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.

Puerto Rico Economic Pulse ©

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?