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S&P500
2343.98
-1.98
-0.08%
NASDAQ
5828.74
+11.04
+0.19%
NYSE
11418.887
-12.008
-0.1050%
GOOG
814.43
-3.15
-0.39%
YHOO
46.4
-0.2
-0.43%
AAPL
140.64
-0.28
-0.20%
AMZN
845.61
-1.77
-0.21%
FB
140.34
+0.81
+0.58%
BPOP
38.69
-0.02
-0.05%
EVTC
15.75
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-1.25%
OFG
10.95
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FBP
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GTS
16.73
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+0.78%

Publisher’s Letter

By on February 11, 2016

Dear Readers:

Much to my dismay, the process of restructuring Puerto Rico’s debt is moving toward what I believe is a disastrous path for local bondholders and for the economy as a whole. This issue, which I submit needs to be understood by all Puerto Ricans, causes me to address you as Publisher of Caribbean Business, something that I had hoped to significantly limit or avoid altogether. The situation, as I see it, is that local bondholders have been placed at the bottom of the structuring pyramid so that the offer they will receive consists of a near wipeout of their investments.

The restructuring, apart from the disastrous effect on their individual financial well-being, is also devastating to the Puerto Rican economy, at a time when we have been suffering from a 10-year recession. Assuming local bondholders still hold $15 billion in local bonds (from an estimate of $22 billion held until 2014-2015) and they received but 40% of their principal, this loss of principal equates to $9 billion in real losses, as distinct from the present paper losses, which by themselves are caused by the ongoing bad publicity on Puerto Rico’s fiscal woes.

The loss of current interest payments is also a crucial matter not being given appropriate weight. At 5% average coupon, the foregone income proposed erases $750 million of income from the bondholders’ pockets with the concomitant effects on the economy itself.

There are other ways to restructure Puerto Rico’s fiscal black hole so bondholders do not assume the main burden of getting Puerto Rico back on its feet and, thus, not suffer their investments going by the wayside.

All constituents involved need to shoulder this Puerto Rico problem, that is the taxpayers, the pension plans, the government and the bondholders, plus those individual government entities that are being rescued.

Overall, the proposal being promoted is disastrous for Puerto Rico investors, who believed in their country and put their money where their hearts were.

 

*Holds a portfolio of Puerto Rico bonds

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  • Heiko Faass

    we don’t delete or censor comments unless it is defamatory etc. – there can be a delay in approving comments, though..

    • Errol

      Reviewing before publishing is certainly appropriate. However, an old adage goes: justice delayed is justice denied. Similarly, delaying publishing beyond the same day is essentially refusal to publish since the articles commented upon are usually not visible any more to readers;.

      • Heiko Faass

        noted. We’ll get quicker.

  • William Rapien

    I will not argue about whether there is corruption in the government or whether government policies have been a root cause of the problem. But I think we are also missing the fact that the people themselves are one of the major sources of the problem. Even when taxes were lower, a lot of citizens and businesses cheated on their taxes. Or are on food stamps while holding down a good job. Or getting a BECA by lying about their income.

    I have seen cases where people reroute the power to their houses to avoid paying their electric bills. The same with water lines. The public often do not bother getting permits to build houses and businesses until after the fact when they need to hook up to the utilities. And then they wonder why there are brownouts and lack of water pressure in their neighborhoods. Permits prior to building are required so that the utilities can verify if there is infrastructure capacity for the project and to plan upgrades to the infrastructure before excessive demand is placed on them. Excessive demand can damage the infrastructure. (Sorry, the engineer in me is being manifested.) Of course that does not excuse the high fees for permits nor the excessive delays in approving them or in upgrading the infrastructure.

    The point is that it is not just the government that is at fault. It is the customary way we all do business in Puerto Rico that needs to change. People have become accustomed to doing things “under the table” often because it seems the only way to get something done. We need to start doing things correctly because it is the right thing to do. We need to return to being a moral people rather than just a religious (or irreligious) people.

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