allow candidate committees to carry out electronic transfers of funds, something that currently isn’t legally allowed. “But definitely, the climate isn’t there to make major changes to the Electoral Law,” he said. At the legislative level of the State Elections Commission (CEE by its Spanish initials), there was talk by some officials that the PDP was considering changes to the Electoral Law to allow funds deposited in García Padilla’s committee to be transferred to the new PDP candidate for governor, which the law doesn’t allow. According to official figures from the CEE, it is estimated that García Padilla’s campaign committee has some $1.5 million that it would have to give back to donors, now that the governor won’t seek reelection. In cases where the donor’s name is unknown, the funds would be earmarked for the CEE or the government’s general fund, according to the regulations. —Editor Rosario Fajardo contributed to this story.

Thursday, december 24, 2015

Banking/Finance

Banks have reduced operational costs, but lending still weak

Blanco: 2015 was a Relatively Good Year for P.R. Banks’ Profitability registrations and traffic fines. Those problems have since been fixed and auto finance firms have been able to dispose part of their inventory, which at one point reached 6,000 repossessed units. That number is now 3,300 units,” Blanco commented. “Nevertheless, it’s a high number and a 12% delinquency rate doesn’t bode well.”

2015 with 4,207 foreclosed properties, establishing a new record, the Financial Institutions commissioner warned. “That would be a 16% increase from the 3,680 foreclosures last year,” he added. “What really concerns me is the number of residential properties in the foreclosure process, which could amount to 20,000 units. That number has averaged between 18,000 and 19,000 units throughout the year.” The number is worrisome, Blanco insisted, because instead of going down, it keeps rising, meaning more cases are coming in than those being resolved.

ReCORD NuMBeR Of fOReCLOSuReS Puerto Rico could finish

LOSS MitigAtiON Blanco recognized local banks’ concerted efforts

Levels of Delinquency, Nonperforming Loans Remain High BY JOSÉ L. CARMONA j.carmona@cb.pr

Excluding the closing of Doral Bank and losses experienced by Oriental Bank over two quarters, 2015 was a relatively good year for Puerto Rico financial institutions, noted Rafael Blanco, Puerto Rico Financial Institutions’ commissioner and local bank regulator.

Rafael Blanco, Puerto Rico financial institutions’ commissioner

“Aside from the situation with Doral Bank and Oriental, I believe this year was relatively good in terms of profitability for the remaining banks on the island. It was a year when local banks also improved their delinquent and nonperforming loans portfolios despite still experiencing a depressed economy,” Blanco told Caribbean Business during an exclusive interview. After years of losses and issues with its capital levels, Blanco—acting as local bank regulator— shut down Doral Bank

on Feb. 27, designating the Federal Deposit Insurance Corp. as its receiver. As a result of the higher provisioning for exposure to a nonperforming line of credit given to the Puerto Rico Electric Power Authority, Oriental reported losses in the first and second quarters this year. DeLiNqueNCieS StABLe, But high Blanco said the island’s delinquency level has remained stable for most of the year, but still remains high. In the case of home mortgages, the delinquency rate (those behind on their monthly payments) stands at 14.5% versus 6.2% in the States, he said. “We have two and half times the number of delinquent mortgages than in the mainland [U.S.],” the local bank regulator added. In auto loans, the trend is similar. The delinquency rate for auto loans behind on their payments has hovered between 11.4% and 11.9% throughout the year. While stable, it also remains high, he said. “Repossessions on both mortgages and autos are high. The inventory of repossessed vehicles came down last year, but that’s because there have been many problems with vehicle

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with loss mitigation to reduce the number of properties entering the foreclosure process. While every month more

than 300 properties are foreclosed, another 1,140 are saved through the loss-mitigation process, he pointed out.n

caribbeanbusiness.pr Volume 1, No. 8 Thursday, December 24, 2015 Publisher Miguel A. Ferrer

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Thursday, december 24, 2015

Latin American Affairs

Region has been unable to overcome its historical legacy of rights violations and pillage

Top 2015 News Stories in Latin America U.S.–Cuba Thaw Tops the List By Juan a. Hernández

Latin America is a region that has been historically embattled by dictatorships, corruption, human-rights violations, the stripping of its riches by foreign powers and the wrath of nature, among many other social and political maladies. As 2015 comes to a close, it has become evident that with only a few exceptions, the region hasn’t been able to overcome this terrible historical legacy that has thwarted its development. The list below is organized according to importance and relevance to Puerto Rico, starting with the ripple effects of the U.S.-Cuba thaw on the region. CuBa The governments of Cuba and the U.S. began 2015 with the reopening of their respective embassies in Havana and Washington, D.C., and the warming of diplomatic relations that had been cold for decades. The thawing began in December 2014 when both countries acknowledged they had been holding secret negotiations to that end. Since then, other countries have sought to strengthen and renew their relations with the Caribbean island nation. In May 2015, French President Francois Hollande visited Cuba and a few months later, in

September, Pope Francis traveled to Cuba. Costa riCa The normalizing of the diplomatic relations between the U.S. and Cuba has brought what seems to be an unforeseen migration problem that is affecting other nations

in the region. For the last year, Ecuador has become the springboard used by thousands of Cuban immigrants to begin an overland journey to reach U.S. soil. Anticipating a toughening of U.S. immigration policies toward them, many Cuban nationals have been flying to Ecuador (where no entry visa is required), from where they hire human and drug smugglers to take them across Central America to the Mexican-U.S. border. But as Nicaragua is refusing to allow these migrants through its territory, several thousand Cubans have gathered on the Costa Rican-Nicaraguan border, overcrowding the area and creating a

refugee crisis similar to that of the 1980 Mariel boatlift. Venezuela For the first time since the late Hugo Chávez ascended to the presidency in 1999, the opposition, organized around Mesa de Unidad Democráti-

ca (Democratic Unity Roundtable), won a clear and absolute majority in the National Assembly after December’s parliamentary election. argentina Argentines ended the Nestor and Cristina Kirchner 12-year presidential rule last November with the election of Mauricio Macri as their new president. A successful businessman, Macri’s political views are center-right and he considers himself a “pro-business reformer.” Brazil • President Dilma Rousseff is facing an impeachment process initiated by the Brazilian

Congress on the grounds of financial irregularities reported in her public accounts. The impeachment process comes after the country’s Superior Electoral Court ruled last October there were enough grounds to investigate Rousseff over suspected irregularities in her reelection campaign. • A dam from an iron mining operation in the Brazilian state of Minas Gerais burst in November and the ensuing

flood of wastewater flattened a village and killed at least 11 people. The London-registered mining corporation exploiting the Brazilian mine, BHP Billiton, is now facing fines as high as 3.5 billion British pound Sterling and legal actions from the Brazilian government and people. ColomBia The Colombian government and the Fuerzas Armadas Revolucionarias de Colombia (FARC) rebel group reached an agreement laying out the general ground rules on how the victims of Latin America’s longest civil war will be granted justice and how both the rebels and the government are to be

held accountable for crimes committed. The victims of the Colombian civil war have been estimated at around 6 million, ranging from displaced families to people killed. Colombian President Juan Manuel Santos said negotiations are still underway and admitted the agreement could have been more specific on certain items. Nevertheless, he is satisfied with the outcome of the negotiations. “Never before have the guerillas admitted during a negotiation that there are crimes that can’t be amnestied or pardoned… Our priority now is to vindicate the rights of the victims and put an end to the conflict,” he said. guatemala President Otto Pérez Molina was stripped of his presidential immunity, forced to resign from office and then arrested on charges of fraud and bribery along with vice president Roxana Baldetti. After the October general elections, a former TV comedian with no political experience, Jimmy Morales, became Guatemala’s new president, winning a landslide victory.

CHile An intense earthquake registered at 8.3 magnitude on the Richter scale hit the coast of Chile in September, claiming the lives of 10 people and forcing the evacuation of 1 million Chileans. The ensuing tsunami affected homes and buildings in the town of Tongoy, in the Coquimbo region. The earthquake was the sixth most powerful registered in Chile’s history. mexiCo Mexican drug lord Joaquín “El Chapo” Guzmán, head of the notorious Sinaloa Drug Cartel, escaped from a maximum security prison in July, presumably with the aid of several prison officials. Guzmán, once described by the U.S. Treasury Department as “the world’s most powerful drug trafficker,” and his organization are responsible for as much as half of all the illegal drugs imported into the U.S. from Mexico every year. According to the New York Times, Guzmán may very well be the most-wanted criminal in the post-Bin Laden era. n

THURSDAY, DECEMBER 24, 2015

WINNERS & LOSERS WEEKLY PERFORMANCE OF PUERTO RICO STOCKS

Sin Comillas is a Spanish-language digital media website that specializes in business news in such areas as economics, banking, planning and tourism. Sin Comillas was founded in 2010 by economist and journalist Luisa García Pelatti.

WINNERS FOR THE WEEK 52-wk

52-wk

PRICE

STOCK

SYMBOL

LOW

HIGH

12/4

12/11

CHANGE

OFG Bancorp

OFG

6.30

17.83

6.80

7.18

0.38

Triple-S Management Corp.

GTS

17.34

27.07

23.72

23.96

0.24

Evertec Inc.

EVTC

14.93

23.12

16.65

16.86

0.21

First BanCorp

FBP

3.01

6.76

3.17

3.20

0.03

Federal Reserve Raises Interest Rates

LOSERS FOR THE WEEK 52-wk

52-wk

PRICE

STOCK

SYMBOL

LOW

HIGH

12/4

12/11

CHANGE

Popular Inc.

