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08/18: Code of Conduct – Fiscal Oversight Board

Insights into the fiscal discipline of PROMESA staff in Puerto Rico

Code of Conduct – Fiscal Oversight Board Puerto RicoPuerto Rico’s fiscal and economic crisis has thrust people into unlikely roles. On June 2016, President Barack Obama signed the legislation Puerto Rico Oversight Management, & Economic Stability Act to address Puerto Rico’s economic crisis. The Act established a 7-member oversight board with an Executive Director and staff to, among other things, provide Puerto Rico with tools to impose discipline over its finances, meet is obligations, and restore confidence in its institutions. The Board has sweeping powers over the Island and its staff has a significant and increasing budget, paid by PR taxpayers, to execute those powers. After the devastation of Hurricane Maria on September 2017, the economic reconstruction of the Island becomes even more important for PR to meet its fiscal and debt obligations. Is the entity in charge of balancing fiscal budgets and controlling expenses in PR applying these same principles to its expenses? It is in this context that this issue analyzes how the administrative staff of the Fiscal Board stacks against results.

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07/18: A New Incentives Code: Problem or Solution?

Proposed incentives may hurt or benefit PR’s economic sectors
A New Incentives Code: Problem or Solution?PR is once again at a crossroads. This time, however, with a much more critical end-game. The combination of continued public-debt negotiations—with no easy-fix in sight—and an uneven reconstruction effort have transformed what otherwise would be normal processes into make-or-break events. Nearly everything—from fiscal budgets to public officials’ salaries—has become contentious. The recently proposed incentives code adds yet another layer of complexity to this conundrum. Long gone are the days where public policy “only” had to ensure that the Island remained attractive to Foreign Direct Investment (FDI) vis-à-vis other jurisdictions. Now, incentives need to balance the Island’s multi-level economic reconstruction needs with its changing sociodemographic fundamentals. This issue examines the impact of the proposed incentives measures on key economic sectors and its desirability in its drafted form.

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06/2018: In Search of Better Ways for Puerto Rico

In Search of Better Ways for PROn labor reform and job creation options

Puerto Rico desperately needs new sources of jobs, but the labor reform proposed by the Puerto Rico Federal Oversight and Management Board (FOMB) has not been convincing. By requesting an end to long-standing employee benefits, like Law 80, FOMB intended to align the local labor market with that of the US and allegedly remove what is seen as an impediment for higher labor participation, job creation, and economic recovery, in general. However, the proposed labor reform set forth by FOMB seems to draw a lot from the Bible of the International Monetary Fund (IMF) but misses critical points of the very particular economy of Puerto Rico. In fact, we could wind up in a worse situation. This issue of Pulse analyzes some myths regarding Puerto Rico’s labor market and suggests better alternatives to incentivize jobs in the Island’s labor market.

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05/2018: Is Employment At Will A Solution?

Labor LawAnalysis of proposed changes to labor laws in Puerto Rico

Puerto Rico is currently debating amendments to labor laws intended to improve competitiveness, attract investment, create new jobs, and halt migration, among other things. House Bill 1634 and Senate Bill 1011 – address the repeal of Law 80, which, among other things, provides a severance formula for computing the amount an employer must pay when a regular employee is dismissed without just cause. Although the Government is clear this “…will not create the jobs Puerto Rico needs, it justifies its support to repeal the law because “.it was necessary to reach an agreement with the Financial Oversight & Management Board (FOMB) and avoid eliminating the Christmas bonus for all workers, public and private, and the seven-day reduction to vacation and sick leave for private employees.” The Board argues repeal of Law 80 will contribute 1% to PR’s GNP. Senate Bill 919 aims to legislate the Labor Reform Law of 2018. Find out if the arguments for these bills are reasonable and documented.

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04/2018: A New Privatization Model for PREPA

Competition can support Puerto Rico’s future

PrivatizationThe aftermath of hurricanes Irma and Maria essentially sealed PR Electric Power Authority’s (PREPA) fate, at least in its current legal form. The magnitude of the physical destruction experienced both by its generation capacity and its distribution networks renewed historical calls for its privatization. That possibility now seems irreversible, particularly given the Fiscal Oversight Board’s (FOB) drive to impose austerity across the public sector and the government’s market-friendliness inclination. However, not all privatization processes are the same and, by extension, not all lead to the same outcome. This issue of Pulse presents a novel approach to privatization—one based on the controlled introduction of competition in regional markets. The approach described herein has been successfully applied elsewhere. More importantly, it is designed to align electricity generation with PR’s changing socioeconomic landscape at zero cost to the government, consumers and businesses. Sometimes, privatization does work.

