Don’t Be Another Victim of Puerto Rico’s Default


EspañolMajor US investment houses and many small investors stand to lose billions of dollars, thanks to what appears to be the imminent default of Puerto Rico. In a Business Week interview, Richard Larkin, director of credit at Herbert J. Sims & Co. says he has “lost all confidence in the collective leadership of Puerto Rico.”

He is not alone. Investment brokers and their companies across the United States are bracing for a tough legal fight against the new restructuring law passed in June. It allows public corporations on the island to restructure their debts, a nice way of saying default or declare bankruptcy.

The Puerto Rico Electric Power Authority (PREPA) alone owes more than US$8 billion and is expected to make a payment of $200 million on June 30. Whether or not PREPA will make that payment will give a good indication of where things are going and how fast. With ratings already below junk bond status, Fitch has recently dropped the island’s Water and Sewer Authority Ratings to CC negative.

While the island’ss government continues to promise to honor its obligations, some $73 billion in debt, and has taken some actions to do so, it still faces a slowing economy, dwindling workforce, and strong union opposition to its austerity measures.  The island’s government has yet to address the fundamental problems that have caused this debt. That includes a state government workforce that represents roughly 30 percent of the island’s total employed workforce.

While two years ago the governor promised to create 50,000 new jobs, there are actually 58,000 fewer jobs on the island since last year. The governor even had to admit this last week.

What’s wrong here?

Commonwealth politicians have irresponsibly driven the island’s economy into the ground. The very structure of the island’s government is fundamental to the problem, and it must be changed. Instead of investing more money in a failing system, it is time for business leaders and investors to begin investing in their own future. That is to say, it is time for them to start putting millions of dollars into changing the political status of the island to insure their own investments.

Fund managers, if you stand to lose $100 million or more in Puerto Rican debt, why not invest several million into sponsoring political movements whose goals are in sync with your own? There are currently two: (1) the New Progressive Party’s pro-statehood movement, which needs help to implement the successful results of the last plebiscite, and (2) mine, which intends to create a free-market capitalist and independent Puerto Rico. Statehood has its benefits — additional federal funding is one of them — but my system, while initially risky, offers long-term benefits that would dwarf even statehood.

If you continue to negotiate with Puerto Rico’s current government structure, you will continue to have the same results, and you will lose billions. I lost faith in Puerto Rico’s government a long time ago and know now that only real, fundamental change to the island’s status and constitutional system will solve both the economic problems for the people of Puerto Rico and the financial problems of those who have invested in the island.

It is time for action. Put your money where your interests are, or watch your money go down the drain.

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