BPOP

26.60

35.83

27.75

27.46

-0.29

Weekly Comment on Puerto Rico Stocks Investors’ concerns about the continuing drop in oil prices and how the world reacted to the Federal Reserve’s first interestrate hike since 2006 sent stocks down for the day last Friday, and for the week. Volatility was back in full swing as stocks and index options expired Friday under heavy trading. As a result, the Dow Jones Industrial Average and the Standard & Poor’s (S&P) 500 Index had their worst two-day performance since September. Last week’s trading was heavily influenced by the Federal Reserve’s Dec. 16 decision to raise interest rates 25 basis points—the first hike in nearly a decade. A global oil glut amid a slowdown in demand kept Wall Street anxious as well. U.S. oil futures settled last Friday at $34.73 a barrel, down 0.6% for the day and down 2.5% for the week. The S&P Financials Index fell 2.5% last Friday, becoming the day’s worst-performing S&P sector. Shares of Berkshire Hathaway were down 3.3%, becoming the biggest drag on the S&P financials stock index. For the week, the Dow fell 0.8% to 17,128.55. The S&P 500 lost 0.3% to 2,005.55, while the Nasdaq Composite Index edged down 0.2% to 4,923.08. After falling for two weeks in a row, the Government Development Bank’s Puerto Rico Stock Index (PRSI) managed to close last week in the black, despite the selloff in financial stocks. For the week, the PRSI added 4.72, or 0.28%, to close at 1,720.60. Topping last week’s list of gainers was OFG Bancorp, which gained 38 cents, or 5.59%, to close at $7.18. It was followed by Evertec Inc., which advanced 21 cents, or 1.26%, to close at $16.86. Shares of Triple-S Management Corp. rose 24 cents, or 1.01%, to close at $23.96. First BanCorp inched up 3 cents, or 0.95%, to close at $3.20. Last week’s sole nongainer was Popular Inc., which erased 29 cents, or 1.05%, to close at $27.46. BY JOSÉ L. CARMONA SENIOR REPORTER, BANKING & FINANCE CARIBBEAN BUSINESS

As expected, the Federal Reserve raised interest rates by 0.25%, placing them between 0.25% and 0.5%. This is the first increase since June 2006. With this move, the Federal Reserve shows its confidence in the U.S. economy, which grew more than 2% in the third quarter. Interest rates hadn’t been increased since 2006, when Federal Reserve President Ben Bernanke set the rates at levels close to zero in response to the financial crisis unleashed after the fall of Lehman Brothers. The move had been expected for some time now. Janet Yellen, chairwoman of the Federal Reserve, has been forced to delay plans throughout 2015 as a result of international uncertainties, such as those sparked by Greece in Europe and the slower growth of China’s economy. “Since the meeting of the Federal Open Markets Committee last October, we were expecting the announcement of this increase at any moment. The increase today doesn’t represent a significant impact on the island’s economy, or for clients of our bank members,” said Zoimé Álvarez Rubio, vice president of the Puerto Rico Bankers Association. “This Federal Reserve decision won’t have an impact on the economic reality that Puerto Rico is going through. However, for years, our banks have been preparing to return to a normalized environment with these types of interest rates. Banks, members of the Puerto Rico Bankers Association, will continue to manage the interest-rate risks, while guaranteeing their capability to give and support the communities they serve.” Amid Puerto Rico’s long economic crisis, at least two aspects weren’t complicating the issue: the price of oil and the interest rates that were at low levels, which was positive. Facing this economic crisis is easier when the price of a barrel of oil is under $40 rather than at $80 a barrel. While it is hoped the price of a barrel of oil won’t increase, it is interest rates that are starting to change. The Federal Reserve raises rates because the U.S. economy is growing. A raise in the interest rate promotes saving and discourages credit. Markets such as cars, new housing and mortgage loans, which are very sensitive to interest-rate changes, would be affected. Nevertheless, Puerto Rico’s economy is on the opposite side of the economic equation since it is contracting. A restrictive monetary policy is being imposed on an economy that isn’t growing. There is some comfort, however, that the rate increases could be slow, thus palliating their impact. BY SIN COMILLAS STAFF

T H U R S D AY, D E C E M B E R 2 4 , 2 0 1 5

Cement Sales Decrease 2.5% Puerto Rico’s Crisis Packs the Pockets of Politicians and Lobbyist in the U.S. Cement sales in Puerto Rico decreased to 939 bags in November. This is the lowest amount in more than three decades and reflects a 2.5% decrease when compared with the same month last year.

The government of Puerto Rico expects Congress to include Puerto Rico in Chapter 9 of the U.S. Bankruptcy Code or any measure that addresses the island’s fiscal crisis in its year-end budget, after five hearings were held by congressional committees in 2015, but haven’t produced any clear results. Simultaneously, Democrats and Republicans, who have power to authorize or reject any measure that addresses the island’s fiscal crisis, are getting ready for the 2016 elections, with campaign committees receiving political donations from mutual funds and hedge funds that hold debts from the government of Puerto Rico. In 1984, congressional amendments excluded public corporations and municipalities in Puerto Rico from Chapter 9 of the U.S. Bankruptcy Code. In 2014, after a lawsuit filed by mutual fund companies Oppenheimer Funds and Franklin Templeton against the commonwealth government, the Federal Court in Puerto Rico and the First Circuit Court in Boston declared unconstitutional the Ley de Quiebra Criolla (P.R. Bankruptcy Law) that allowed public corporations to restructure their debt. Las week, the U.S. Supreme Court announced it would review the decision.

Cement sales represent an early indicator of constructionindustry activity. In the first 11 months of the year, sales decreased 8.0%. In 2014, sales decreased 9.8%, which was the second decrease after two years of increases. Cement sales have been affected by the drop in the homeconstruction market and a lack of resources from the government to invest in public works. Prior to the economic crisis, which began in 2006, more than 40 million sacks of cement were sold. Meanwhile, local cement production increased 1.7%, going up to 1,084, 95-pound sacks in November, which was the first increase in 11 months. Between January and November, production has fallen 14%. In 2014, production decreased 1.9%, after two years of increases. BY LUISA GARCÍA PELATTI

The investment firms that hope to cash in on Puerto Rico’s $70 billion public-sector debt have divided themselves into two camps: those that are against and those who favor debt restructuring, meaning that Chapter 9 is extended to the island. Democrats have said they support the HR 870 bill, submitted in February 2015 in the U.S. House of Representatives by Puerto Rico’s Resident Commissioner Pedro Pierluisi, which aims to extend Chapter 9 to the island. The majority of Republicans in Congress oppose this idea. Politicians from both parties, who are part of the U.S. Senate’s Finance Committee, which has to evaluate the measure regarding Puerto Rico’s fiscal and economic crisis, and held a hearing on the issue in September 2015, received $327,250 in donations from mutual and hedge fund companies that possess Puerto Rico bonds, as researched by Centro de Periodismo Investigativo. The 14 Republicans who comprise the majority of the U.S. Senate’s Finance Committee and the 10 Democrats who are part of the same committee received donations from these companies between March 2014 and October 2015, according to documents from the Federal Elections Commission. For its part, the U.S. Senate’s Judiciary Committee, which last week held the latest hearing on Puerto Rico’s crisis, is composed of 11 Republicans and nine Democrats, of which seven, from both parties, received donations from investment companies that held Puerto Rico bonds during the same period. Donations were made through employees of these companies or through political action committees. The politician who has benefited the most from donations by investment firms that hold Puerto Rico bonds has been U.S. Sen. Charles “Chuck” Schumer (D-N.Y.), who is a member of the U.S. Senate’s Finance and Judiciary committees and has expressed his support for granting Chapter 9 access to Puerto Rico. Between March 2014 and October 2015, he received $99,150 in donations from these mutual and hedge fund companies. These companies include York Capital, Fore Research & Management, Appaloosa Management, Fir Tree Capital, Davidson Kempner, Redwood Capital, Centerbridge Capital, Avenue Capital, Blue Mountain, Apollo Management and D.E. Shaw. Schumer has also received donations from law firms hired by different Puerto Rico bondholder groups, such as Quinn Emmanuel Urquhart & Sullivan, hired by the Sales Tax Financing Corp. (Cofina) ad hoc group; Davis Polk & Wardwell, hired by the Government Development Bank ad hoc group; and Gibson Dunn, hired by Puerto Rico Electric Power Authority bondholders. In addition, Schumer has received donations from firms hired to lobby both in favor and against extending Chapter 9 to Puerto Rico: Podesta Group, hired by the Puerto Rico government to lobby in favor, and Venable LLP, hired by investment firms to lobby against. Mutual funds Investment Company Institute, MassMutual Life Insurance and its subsidiary Oppenheimer Funds, which according to Morningstar has more than $4 billion in Puerto Rico bonds and opposes debt restructuring, have also given donations to Schumer. Besides donating to Schumer, MassMutual and Oppenheimer Funds donated to U.S. Sen. Charles Grassley (R-Iowa), who presides over the U.S. Senate Judiciary Committee and is a member of the U.S. Senate Finance Committee, and has voiced his opposition to including the island in Chapter 9. “There are political interests that have both sides. They might give more to one side, but they cover the other side just in case. It’s the cockfighter’s game: I bet on my rooster but also against mine, just in case I lose. It’s a question of political maturity, and we can’t think onlyAof D Vthe E Rpeople TISING for and against. That’s why I have no problem saying that bankruptcy for Puerto Rico is impossible; money is against it,” said Alfonso Giménez Lucchetti, a political and international affairs commentator, who has worked with the Democratic Party in the U.S. —Laura Moscoso and Carla Minet contributed to this story. BY JOEL CINTRÓN ARBASETTI - CENTRO DE PERIODISMO INVESTIGATIVO

BY JOSÉ L. CARMONA j.carmona@cb.pr

As 2015 comes to a close, Puerto Rico’s economy is entering its 10th year of negative or flat growth, facing wellknown challenges of the past, as well some new ones. This year was characterized by several key events and issues that negatively affected the island’s economy and undermined any chances for growth—both short- and long-term, according to several economists interviewed by Caribbean Business.