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03/2018: Tic-Tac-Toe – Game Changer

Hurricane Maria changed Puerto Rico’s economic forecast

Tic-Tac_ToeDespite geopolitical tensions between the US and North Korea, most of the world and the US posted gains in real economic growth during FY2017. On November 2016, President Trump was elected in the US and Governor Rosello was elected in PR. A lot has happened since then: a US Congress mandated oversight fiscal board with ample powers over the Island; two hurricanes in September 2017 that left destruction and devastation in an economy already in economic depression; destruction of infrastructure, and a flurry of reforms and fiscal plans. Economic recovery in PR will take many years; require billons of disaster monies; and a transformation of our economy towards other key sectors, besides manufacturing. Governance has become more complex with clashes between the PR Government and the Oversight Fiscal Board. The impossible occurred when bankruptcy proceedings for PR under Title III of PROMESA began in May 2017. Find out how Tic-Tac-Toe impacts Puerto Rico’s economic outlook.

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02/2018: Out With the Old, In With the New – Part II

The Government’s Revised Fiscal Plan stumbles on assumptions

Out with the Old In with the NewEconomic modeling is both science and art. Failure to take this seriously leads to wrong decision-making scenarios in PR. If that was acceptable in the past, it is not at present. Old ways relied on a relatively stable population to forecast growth and fiscal revenues. As per the revised fiscal plan, this appears not to be the case. Old ways relied on government revenues forecasted, in many cases, as trend of past collections. Now, these revenues must be tied to demographics and economic growth in the aftermath of hurricane Maria. Old ways relied on GNP growth forecasts by the PR Planning Board. Now, the forecasts in the fiscal plan need to use a coherent economic model of PR’s economy rather than mere assumptions with irreconcilable results. This issue questions the assumptions and results of the most recently revised Central Government Fiscal Plan.

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01/2018: Out With the Old, In With the New – Part I

Elements of a much-needed economic plan
Out With The Old In With The NewOut with the old and in with the new is a two-part analysis of key strategic elements that Puerto Rico’s economic plan must outline and execute if we are to compete and regain our title of the “Shining Star of the Caribbean”. Infrastructure is a recurrent topic in economic growth and development strategies. Hurricane Maria devastated the Island’s electrical system, highways, ports, water facilities, and telecommunication systems. To this date, neither the Government nor the Supervisory Fiscal Board have communicated the outline of such a comprehensive Plan and instead, the Governor has announced the need to privatize the PR Electrical Power Authority and the Board has insisted on a revised Fiscal Plan. Meanwhile, government liquidity and credibility issues threaten the continuation of government services and timid recovery efforts. This Issue addresses what needs to change from the old to the new focus in strategy and execution if PR is to compete, worldwide.

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12/2017 The Perfect Storm in 2017

Irma, Maria, and the US Tax Reform
The Perfect StormOn Wednesday December 20th, 2017, the House of Representatives joined the Senate in passing the US Tax Cuts and Jobs Act. This is a major overhaul of the US tax code that will substantially cut corporate tax rates on a permanent basis and tax cuts to households that will expire over the next decade. It will also increase the Federal deficit by $1.5 trillion and adversely hits Puerto Rico as “collateral damage”. PR will remember 2017 as the year of the perfect storm with category 5 hurricanes Irma and Maria in September and the US tax reform. The latter threatens 50% of our GDP, 288,000 direct and indirect jobs, and 33% of the central government budget. The hurricanes destroyed PR’s electrical grid; uncovered the face of poverty; bankrupted many small and medium businesses; incentivized massive migration to the US, and further curtailed PR’s autonomy to govern itself as Congress mandated a Fiscal Supervisory Board. Will business and financiers gamble on PR?

 

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Nov 2017 The Other Side of Maria: Poverty Uncovered

A comparative analysis over time
Since 1970, official statistics corroborate that Puerto Rico made significant advances on the war on poverty. Economic growth and federal assistance in the Island were responsible for poverty reduction. On September 20th, hurricane Maria hit Puerto Rico leaving major economic damages and wiping out most of the vegetation in the Island. Besides its physical and economic impact, Maria also uncovered the poverty that exists in the Island and which makes us the poorest jurisdiction among the 50 States and PR. The face of poverty includes children, women, blacks, and the mountain area in PR. This issue addresses how poverty has changed in PR, what was the profile of poor people before Maria, what are the welfare programs to fight poverty, and what will it take to halt the increase in poverty levels caused after hurricane Maria.

Poverty Uncovered