Thursday, december 24, 2015 FrONT PaGe

Additional credit downgrades into junk terrirtory by the three major credit-rating agencies in late June essentially closed the Puerto Rico government’s dim chances of accessing the capital markets for borrrowing. This, in turn, raised the threat of a government default and shutdown, as the commonwealth is quickly running out of cash— and options. Meanwhile, a massive exodus of Puerto Ricans to the U.S. mainland, estimated at 1,200 people every month, is further shrinking the island’s

population and tax base, which further complicates the government’s tax revenueraising efforts. The failed attempt at comprehensive tax reform last summer forced the government to approve new taxes, including raising the sales & use tax (IVU by its Spanish acronym) to 11.5% from 7.5%, becoming the highest salestax rate in all the U.S. In addition, the government imposed a new 4% businessto-business (B2B) tax in July, which is slated to go up to 10.5% on April 1, 2016. The

government also approved a tax on transfer pricing, targeted specifically at multinational companies doing business in Puerto Rico. Moreover, several congressional hearings in Washington, D.C. have been held in recent months, in which the Puerto Rico government’s requests for federal assistance to deal with the island’s fiscal and public-debt woes were unsuccessful. The last congressional hearing, held about two weeks ago in the U.S. Senate, failed to produce a financial control

board or Chapter 9 bankruptcy legislation for Puerto Rico. The latter would have provided the island with a legal mechanism through which to restructure about 40% of the island’s $70 billion public debt. The commonwealth is now awaiting the U.S. Supreme Court’s decision, possibily in March, on the legality of a local bankruptcy law that could provide a legal recourse to restructure some of its public debt. That law was previously deemed unconstitutional by

Continues on next page

FrONT PaGe Thursday, december 24, 2015

the public debt

Puerto Rico’s Economy fRozEn stiff a local federal district-court judge. Republicans in the U.S. Senate have proposed legislation to provide $3 billion to help Puerto Rico’s fiscal condition, lowering Social Security payments to Puerto Rican workers and the creation of a federal fiscal control board, but none of these items were included in this year’s federal omnibus spending bill. Neither was legislation that would grant Puerto Rico access to Chapter 9 of the U.S. Bankruptcy Code. However, Congress did approve 100% parity on Medicare

payments for Puerto Rico hospitals, averting a potentially serious crisis in the island’s healthcare system.

Nearly 10 years of

Negative growth At the end of the day, the result of these events is that Puerto Rico’s gross national product (GNP), or real growth, is estimated to have contracted by about 2% in calendar year 2015. In its economic outlook, the Puerto Rico Planning Board projected the island’s economy would contract 0.9% in fiscal year 2015, which ended

moNster is draggiNg dowN the ecoNomy Gov. Alejandro García Padilla’s June 28 declaration to the New York Times that Puerto Rico’s debt was “not payable” spearheaded a long list of credit downgrades by the top-three rating agencies— Moody’s Investors Service, Standard & Poor’s Ratings Services and Fitch Ratings. The credit downgrades, which pushed Puerto Rico-issued bonds deeper into junk, or noninvestment grade, territory, transpired over a three-day period, June 29-30

“If the economy doesn’t grow at a reasonable rate, there is no way the fiscal issue will be permanently resolved.” —José Joaquín Villamil, chairman & CEO of Estudios Técnicos Inc.

June 30. However, no new data has been published by the agency on Puerto Rico’s GNP. To analyze the island’s economic situation during the past year, for our annual Economic Review issue, Caribbean Business talked to four local economists about their opinions and views on the top issues that affected the Puerto Rico economy during 2015,. They are: José Joaquín Villamil, chairman & CEO of Estudios Técnicos Inc.; Juan Lara, chief economist at Advantage Business Consulting and professor of economics at the University of Puerto Rico (UPR); Heidi Calero, president of H. Calero Consulting Group; and Carlos A. Colón de Armas, economist and finance professor at the UPR School of Business.

and July 2. The governor’s bleak statement and the quick reaction by the credit-rating agencies brought front and center the island’s precarious fiscal situation and the growing weight of the $70 billion public debt on the government’s finances and the local economy. The previously mentioned events of 2015—oftentimes uncoordinated and sometimes with contradictory objectives—had the end result of affecting an already hurt economy, Villamil noted. “There are lessons to be learned from 2015. One is the importance of distinguishing fiscal and economic matters, and the linkages between them. Not understanding these linkages resulted in adopting steps to resolve the fiscal problem that made

economic recovery more difficult,” Villamil said. “Could it have been otherwise? Certainly.” Tax income, he added, had to be increased, but it could have been done with taxes that have minimal impact on economic activity. “If the economy doesn’t grow at a reasonable rate, there is no way the fiscal issue will be permanently resolved,” the Estudios Técnicos chairman stressed.

No easy solutioNs to

complex problems In his view, what 2015 made clear is that Puerto Rico’s long-term and deep contraction won’t be easily reversed, even when the downward economic spiral is contained. “When an economy goes through what ours has gone through, major structural damage is experienced. Returning to a positive growth path will require not just marginal changes such as lowering labor and energy costs or improvements in the permitting process, but also major reconstruction of social, public sector and economic structures,” Villamil commented. For Advantage’s Lara, 2015 was yet another difficult year for Puerto Rico’s economy, but the year did bring the island closer to a resolution of the burdensome public-debt problem. In his view, the local economy contracted this year as much as 2% even though the administration’s growthinducing initiatives have paid off in areas such as tourism, exporting services and aerospace. “Much more of that is needed to create a sustainable growth momentum in new economic directions, which is the only real long-term solution to the fiscal, financial and economic challenges we continue to face,” Lara stressed. Although the year will

Continues on page 18

Thursday, december 24, 2015 FrONT PaGe debt, even if takes enormous sacrifices in terms of government services and jobs.”

Continued from page 17

end without a well-defined framework for renegotiating the public debt, Lara said there is now a clear unders tanding that the debt-service burden in its present form isn’t sustainable and must be reshaped. “That’s a major step in the right direction, and we should see more decisive action to reschedule debt in 2016,” he added. On the other hand, the year also ended without a strong commitment by the Puerto Rico Legislature to the reform program proposed in the Anne Krueger report and adopted by La Fortaleza, Lara pointed out. “Taking control of the fiscal picture is essential, lest we end up with a Washingtonimpossed control board that could complicate matters more than it would help,” Advantage’s chief economist noted. For her part, Calero sees Puerto Rico at a crossroads between growth and stagnation. After more than nine years of recession, she insists there are no vigorous signs that the worst is over. “The fiscal situation continues to be a challenge. Unless government perks up, and we need between $11 billion and $12 billion in investments annually, growth won’t be restored,” Calero said. If the Puerto Rico economy were to grow at 1% in real terms, it would take the island 14 years from now to return to the real GNP of 2005, she noted. On the other hand, if the economy were to grow at 3.4% in real terms, the 2005 real GNP level would be reached in four years, Calero indicated. “Our crisis is one of credibility and not just a governmentliquidity crunch,” the president of Calero Consulting said. “To restore our credibility with investors, financiers and Congress, among others, we need to fulfill our obligation to service the generalobligation bonds and any other constitutionally guaranteed

The year in numbers Given the lack of timely and accurate government data on the local economy, to assess the health of the local economy and progress toward generating ecocomic growth in 2015, Colón de Armas examined nine economic indicators published by the Planning Board, along with some labor statistics and information on general-fund revenues col-

permits, hotel registrations and bankruptcies—performed better in 2015 versus 2014, said the economist and finance professor. On the labor front, the unemployment rate at the beginning of the year stood at 12.4%. That rate represented a 2.5-percentage-point reduction from January 2014, when unemployment was at 14.9%. “During 2015, the unemployment rate has had its ups and downs, but returned back to 12.4% in October, the most recent month for which data

Heidi Calero, president of H. Calero Consulting Group

Carlos A. Colón de Armas, economist and finance professor at the UPR School of Business

“The above data reflects a mixed bag of economic statistics. For the most part, the economic indicators and the government’s revenue collections reflect negatively on the economy. At the same time, the labor data shows some improvements.” —Carlos A. Colón de Armas

Juan Lara, chief economist at Advantage Business Consulting and professor of economics at the University of Puerto Rico

lected by the P.R. Treasury Department. Six out of the nine indicators examined performed worse in 2015 when compared with 2014. Five of these indicators—number of construction permits, cement production & sales, electric energy consumption and motor vehicle sales—worsened in 2015 after also having decreased in 2014, Colón de Armas indicated. “Retail sales decreased in 2014 after having increased the year before. Only three indicators—value of construction

is available,” Colón de Armas said. “ During that same time, the labor-participation rate has increased [slightly] from 40.2% at the beginning of year, to 40.9% in October.” In addition, between January and October of this year, full-time employment on the island has increased somewhat by 9,000 people, from 995,000 in January to 1,004,000 in October. During fiscal 2015—ending June 30—Treasury collected about $76 million less in general-fund revenue versus

fiscal 2014, and $604 million less than the estimated revenues for the year, Colón de Armas indicated. From July through November of this year, however, general-fund revenues are running $150 million above last year’s revenue collection, but $24 million below the estimated revenues for the year, he said. “The above data reflects a mixed bag of economic statistics. For the most part, the economic indicators and the government’s revenue collections reflect negatively on the economy. At the same time, the labor data shows some improvements,” Colón de Armas said. According to data from the U.S. Labor Department’s Bureau of Labor Statistics (BLS), since January 2012, the island has lost 10,015 net jobs, while the island’s total labor force is down by 37,010 workers. For Villamil, the island’s employment picture remains cloudy. The unemployment rate, although lower, remains high and of major concern, while manufacturing employment on the island continues to fall, which has been doing so at least for the past 15 quarters.

easier said Than done Another lesson learned in 2015 is that it is very easy to issue statements on the need to lower government expenditures, as some observers and politicians have done, but very hard to do without affecting services or generating significant social costs, he indicated. “The government’s committee on restructuring government, headed by thenSecretary of State David Bernier, put forth interesting proposals to improve the efficiency of services, some of which are already in place. The approach adopted by the committee wasn’t to attempt major restructurings, but rather to identify services that could be improved relatively quickly with minimal expenditures and aggressively using technology,” Villamil said. n

FRONT PAGE ThuRsdAy, dEcEmbER 24, 2015

A Look at the key Issues that Affected Puerto Rico’s top Business Sectors BY JOSÉ L. CARMONA, MARIO BELAVAL DÍAZ & DENNIS COSTA j.carmona@cb.pr; m.belaval@cb.pr; d.costa@cb.pr

Despite Puerto Rico’s fiscal and liquidity crisis, there was a lot going on throughout the year that affected the top business sectors. Here are some of those key issues:

Advertising In advertising, while always cautious when it comes to talking about numbers, most agencies consulted said 2015 was a good year, with clients investing an average amount in advertising efforts equal to that spent a year ago. Edgardo Manuel Rivera, vice president of the Puerto Rico Advertising Agencies Association, which groups the most significant players in the local advertising industry, added that the numbers reported may not reflect one of the major areas of investment in advertising: digital. “We haven’t developed the tools to measure investment [in digital], but it’s clear, it was a strong tendency this year,” he said. “You can see agencies transforming their teams in the area to provide more complete and relevant services.” Rivera added that another trend has been local agencies coming together and pooling resources to launch media central operations and handle the sale of advertising space or time for clients. Meanwhile, Luz Irene Mendoza, partner at TBWA San Juan, said another trend in the local advertising agency industry has to do with speed. “It has to do with immediacy in your connection with consumers, being aware of what they are connecting about, talking about and how we can insert ourselves in that

Autos The island’s automotive industry is en route to its third-

tors sold 88,200 units in Puerto Rico in 2014, compared with 100,559 in 2013 and 100,790 in 2012. A 15% reduction in auto excise taxes, in effect since November of last year, hasn’t done much to spur sales of new vehicles on the island, with the commonwealth government reeling from a deep fiscal and liquidity crisis. The possible reduction in public employees’ working hours, or a full-fledged government shutdown, has forced many local consumers and businesses to put the brakes on their spending plans, especially during the critical holiday season. “Logically, auto sales are

consecutive year of sales decreases. As of November, cumulative sales of new units sold by local dealers amounted to 72,066 units, down 6,601 vehicles, or 8.39% from the same month last year. The expectation is the local auto industry will finish the year with only 80,000 new units sold in Puerto Rico, despite aggressive promotional efforts, dealer incentives, manufacturer rebates and special tent-sales events to move stalled inventory on dealer lots. The island’s auto distribu-

a reflection of the direction taken by the local economy, including decreased consumption and population trends. Our industry seeks to adapt to the times and, therefore, we have been attentive to the retail sector, which so far this year has decreased its market share 10%,” said Ricardo Rivera, president of the United Automobile Importers Group. Nevertheless, several local distributors and dealers made significant investments this year to improve or add new facilities.

conversation,” she said. “To do that the [industry] has had to think and develop strategies that go beyond traditional advertising.” One thing is certain: Puerto Rico’s creative output proved to be of the highest quality with agencies such as J. Walter Thompson Puerto Rico, DDB Latina and Young & Rubicam Puerto Rico coming away with top awards and finalists spots at festivals such as the Cannes Advertising Festival, the industry’s most important festival celebrated in Cannes, France in June 2015.

Audi de San Juan inaugurated its revamped showroom facilities in San Juan’s Bechara industrial sector. BMW dealer Autogermana celebrated its 20th anniversary with a $2 million remodel of its facilities on Chardón Avenue in San Juan’s Hato Rey district. Autocentro invested $5 million in an all-new Nissan dealership on Muñoz Rivera Avenue in San Juan, and remodeling and expanding its Toyota dealership next door. Bella Group invested $5 million in a new Flagship Mazda dealer, to replace the existing one on Kennedy expressway in San Juan.

BAnking & FinAnce In the banking & finance sectors, the top news of 2015 were the closing of Doral Bank by the Federal Deposit

Insurance Corp. (FDIC) and restructuring of operations of UBS Financial Services on the island, respectively. On Feb. 27, Puerto Rico Financial Institutions Commissioner Rafael Blanco shut down Doral Bank, designating the FDIC as its receiver. Banco Popular was the lead bidder, entering into a purchase-and-assumption agreement with the FDIC to acquire Doral Bank’s banking

operations (including all deposits), purchasing $3.5 billion of Doral Bank’s assets. Popular then entered into separate back-to-back agreements with three other financial institutions—its U.S. mainland subsidiary Banco Popular North America, San Juan-based FirstBank and Centennial Bank of Conway, Ark.—to acquire 18 of Doral’s 26 bank branches in Puerto Rico, New York and Florida. Banco Popular assumed deposits and eight of Doral Bank’s branches on the island; Banco Popular North America took the deposits and all three of the failed bank’s operations in New York; and FirstBank snatched the remaining 10 Doral Bank branches in Puerto Rico, including deposits and a performing mortgage-loan portfolio.

In October, UBS Financial Services Inc. of Puerto Rico, the Swiss bank’s San Juanbased subsidiary, eliminated several key divisions in what the company deemed a restructuring of its local operations. The move—which involved the elimination of the Investment Banking; Credit; Business Development;

Continues on page 20

Thursday, december 24, 2015 FrONT PaGe

Continued from page 19

Marketing; and Government & Institutional divisions and the job termination of eight employees, including top executives and administrative staff—followed the closings and staff relocations from the firm’s Condado (San Juan), Guaynabo and Ponce offices. The firm’s restructuring continued earlier this month, when UBS Financial Services eliminated staff from its Wealth Management Consulting; Closed-End Funds; Personal & Corporate Trust; and Fiscal Planning divisions, plus some brokers—affecting fewer than 20 employees. The continuing downsizing responds to the decrease in the firm’s assets and business, as assets under management slid from $15.4 billion in 2010 to $8.7 billion as of June 30, 2015. UBS Puerto Rico has also been hemorrhaging clients on the heels of more than $3 billion in class-action lawsuits against the island’s largest brokerage firm from investors in the firm’s closed-end mutual funds, which have lost millions as the value of Puerto Rico bonds declined after being downgraded to noninvestment grade.

Tourism Puerto Rico tourism in 2015 has mostly been favorable, with its contribution to the island’s gross national product growing to 7.1% this past year, said Gov. Alejandro

García Padilla. The cruiseship sector has fared particularly well. In fiscal 2015, a record 1.5 million cruiseship visitors came to the island, up by 24.8% compared with the previous year. This is mostly due to the $8 million expansion of San Juan’s Pier No. 3, completed in late 2014, with a dredging project for the bay still in the pipeline. This, in turn, allowed several mega-cruiseships to arrive, among them Royal Caribbean’s Anthem of the Seas, the world’s third largest. New and renovated hotels also made their debut this year, bringing the total number of rooms in Puerto Rico to more than 15,000. Hotel occupancy rates went up to 70.1% in fiscal 2015, as did average room rates. Among the hotels that completed renovations this year were the San Juan Marriott

Resort and Embassy Suites hotels in Carolina’s Isla Verde community and Dorado. Other hotels were sold off to new owners, among them the Sheraton Old San Juan, which was sold in September; the San Juan Beach Hotel in Condado, sold to Paulson & Co. for $20 million; and El San Juan Resort & Casino, which will undergo a $40 million renovation. A handful of hotels, among them the Caribe Hilton and Condado Plaza Hilton, also obtained certification in medical tourism. The casino sector, meanwhile, continued its slide with several closings, among them the Condado Plaza Casino, which closed in July, and the Radisson Ambassador Plaza Hotel & Casino, which closed in April. This followed moves earlier this year by the central

government authorizing the installation of video-lottery terminals (VLTs) throughout the island, in a bid to capture additional tax revenue. The legalization of VLTs would result in revenue losses for casinos of $68.4 million to

aimed at taking out of circulation some of the thousands of illegal gambling machines. On the aviation front, several new airlines began serving Puerto Rico, among them Avianca, Volaris, InselAir, Air Europa and Sun Country,

$148.8 million a year, according to industry research firm Spectrum. Also this year, the Tourism Co. carried out raids

while another dozen airlines, among them Norwegian Airlines and Seaborne, added new routes. n

Jobs available for

Fully Bilingual Persons Puerto Rico’s 24/7/365 Bilingual Call Center

Call: 787-268-8500

Thursday, december 24, 2015

Poll

Column

Print newspaper readership in yearlong decline; online trending up BY ROSARIO FAJARDO

r.fajardo@cb.pr

With the emergence of the internet and its accelerated growth, printed media has seen a decrease in usage virtually worldwide. This change hasn’t been felt as strongly in Puerto Rico, primarily because the average internet user here has remained very young and this demographic is less likely to be interested in traditional news coverage, according to Gaither International. As such, the printed newspaper readership incidence had remained flat for the past couple of years.

This trend may be beginning to change, Gaither reported in this week’s survey. This year, there has been a yearlong decline in the percentage of local respondents who have mentioned reading printed daily newspapers “yesterday.” During the first three months of the year, 28% of respondents 12 years and older mentioned reading a newspaper during an average day, Gaither said. So far during December, that percentage has decreased to 23%. This fivepercentage-point difference represents about 140,000 fewer daily newspaper readers in Puerto Rico. “While cost may be a factor for some, I don’t believe it to be the most important one. It can certainly influence which newspaper they choose, but I believe overall demand for printed versions of newspapers would still be going down [even] if they were all free,” said Armando Sánchez, vice president of syndicated

studies at Gaither International. But print’s losses are online’s gains, in which the percentage of respondents who have mentioned reading online newspapers has been increasing. During 2013, 17% of them mentioned reading online newspapers. This percentage has since increased to 24%, Gaither said, representing a gain of some 240,000 online readers in the two-year span. A similar trend shows an increasing number of people are following newspaper outlets on different social media channels, as detailed in a previous November 2015 poll. That survey found that the percentage of respondents in Puerto Rico who follow at least one newspaper outlet’s social media page, such as Facebook and Twitter, has been steadily increasing during the past four years. In fact, among the island’s total population of 3.5 million people, the trend has doubled from 8% in 2012 to 16% in 2015. “[Print media] should place emphasis on their web presence to grow readership, especially those younger and from higher socioeconomic levels. However, print remains the preferred choice for a majority of older age groups who are also the only growing segment of the population,” Sánchez said. “From the advertising standpoint, even though online ad spending has been increasing, it still hasn’t reached the level of print ad spending.” The results are from Gaither International’s Media Brand Profiles tracking survey, which interviews more than 80 people daily from among a representative sample of Puerto Rico’s population ages 12 and older. n Polling is conducted by Gaither International and results are reported exclusively by Caribbean Business.

Merry Christmas, From the Trumps BY REX HUPPKE

An exclusive look at the Trump Family Christmas Newsletter Dear family and friends, except any of you loser dopes who have said anything bad about me this year, you’re low-energy and pathetic and it’s really a wonder anybody likes you, you’re so unlikable. What a year it has been! I mean, really, just a big, great, amazing year. You don’t get years like this anymore, you know what I mean? I dunno. We just don’t have good years like we used to. I don’t know what’s going on. But this year. This year has been great and the greatest thing to happen this year has been me running for president and getting people to believe—so many people, it’s really remarkable—that we can MAKE AMERICA GREAT AGAIN. It’s on the hat, you’ve seen the hat. It’s a great hat and you’ll all be getting one, except for the low-energy dopes I mentioned earlier, they don’t deserve hats. They get no hats. But the rest of you will get hats and you’ll get them because you know— you know!—that we have so many problems in this country. This Christmas newsletter...you see I used the word “Christmas” there, the politically correct people, they’re gonna be on me about that. ‘Cause you can’t say Merry Christmas anymore, right? You just can’t. Well guess what? I’m not politically correct and I say what the people are thinking and what the people are thinking is “Merry Christmas” and so that’s what we’re going to say in this Christmas newsletter, which is going to be such a beautiful thing, you’ll see. So there. Boom! I said it. Merry Christmas. We have so many problems in this country, and that’s one big thing that happened in the Trump family this year. I figured out there’s something wrong. I don’t know what it is, but I can feel it. I mean, honestly, look at this guy coming around at Christmas, big fat loser who just comes in

from wherever, he says it’s the North Pole but I don’t believe that. We don’t know where this guy is coming from or what he wants, but we know he’s passing over our borders easily. Does he mean us harm? Is he radicalized? We don’t know. Our government doesn’t know. They can’t screen for that. We aren’t safe. We aren’t safe with this guy, this radical coming in here, sneaking into our homes, judging our children. People don’t want you to talk about him, they say you can’t say anything bad about Santa Claus, you have to be nice, you have to be politically correct, or he’ll put you on a list. What is this list? When I proposed a list for Muslims everyone got mad, why does this guy get a list? Look, I’m just saying what everyone else is thinking. Who is this guy? He’s from another country, we know nothing about his culture, he’s got these elves. You gonna sit there and tell me those elves aren’t weird? THEY’RE WEIRD! Who has elves. Are they Christian? No. Doubt it. Why does their leader have a beard? I mean, c’mon, this is simple logic. We have to keep our country safe. What I’ve proposed is a temporary ban on Santa Claus, reindeer, flying sleighs and elves. Just until we can get our hands around this issue. They call him a “jolly old elf”—and I have many elf friends, they’re beautiful people, I have so many great friends who are elves, I’ve rented apartments to many elves, they love me and we get along great, they have adorable ears—but, obviously, there’s a lot we don’t know about these people. So in conclusion, it has been a great year—really the best year, I’d say, and I know. I hope you and your family win in 2016, and you will as long as you vote for me for president because I will MAKE AMERICA GREAT AGAIN. Merry Christmas, except to the dopes. —Donald J. Trump and family

12 DAYS Thursday, december 24, 2015

OF CHRISTMAS

By Philipe Schoene Roura, Juan A. Hernández, Dennis Costa, Luis J. Valentín, Rosario Fajardo and Ismael Torres

“On the First day of Christmas, the Three Kings Gave to me…” One Lame Duck in a Palm Tree… • “On the Second day of Christmas, Puerto Rico Gave to me...” Two Political Primaries... • “On the Third day of Christmas, the Government Gave to me…” Three Nasty Clawbacks • “On the Fourth day of Christmas, the Creditors Gave to me…” Four Seething Monolines (the big Cuatro) • “On the Fifth day of Christmas, the Three Kings Gave to me…” Five Loyal Dissidents... • “On the Sixth day of Christmas, the GOP Gave to me…” Six Republican Windbags (Plus one?) • “On the Seventh day of Christmas, the Government Gave to me…” Seven-Figure Advisers • “On the Eighth day of Christmas, the Creditors Gave to me…” Eight Prepa Extensions... • “On the Ninth Day of Christmas, the Federal Authorities Gave to me...” Nine Indictments... (at Least) • “On the 10th day of Christmas, the Three Kings Gave to me…” 10 Seats A-Shifting... • “On the 11th day of Christmas, Legislators Gave to me…” An 11.5% Sales tax… • “On the 12th day of Christmas, the Three Kings Gave to me…” 12 Months ‘til Exit... And a Lame Duck in a Palm Tree.

Thursday, december 24, 2015

12 DAYS “On the First day of Christmas, the Three Kings Gave to me…”

One Lame Duck in a Palm Tree…

DAY

After a year of la crudita taxes 1(a), 1(b) and 1(c), sales tax increase, overestimated revenues, retained tax returns and no Christmas bonuses, Gov. Alejandro García Padilla is ready to end the year on a high note.

fter a first term of political setbacks, misfires and the all too often occasional blunder, Gov. Alejandro García Padilla decided not to seek re-election, convinced that if he had opted to stay the course, he would have been responsible for single-handedly driving the island’s economy into the ground and converting several thousands of his own populares into PPT (Partido del Pueblo Trabajador) voters. So, after consulting with his battle-savvy political advisers—namely Víctor Suárez, Jorge Colberg and Jesús Manuel Ortiz, whose combined political expertise has been defined as “a riddle wrapped in a mystery inside an enigma”—García Padilla realized (probably sometime

last summer) that it would be best for both the economy and himself (not the Popular Democratic Party), to make the announcement in the middle of the Christmas shopping craze. Of course, as expected, critics would denounce the timing and the language he used. “What shopping craze? There was no Christmas bonus and even next year’s tax refunds are nowhere in sight,” some have said. Always anticipating, the governor’s advisers counseled him to play a deaf ear to them. “Do what you always do,” they said, “of course, there’s no bonus, but they would have maxed out their credit cards anyway.” But after a year of la crudita taxes 1(a), 1(b) and 1(c), sales

tax increase, overestimated revenues, retained tax returns and no Christmas bonuses, García Padilla is ready to end the year on a high note. After careful analysis—even though he has said it was absolutely important to have it… a matter of life or death— he won’t call an extraordinary session of the Legislature to approve the restructuring bill for the Puerto Rico Electric Power Authority. Forget that we are in the middle of Christmas, that lawmakers are frantically trying to file their candidacies for re-election or that the bill may not be approved at all, first he was going to call the special session, now he’s not. Merry Christmas! n

—JAH

“On the Second day of Christmas, Puerto Rico Gave to me...”

Two Political Primaries...

ust 24 hours after Gov. Alejandro García Padilla’s announcement that he wouldn’t seek re-election, ex-Secretary of State David Bernier came out of the cave and announced his gubernatorial candidacy for the Popular Democratic Party (PDP). The announcement had the practical effect of canceling out other possible aspirations for governor in the PDP, such as the case with Senate President Eduardo Bhatia. “We have the ballot squared away in terms of the governorship. We still have the one for resident commissioner pending,” said PDP Sen. Aníbal José Torres. In the PDP, the names being mentioned for the Resident

Commissioner post include Sen. Ángel Rosa and ex-representative and ex-PDP president Héctor Ferrer. While the PDP primaries for this post will be interesting, most of the focus will be the New Progressive Party (NPP). Most observers are keeping their eyes on the NPP primaries, namely for La Fortaleza, with some political analysts saying that whoever wins these primaries will win the 2016 gubernatorial elections. Resident Commissioner Pedro Pierluisi and Ricardo Rosselló have made their candidacies for governor official, while ex-Senate President Thomas Rivera Schatz is expected to make his announcement to run for

La Fortaleza in the coming days. For the Resident Commissioner race in the NPP, ex-House Speaker Jenniffer González has made her candidacy official, while ex-San Juan Mayor Jorge Santini is considering aspiring to the post. Even ex-Gov. Carlos

Romero Barceló half-jokingly hinted at his availability for that position. At the end of the year, the political atmosphere in the NPP was uncertain because even though Pierluisi and Rosselló have turned their sights on the gubernatorial race, their troops have yet to be organized and they have yet to clash on positions regarding different issues, particularly how they will move the statehood cause forward and how they will manage Puerto Rico’s massive $70 billion public debt. Make no mistake, the 2016 elections are going to be very interesting, to say the least. n

—IT and RF

DAY

Most observers are keeping their eyes on the NPP primaries, namely for La Fortaleza, with some political analysts saying that whoever wins these primaries will win the 2016 gubernatorial elections.

Thursday, december 24, 2015

“On the Third day of Christmas, the Government Gave to me…”

Three Nasty Clawbacks...

hen the government of Puerto Rico was seeking a $2.95 billion bond deal earlier this year, a confluence of events impeded the deal, foremost among which was lack of investor confidence tied directly to nasty infighting between the Executive branch and the Legislature. Like some kidney stone coming down the pike, the obstruction impeded passing a hike to the petroleum products tax known as la crudita that was to have guaranteed the bond issue. Back and forth, the legislators went on the issue adding language to the measure that bondholders demanded to make certain the revenue stream could guarantee payment. They wanted automatic triggers—spikes

in the hike and interest rate ceilings—to guarantee their investment. Even then, the capital markets were looking at the deal with skepticism because they knew the revenue stream could be subject to clawbacks. “The uncertainty extended in part to what they call clawbacks, which is money the government can use if there is a gap in the general fund to repay the constitutional debt,” Government Development Bank President & Chairwoman Melba Acosta told Caribbean Business during an interview in April as the debt crisis was ramping up. “They saw la crudita as something that was clawbackable, so the bond deal supported by la crudita had to be put on hold.”

This became a self-fulfilling Yuletide prophecy when Puerto Rico CFO Acosta announced they would be using clawbacks to tap into la crudita revenue streams to make debt-service payments due on Highways & Transportation Authority, Infrastructure Authority and Metropolitan Bus Authority debt, among others. The investment community is none too pleased. Leading the line of pouting creditors are monoline bond insurance companies that are on the hook for some $128 million due on Jan. 1, out of $302 million due for the Puerto Rico Electric Power Authority.

Day

“From our perspective, the clawback is a patent attempt to revise the provisions of the constitution and contracts without justification or the required process,” say CEOs in the bond insurance realm. The rogue Gov. Alejandro García Padilla is probably saying, “Bah humbug, me vale.” n

The rogue Gov. Alejandro García Padilla is probably saying, “Bah humbug, me vale.”

—PSR

“On the Fourth day of Christmas, the Creditors Gave to me…”

Four Seething Monolines (the big Cuatro)... Day

What is the monolines’ take on the commonwealth’s restructuring? “Si no me dan de beber, lloro.”

f ever there is something so great about Puerto Rico’s never-ending Navidades , it must be our custom of parrandas —think of them as Christmas caroling on steroids. Here’s how it goes: a giant group of people descends upon your home armed with congas , cuatros , güiros and guitars yelling, “ Asalto ,” as in “Stick up!” Then they break into rousing aguinaldos , or Spanish Christmas carols. Some of the greatest hits are Si no me dan de beber, lloro (If you don’t give me a drink, I’m gonna cry) and Mi burrito sabanero (My Sabanear donkey, or

something to that effect), which has a great chorus that goes “Tuki tuki tuki tuki, tuki tuki tuki tá,” (like the red herring in financial printing). From house to house, everyone goes, partying, eating and drinking until the crack of dawn, and then it is all lamentation the next day with plenty of moral hangovers—that’s when you drink so much that you regret every excess you have enjoyed throughout your life. Something like the capital markets—first greed, then fear. Just ask the big four monoline bond insurers who are on the hook for nearly $16 billion

in exposure to commonwealth debt. The ones fearing the biggest pinch are Assured

Guaranty, the Municipal Bond Insurance Association Inc.’s National Public Finance Guarantee, Ambac Assurance, Syncora Guarantee, which have a wide spectrum of Puerto Rico debt. Ambac, which has some $4.2 billion of exposure on Puerto Rico debt, has to cover $11 million of the more than $100 million in Highways & Transportation Authority debt due on Jan.1, 2016. What is the monolines’ take on the commonwealth’s restructuring? “ Si no me dan de beber, lloro.” n

—PSR

Thursday, december 24, 2015

12 DAYS “On the Fifth day of Christmas, the Three Kings Gave to me…”

Five Loyal Dissidents...

DAY

And to quote from Seinfeld lore’s infamous Soup Nazi, “no asopao for you!”

s he had repeatedly said, Gov. Alejandro García Padilla has had to deal not only with the New Progress Party opposition, but also with the “loyal insensitivity and irresponsibility” (his words) of some of his fellow Popular Democratic Party members, namely Reps. Luis Raúl Torres, Luis Vega Ramos, Manuel Natal, Luisa “Piti” Gándara and Ángel Matos. The “loyalist opposition,” as former Gov. Pedro Rosselló used to refer to such beloved characters during his term in office, has done everything within its power to “do the right thing,” sometimes even “with a little help from their friends” —the no less loyal mayors of San Juan, Comerío and San

Germán. When the dissidents were in da’House—including the late Carlos Vargas Ferrer, who is now in a higher realm due to his untimely passing —García Padilla was sure to have his hands full trying to explain why increasing the 7% sales & use tax to a 16% value-added tax (VAT) would be “a good thing” because most people would apparently not pay income taxes. What was not to like?

The dissidents, with a little help from their friend, San Juan Mayor Carmen Yulín Cruz, said “the VAT is good for the government but bad for the people.” Everybody except the governor cheered for the dissidents. So, García Padilla ended up signing a different bill that increased the sales tax anyway and kept income taxes in place. Of course, now that it is a well-known fact that

the government has no cash to reimburse taxpayers for overpaying on their taxes, we all realize things could have been different. That is why none of the five dissidents should expect a Christmas card from La Fortaleza this year. And to quote from Seinfeld lore’s infamous Soup Nazi, “no asopao for you!” n

-JAH

“On the Sixth day of Christmas, the GOP Gave to me…”

Six Republican Windbags (Plus one?)...

he Republican primary slate has been looking like an episode of “Game of Thrones,” with so many characters it’s sometimes difficult to keep track of them—and perhaps the same amount of backstabbing. With the Republican-controlled Congress turning its back on Puerto Rico regarding any kind of bankruptcy protection or implementing a fiscal control board for the commonwealth, cynicism surrounding the 2016 U.S. presidential elections is arguably at an all-time high among Puerto Ricans. That said, a look at six of the main Republican hopefuls is in order, starting with Donald Trump, who has ruffled feathers with a brand of ham-fisted

populism worthy of “All the King’s Men.” With his remarks against women and Hispanics, Trump has earned the scorn of many, but perhaps his latest faux pas—a call to ban all Muslims from entering the U.S.—may prove to be his ultimate undoing. Speaking of disapproval, Ted Cruz is perhaps the only person the Republicans abhor more than Trump, with party statesmen such as John McCain and John Boehner saying they just don’t like the man. Then there’s

Marco Rubio, who in a seeming fit of cognitive dissonance, visited Puerto Rico in September looking for campaign donations, while simultaneously saying he disapproved of any moves to grant the island any bankruptcy protection. New Jersey Gov. Chris Christie hasn’t been able to move past allegations surrounding the George Washington Bridge scandal, in which officers reportedly colluded to close lanes and create traffic jams for political reasons. Despite his family

background, Jeb Bush has fared a bit better than most and has paid plenty of lip service to Latinos, yet his campaign has been anemic at best and his stock hasn’t risen much. Finally, there’s retired neurosurgeon Ben Carson, whose ultra-conservative remarks regarding abortion, gun control and gay rights have made critics question the necessary intelligence to become a brain surgeon. We have six windbags down, but there seems to be someone missing…Oh, that’s right, Carly Fiorina. True, she may have brought HP to the brink of bankruptcy, but we won’t hold that against her; for now. n

—DC

DAY

The Republican primary slate has been looking like an episode of “Game of Thrones,” with so many characters it’s sometimes difficult to keep track of them—and perhaps the same amount of backstabbing.

Thursday, december 24, 2015

“On the Seventh day of Christmas, the Government Gave to me…”

Seven-Figure Advisers...

n Rudolph and Ravitch; Dancer and Rhodes; Vixen and Milstein—Oh, what fun it is to ride on the commonwealth’s open sleigh. Although Gov. Alejandro García Padilla announced he wouldn’t be running for a second term, he abdicated the charge to which he was elected months ago in favor of very pricy bankruptcy lawyers and restructuring experts—many of whom make seven-figure salaries. And worth every penny. After all, it isn’t easy hosting a dog and pony show with former International Monetary Fund Managing Director Anne Krueger—no relation to Freddy—but downright scary in both her stern delivery and the message to some 300 creditors who gathered

at an investor conclave in New York last March. Just keeping a straight face during the sham conference to present Krueger’s disturbing caveat—“they just can’t pay you without suffering a slow death”—was worth a king’s ransom. You could just see those fidgety creditors breaking out in a chorus of that Quiet Riot classic: “We’re not Gonna Take It” or better still, The Who’s rock anthem: “[We] won’t Get Fooled Again.” But those investors sat there and played along. As we said, the commonwealth’s restructuring brigades are worth millions.

Besides, what’s tens of millions of dollars to an island that is facing a debtservice payment schedule that climbs to $5 billion in 2016? Just look at the pedigree— Jim Millstein, chairman & CEO of Millstein & Co. is a former chief restructuring officer (CRO) for the U.S. Treasury, who, along with Puerto Rico Electric Power Authority (Prepa) CRO Lisa Donahue, stand to receive a hefty bonus in the seven-figure range if

they manage to successfully restructure Prepa’s debt. Then there’s Steven Rhodes, the bankruptcy judge who presided over the reorganization of debt in Detroit and scared the living bejeezus out of creditors as he whistled the tune “If I had a hammer, I’d hammer in the morning,” during their depositions. And last but not least, there’s Dick Ravitch, a former lieutenant governor of New York, who kicked off a press conference in La Fortaleza with the caveat, “I don’t work for anyone, I am here to help because I love Puerto Rico.” That is worth at least a glass of some homemade coquito. n

—PSR

Jim Millstein

Day

Dick Ravitch kicked off a press conference in La Fortaleza with the caveat, “I don’t work for anyone, I am here to help because I love Puerto Rico.” That is worth at least a glass of some homemade coquito.

“On the Eighth day of Christmas, the Creditors Gave to me…”

Eight Prepa Extensions...

Day

The tune really goes “eight maids a-milking,” which is fine since they have been milking deadlines at the Puerto Rico Electric Power Authority (Prepa) all year long.

he tune really goes “eight maids a-milking,” which is fine since they have been milking deadlines at the Puerto Rico Electric Power Authority (Prepa) all year long. The utility’s restructuring maids were able to get eight extensions, and then some, to the forbearance agreements that have kept the utility and its creditors out of the courts. And just like Christmas in September, Prepa was finally able to reach deals with some of its creditor friends—a bondholder group, fuel-line lenders and the Government Development Bank—with a restructuring letter for Santa sent

to the North Pole back in November. The wish list includes a roughly $700 million reduction to the utility’s debt, modern privately run powerplants, the approval of the Prepa Revitalization Act and new debt, along with a new rate structure. To the tune of about $28 million, restructuring elves—and their advisers—have been working hard all year long to achieve every item on the list. But the Grinch hasn’t stopped trying to steal Prepa’s Christmas, and the utility still has to make amends with some insurer friends to remain on the good side of Santa’s Naughty or Nice

Lisa Donahue List. Zigzagging through negotiations with the clock about to hit the 18th deadline of the year, the utility was about to bring its bond

insurers onboard their Santa’s wish list—the restructuring support agreement. All insurers want for Christmas is less risk and to avoid a Prepa default, even if that means giving the utility short-term liquidity to keep it afloat. And despite all the fine print in the restructuring deal…“Oh, what fun it is to ride in a one horse open sleigh.” There is nothing like some suspense heading into Christmas Eve, and as Caribbean Business was going to bed, it seemed Prepa and its creditors would get themselves a happy new deal—at least for now. n

—LJV

Thursday, december 24, 2015

12 DAYS “On the Ninth day of Christmas, the Federal Authorities Gave to me...”

Nine More Indictments... (at least)

“

DAY

Up to now, this federal parrandón navideño has given at least nine people (and counting) their unwanted holiday gifts.

ú eres la causante de las penas mías, y yo me moriría si algún día dejo de amarte.” (You are the cause of all my sorrows, and I would die if one day I was to stop loving you.) This seems to be the traditional Christmas carol being hummed right now by some of the political leaders who are in the sights of federal authorities, linked to a government corruption scheme regarding contracts with the Alejandro García Padilla administration. The sorrowful tone is headed by House Speaker Jaime Perelló, whose close collaborator, House Administrator Xavier González Calderón, has been accused, along with Anaudi Hernández Pérez, an entrepreneur and friend of

the governor. As part of these unwanted Christmas gifts, Perelló had to appear for a second time before a federal Grand Jury that is investigating the alleged scheme. Many are wondering if this holiday will present those accused several years in jail if it is proven in court that they were indeed part of a corruption scheme that yielded them thousands

of dollars in public funds. Up to now, this federal parrandón navideño has given at least nine people (and counting) their unwanted holiday gifts. While the feds are attached to the tradition of Santa Claus, it wouldn’t be surprising that Perelló and some of his other special assistants at the House, who are allegedly linked to this scandal, will

receive their gifts closer to Three Kings Day, at the beginning of next year. Curiously, the heat that is starting to be felt in Perelló’s kitchen is increasing fast, as the federal investigation continues to deepen regarding the alleged government corruption scheme, as many are wondering how much did Perelló know about a contract to provide telephone services to the House. The not-so-wished-for gifts from the feds aren’t limited to employees and former employees of the House, but also to high-level officials at the Puerto Rico Aqueduct & Sewer Authority, La Fortaleza and other government agencies. n

—IT

“On the 10th day of Christmas, the Three Kings Gave to me…”

10 Seats A-Shifting...

ow that Gov. Alejandro García Padilla’s decision not to run for re-election has been announced, let the game begin! The musical chairs game, that is. Well, truth be told, David Bernier jumped the gun last October by beating everyone (namely Senate President Eduardo Bhatia and possibly San Juan Mayor Carmen Yulín Cruz-Soto) to the best chair: the governor’s, or the so-called hot seat. Of course, we can’t be so naïve as not to know there was a kind of pitcher-catcher agreement there. And no sooner had the governor announced he wouldn’t run again, than Jorge Colberg (former secretary of Public

Affairs and now the Popular Democratic Party’s secretary general) and Jesús Manuel Ortiz, who had been training along with Víctor Suárez (former chief of staff, now secretary of State) for the game, made their moves. As in any line of scrimmage, everybody went against everybody, but Suárez seems to have gotten the short end of the stick when he was left alone to play with himself. The game now reaches the Legislative branch and even possibly the Judiciary. From La Fortaleza, Ortiz just announced he is eyeing an at-large seat of the possible six available

in the House of Representatives. Getting one of the atlarge seats is no easy feat, but with at least one representative setting his sights on a bench in the appellate court,

another threatened by a federal grand jury and a third one hanging by a thread for being the rookie dissident, Ortiz could be thinking he’s got a 50-50 chance. The remaining two seats are up for grabs as far as Ortiz is concerned. Meanwhile, in the Senate, and playing in stealth mode, Bhatia seems to be readying himself to exchange one presidential chair for a bench—Chief Justice Bhatia has a nice ring to it, doesn’t it? In the end, who will be left standing come las octavitas is still anyone’s guess. n

—JAH

DAY

10 The game now reaches the Legislative branch and even possibly the Judiciary.

Thursday, december 24, 2015

“On the 11th day of Christmas, Legislators Gave to me…”

An 11.5% Sales tax…

ast July, the Puerto Rico Legislature increased the 7% sales & use tax (IVU by its Spanish acronym) to 11.5%, as part of a controversial tax reform process the Alejandro García Padilla administration kicked off to shore up its rapidly depleting coffers. This is just one of about $2 billion in new taxes that the government has implemented during the past few years, and detailing all of them would take roughly the space of half this newspaper. And the story isn’t over yet, with the IVU scheduled to become a value-added tax (VAT) on April 1 of next year, of all days. When it comes to the 11.5% IVU, it delivers a special sting in consumers’ pockets,

especially since it’s visible on any receipt. Now, customers may think twice before splurging on that 65-inch flatscreen TV; they may be thinking: “Sure, 7% represents an additional expense, but hey, it’s just a little bit more. But 11.5? Well, I don’t know…” As a result, it has become increasingly tough for Puerto Rico’s business sector to hold up its end of the bargain in propping up the island’s economy and creating much-needed jobs. Further compounding the situation is a 4% business-to-business (B2B) tax that was implemented last October on all service-related transactions. The B2B tax is scheduled to increase to 10.5%, again next April 1.

The months between October and April have been particularly tough on businesses, akin to being on the receiving end of a Rhonda Rousey armbar. That’s because as long as the IVU remains in effect,

businesses paying the 4% B2B tax can’t receive a corresponding credit in their income tax forms. Although the B2B will increase to 10.5% in April, it will be implemented under the newfangled VAT system, which should provide more transparency and allow for tax credits. The VAT system also intends to solve a long-standing problem with the IVU, —namely, that it acts like a faulty sieve, with the island’s Treasury Department capturing about only half the revenues it should. It remains to be seen whether the government will be able to successfully implement so many tax changes in such a short time. n

Day

11 The months between October and April have been particularly tough on businesses, akin to being on the receiving end of a Rhonda Rousey armbar.

-DC

“On the 12th day of Christmas, the Three Kings Gave to me…”

12 Months ‘til Exit...

Day

12 Populares know best—less is more and more is less—so, why ruin it? There are only 12 months left ‘til the final curtain.

fter a term in office full of challenges and not very unexpected difficulties met with faulty rationale, ineffective and subpar performance, Gov. Alejandro García Padilla decided to give the people of Puerto Rico the best Christmas gift any bankrupted administration could buy: He decided not to run for re-election, but not that he didn’t want to “with all his heart.” At the same time, he also gave us the not-so-secret gift No. 2: He will dedicate “all his time and all his energy to face the challenge of providing a future to our people,” as he has been doing for the past three years. While most people do appreciate García Padilla’s first

gift—including several thousand populares—gift No. 2 has many looking for the next white elephant gift-exchange party. It isn’t a matter of them wanting to be accused, God forbid, of being re-gifters, like some ungrateful character in Seinfeld lore, but indeed, there are some gifts whose

usefulness is far less than the cost of just having them. “You know Alejandro, you don’t need to keep on ‘giving’ to the people. Some people even think you have given too much,” said one of his close supporters, who is now a Bernier advocate. To the governor’s lovely

second gift, critics have said it will only cause more chaos, panic and disorder, not only among Puerto Rico’s creditors, but also among local residents as well. But populares know best—less is more and more is less—so, why ruin it? There are only 12 months left ‘til the final curtain. Now just imagine Luisito Vigoreaux hosting the traditional New Year’s bash and the orchestra playing the tunes of Auld Lang Syne. “Should old acquaintance be forgot, and never brought to mind? Should old acquaintance be forgot, and old lang syne?” The answer is: Yes! n

—JAH

Thursday, december 24, 2015

Energy

Puma Energy wins approval to sell liquefied petroleum gas for Puerto Rico consumers

Amid Falling Gas Prices, Puma Energy Pounces on LPG Market BY EDISON REYNALDO MISLA r.misla@cb.pr

The liquefied petroleum gas (LPG or propane) market is heating up. After months of waiting, Puma Energy has received approval from the Public Service Commission (PSC) to sell LPG for the consumer segment of the Puerto Rico market. The new permit is for the retail distribution of LPG in cylinders for the consumer-end market, explained Puma Energy Puerto Rico General Manager Víctor Domínguez. With the increased competition, “we anticipate our entry into this market will benefit consumers,” he said. While competing suppliers have allegedly tried to slow down the permitapproval process, Puma received the go-ahead last week. Puma Energy’s prior entry into the industrial LPG market has already been felt. After a year supplying the local industrial market with LPG, Puma has managed to capture 7% of that segment, in terms of import volume. The company estimates savings of $100 million to the local economy as a result of increased competition. LPG prices haven’t dropped even though oil prices have fallen signifcantly. As a result, the Consumer Affairs Department (DACO by its Spanish acronym) issued an order to control grossprofit margins starting Nov. 18, 2015, as a result

of the high prices in the consumer segment of the LPG market. In May 2015, the commonwealth government added 36.9 cents per gallon through the petroleum-tax hike known as la crudita in Spanish. Puma Energy began preparing to enter the LPG market in Puerto

Company officials only needed to renovate Puma’s permits, which is in effect until 2020. The company is currently exporting LGP to St. Croix, U.S. Virgin Islands, and plans to expand export sales to other Caribbean islands. Puma is also targeting the use of LPG for private co-

Puerto Rico Electric Power Authority (Prepa) rates. Currently, Prepa rates are about 19 cents per kWh. GAS pRIcES With a 32.5% market share of the local gasstation market, Rodríguez said the company has an “adequate number of [gas] stations.” He added

additional taxes were approved by the commonwealth government on gasoline that add up to 8 cents per liter, or 32 cents per gallon, to the price. Despite the sustained drop in oil prices, the price of gasoline remains higher than it would be without the tax hikes approved by the Alejandro García Padilla administration. On March 15, 2015, Puerto Rico consumers began to experience the effects of the latest la crudita tax

doesn’t see anything in the near term suggesting prices would reach those seen three or four years ago. Benchmark crude-oil prices approached sevenyear lows in early December after the Organization of the Petroleum Exporting Countries (OPEC) opted to continue producing at will to defend their market share from non-OPEC countries. Unrelenting oversupply in world markets had already weakened bench-

The cost of energy generated from these projects fluctuates from 10 cents to 12 cents per kilowatt-hour (kWh), which is much lower than puerto Rico Electric power Authority (prepa) rates. currently, Prepa rates are about 19 cents per kWh.

puma LpG tanker truck arriving at terminal

Rico in January 2014, with a $46 million investment in the construction of LPG facilities at its Bayamón terminal, which increased capacity by 4.2 million gallons. Puma already had a permit to distribute LPG for the industrial market, as a result of their Caribbean Petroleum Co. (Capeco) acquisition.

generation projects for manufacturing plants, hotels and hospitals. The average investment in an LPG cogeneration project ranges from $1 million to $1.3 million per megawatt. The cost of energy generated from these projects fluctuates from 10 cents to 12 cents per kilowatt-hour (kWh), which is much lower than

that Puma just needs to “optimize its points of sale” and that “expanding the network isn’t an objective. “We are seeing the lowest gas prices possible in Puerto Rico, given the [current] cost structure, taking into account the additional taxes imposed on gasoline,” Rodríguez said. In 2013 and 2015,

increase on petroleumproducts, which raised the price of gasoline by 4 cents a liter, or nearly 16 cents a gallon. Rodríguez didn’t want to speculate about whether gas prices would continue their downward slide. “The reality is that markets vary according to supply and demand,” he said, and added that he

marks during November. Global oil-demand growth is now forecast by the International Energy Agency to slow down to 1.2 million barrels per day (mb/d) in 2016, after surging to a five-year high of 1.8 mb/d in 2015. n

—Assistant Editor Rosario Fajardo contributed to this story.

Thursday, december 24, 2015

Government

Puerto Rico Statistics Institute puts in motion $3 million a year, five-year roadmap to modernize economic statistics

P.R. Statistics Institute, Planning Board to Bring Statistics to the 21st Century BY EDISON REYNALDO MISLA r.misla@cb.pr

After years of questions on the reliability of official estimates and projections on Puerto Rico’s economy, the P.R. Statistics Institute has put in motion an ambitious five-year roadmap to finally modernize the commonwealth’s economic statistics. The plan requires an investment of $3 million per year and is the result of a collaborative effort between Statistics Institute Executive Director Mario Marazzi and P.R. Planning Board Director for Economic and Social Planning Luis R. Benítez. Both agencies have signed an agreement to implement the initiative. “The true cost of not getting this right five years from now is intolerably high,” Marazzi said to Caribbean Business. He cited the report by former International Monetary Fund official Anne Krueger that stated that “improved statistics and transparency could pay for themselves,” but they have an initial cost. The institute has additional budgetary resources this fiscal year that it can make available to the Planning Board to improve the quality of their statistics, Marazzi explained. The board of the Statistics Institute had approved $500,000 for the improvement of

National Account economic statistics. The roadmap aims to ensure that Puerto Rico’s National Account statistics comply with global standards and adequately measure the size of the informal economy every year. It could also help facilitate Puerto Rico’s future re-entry in the World Economic Forum’s global competitiveness rankings, which this year abruptly excluded the island. The economic statistics issue was highlighted recently in the socalled Krueger report. “Statistics on the wider

economy need to be strengthened—urgently,” stated the study, which was released in early June. “Without them, the [Puerto Rico] commonwealth is flying blind.” Milestones for the roadmap are slated for the spring of each year, to coincide with the release of the Governor’s Statistical Appendix. For the first year, the underlying deflator methodology will be changed and the base year updated from 1954 to 2000, answering criticism from many economists and commonwealth

bondholders. Such a change may have important government policy implications in the years ahead. “The numbers will change but what we care about most is how they change over time,” Marazzi said. The Bureau of Economic Analysis (BEA) recommended in 2011 changing the methodology used to estimate banking and insurance services. “The BEA says that when we do this, the gross domestic product (GDP) will be lower, all else being equal.” At the same time, banking should be treated as an intermediate and not a final good, Marazzi explained, so it needs to be subtracted from the production, not added. In some cases, changes in economic statistics reporting would be gradually phased in. In a given year, statistics would be published in the traditional manner alongside a table with the new data. “We have to do it this way so that the user can compare and see the impact [of the change],” Marazzi said. The following year, only statistics using the new methodology will be published. The successful implementation of the roadmap faces a number of critical challenges,

The successful implementation of the roadmap faces a number of critical challenges, foremost among them is that “there is no one in Puerto Rico who is an expert in the United Nations’ modern national accounting standards.” —Mario Marazzi

Mario Marazzi, Statistics Institute executive director

foremost among them is that “there is no one in Puerto Rico who is an expert in the United Nations’ (U.N.) modern national accounting standards,” Marazzi said. Currently, Puerto Rico’s national accounting statistics are presented in compliance with the U.N. standards dating back to 1968. “We need support and resources from outside Puerto Rico, from people who are capable and experts in this area,” he noted. Another challenge is internal opposition to change stemming from the Planning Board’s own technical staff. While gross national product (GNP) remains a useful economic indicator, the problem is that is has been “erased”

from national accounting standards and substituted by GDP, Marazzi explained. Since 1993, GNP has been referred to as gross national income, he added. “We need to change the way we call things to be consistent with the rest of the world.” While there has been an international push for the past seven years to make GDP the main economic indicator, local economists have argued, however, that GDP can’t be used to adequately measure the size of the local economy, Marazzi said. “If that is the case, then Puerto Rico doesn’t have the statistics to compare itself with the rest of the world. It’s a dead-end street [position].” n

Thursday, december 24, 2015

The Beginning of a New Era in Media On Thursday, Nov. 19, 2015, a new era in communications dawned in Puerto Rico with the official launch of Latin Media House (LMH) during a morning celebration at the Puerto Rico Art Museum in Santurce. LMH associates enjoyed a sumptuous breakfast, followed by an off-the -wall presentation by local improv-comedy troupe Teatro Breve in the museum’s Raúl Juliá Theater.

Miguel Ferrer, chairman Latin Media House LLC

Natasha Santiago, head Human Resources, Miguel Ferrer, chairman Latin Media House LLC, Philipe Schoene Roura, executive editor

from left to right: LMH's leadership team: CEO Heiko Faass, Executive Editor Lifestyle Publications Daymar Torres, Head of Human Resources Natasha Santiago, Chairman Miguel A. Ferrer, Executive Editor CB Philipe Schoene Roura

Heiko Faass, CEO Latin Media House LLC, presenting the new covers of Puerto Rico’s top magazines

Afterward, LMH’s CEO Heiko Faass and Chairman Miguel A. Ferrer addressed the audience, sharing their vision for the company, which includes strengthening and further developing publications such as Caribbean Business and Imagen. The ambitious plans for LMH also include creating a solid and aggressive media platform that is digital and bilingual, aimed at the

Hispanic markets on the U.S. mainland, as well as an eventual expansion to the Latin American region. Both Faass and Ferrer stressed that each and every staff member comprising the company’s team is essential in helping to ensure the success of LMH’s mission to take communications in Puerto Rico to a whole new level, both within the island and beyond its shores.

Luis Valldejuli, Ismael Torres, Rosario Fajardo, Laura Maldonado, Philipe Schoene Roura and Juan A. Hernández, CB editorial staff

Isabel Sanz, Nedda S. Perales, Annette Oliveras, Amanda Díaz, Tamara Ortiz and Awilda Irizarry, LMH

Blane McLane, Evangelina Mercado, José L. Carmona, Mario Belaval Díaz and Dennis Costa, CB editorial staff

Thursday, december 24, 2015

Manoly Ponce, Lizzette López, Elena Díaz, Cheryl Lamboglia, Jackeline Matos and Michelle Ortiz, Caribbean Business Sales Department

Nybiam Rosado, Olga González, Myrna Pintado, Lilly Pérez, Viveca Mellado, Claribel Hernández, Deborah Cuevas, Yoiki Fernández, Dolmarie Monge, María Lanza and Eileen Guzmán, Imagen Sales Department

Amanda Díaz, Elena Menéndez and Sandra López, LMH

Awilda Irizarry, Heriberto Rodríguez and Sandra Espada, LMH

Thursday, december 24, 2015

Yoel Parrilla, Art & Photography Manager, LMH

Manuel López Amador, Art Director, LMH

Louis Deliz, Dennis Chaparro, María Donis, Annie Maldonado, Blanca Santiago and Daniel Rosado, (back row) Iván Ramírez, Luis ‘Rafy’ Vázquez and Carlos Laboy, Production Department

Edgardo Torres, LMH

Members of the Teatro Breve Troupe

Front row, Marilda Quiñones, Mariecruz Ortiz, Annie Espinet, Luz Córdova, Ana Ortiz, (back row) Jorge Peña, Francis López, Mairim Rodríguez, Hiram Rios and Roberto Sotto, LMH

A partial view of the activity held in the Museo de Arte de San Juan

(Front Row) Marianella Rosario, Ivonne Morales, Elizabeth Rodríguez, Ivette Torres, Caroline Pérez, (back row) Alfonso Santiago, José Román, José Colón, Eduardo Pacheco and Ángel Padilla

Thursday, december 24, 2015