Friday, January 19, 2018

Think Strategically: Reviewing the president’s and the governor’s performance after their 1st year

By on January 8, 2018

We use financial and economic metrics to measure performance, and on that note, this issue of Think Strategically is dedicated to evaluating how the U.S. and Puerto Rico economies have performed after one year under President Donald Trump and Gov. Ricardo Rosselló. It is important to note that measuring a presidency or governorship takes much more than these metrics, but they allow us to measure the overall direction of our economic well-being.

On Jan. 20, 2017, we watched the traditional transition of power in the United States. We witnessed the swearing in of Donald J. Trump as the 45th president.

President Donald J. Trump

Sources: Bureau of Labor Statistics, Federal Reserve Bank of NY, Junta de Planificación and Estudios Técnicos.

As we can note by comparing the movement in all these variables, at first glance it seems the president is doing an excellent job with regard to economic metrics that are used to judge how the U.S. economy is performing. To properly discuss his success and failures, we must go deeper than these variables.

The president’s most crucial wins have been:

  • Passing federal tax reform: This is the first tax reform since 1986, or since Ronald Reagan was president. This change will have significant, long-lasting effects on our economy as we go forward.
  • Corporate America embracing his policies as the Dow Jones Industrial Average closed above 25,000 for the first time in its 121-year history, and with it establishing the first milestone of 2018.

Meanwhile, most experts agree that most of the president’s failures have been self-inflicted. Following are our top six:

  • Inability to condemn the alt-right: The President’s response to Charlottesville was unworthy of a president.
  • Firing of FBI Director James Comey: This action was not only ill-timed and unwise, but it also created the basis for Congress to assume there was more than meets the eye regarding the Russia investigation. Additionally, it led to the appointment of Robert Mueller as special counsel to investigate possible conspiracy between Russia and the Trump campaign to affect the elections.
  • Supporting an alleged sexual predator: Endorsing Alabama Senate Candidate Roy Moore was an endorsement no president should have gotten involved in.
  • Use of his Twitter account: He continues to overshadow his policy achievements, his remarkable address to Congress and speeches in Saudi Arabia, Warsaw and South Korea by tweeting over Arnold Schwarzenegger’s failure on “The Apprentice,” among other matters.
  • Little effort to seek bipartisanship: For a president that boasted about his capability as a negotiator and deal magician, it seems odd he would only focus on Republicans and not seek to unite the country.
  • Not understanding his role as president: It seems to most that the president lacks an understanding as to how to approach his job and the power that comes with it. Petty issues have eroded his standing as a world leader.

Investors have now had a year to evaluate the president, and regarding economic performance, most conclude it was an excellent year for the economy. However, regarding image, policy, perception and approval, most Americans find he has his work cut out for him.

To make progress on all these fronts simultaneously is a huge task and will likely take longer than many expected. Ultimately, it does not mean the administration will not eventually be successful, but it does suggest that attention must be paid to the sequencing and legislative priorities of the government.

For investors, policy shifts may impact the economic outlook, so it is also essential to keep an eye on current market fundamentals.

Gov. Ricardo Rosselló marks his first year in office

No one can dispute that Gov. Ricardo Rosselló inherited a Puerto Rico that was declared bankrupt, with a Financial Oversight and Management Board to deal with, an economy in retraction and without access to the capital markets. We have compiled how he inherited Puerto Rico and how the economy has performed during the first year of his administration. We use this tool as providing points of reference for measuring success and how to recognize it.

On Rosselló’s Inauguration Day Jan. 2, 2017, he inherited the following Puerto Rico benchmarks, and these are the results:

Sources: Bureau of Labor Statistics, Federal Reserve Bank of NY, Junta de Planificación and Estudios Técnicos.

Although we see improvements in unemployment, median household income and GNP growth, we have what we need to realize our potential, expand our growth and focus, while breaking the chains of the fiscal imprudence that has hampered our path.

We have seen substantial advances regarding budgetary discipline by approving the Fiscal Plan and budgets, as well as advances in approval of close to 40% of the legislative agenda. These include new economic development tools, such as updating the Public-Private Partnerships law, attempts to reduce government, increased participation in economic development and investment opportunities, among others.

On Sept. 20, 2017, everything changed for both Puerto Rico and the administration. While no one could have prepared Puerto Rico for the impact and aftermath of Hurricane María and its obliteration of the island, the destruction inflicted has altered the plans and aspirations of the governor of Puerto Rico. The disruption of electric power service, water supply and telecommunications, as well as damage to roads, bridges, 250,000 homes and having ground the island to a halt in some areas for nearly a month has changed every priority for the government.

This crisis has elevated the fragility of most essential services to new levels. During the crisis, the governor was able to attract to the island the U.S. president, the vice president, the speaker of the U.S. House and dozens of members of Congress, senators and even some governors, such as New York’s Andrew Cuomo, who has become an essential ally for Puerto Rico.

The governor has requested $94 billion in aid from Congress, which passed an additional assistance package of $81 billion that includes Texas, Florida, Puerto Rico and California in late December. Now the bill is in the hands of the Senate. It is safe to say the hurricane put Puerto Rico in the Washington spotlight for the first time in decades.

Some of the critical advances Rosselló accomplished now have to be reworked, as the hurricane derailed some of the initiatives, specifically regarding the fiscal plan. Even as disruptive as this event was, the whole country has seen a governor who works hard for his people, who is committed and has a sense of urgency and an impressive work ethic.

In our view, his most important advances:

  • Placing Puerto Rico on the Washington agenda for hurricane relief & FEMA: For decades, Puerto Rico was absent in the Washington agenda, which Rosselló changed.
  • Seeking Medicare and Medicaid parity: Puerto Ricans pay 100% of the Medicare and Medicaid insurance costs, yet they receive less than 40% of the benefits, a discriminatory practice in any book. The governor has taken that message to the point that parity may be on the horizon.
  • Making sure the U.S. public understands that there are 3.4 million U.S. citizens that live in Puerto Rico: As recently as Sept. 26, and at the peak of the news cycle coverage about the destruction wrought on the island, a total of 54% of Americans did not know Puerto Ricans are U.S. citizens.

On the flipside, most experts agree that most of the governor’s mistakes came after Hurricane María. Our observations follow:

  • Establishing that 95% of Puerto Rico would have electricity by Dec. 15, 2017: Even as hopeful as this goal was, it gave expectations to people who were desperate, a less-aggressive goal would have been better.
  • The Whitefish contract: Granting a contract of up to $300 million to a two-person company without much history should have been avoided. It created a storm in Washington that altered Puerto Rico’s credibility. The Puerto Rico Electric Power Authority (Prepa) could have easily avoided the scandal by requesting aid from the American Public Power Association (APPA).
  • Waiting 45 days to request APPA aid: Although this was in Prepa’s court, it impacted the governor directly.

 

 

We are all cautiously optimistic that 2018 shall provide the basis to rebuild Puerto Rico more resiliently. If anything, we are sure the governor will make strides in that direction.

Prasa the shining star amid the crisis

As we all saw, the hurricane decimated most of our essential services, none more necessary than water. The destruction of Prasa’s infrastructure, electrical generation, flooding of facilities spread throughout Puerto Rico, resulting in hundreds of challenges.

Engineer and attorney Elí Díaz is Prasa’s president and CEO. We have known the Jayuya native and his family for more than 25 years. Some may say that would make our review of his performance biased. However, let’s examine the data so you may draw your own conclusion. During this crisis, we saw an active executive who managed the crisis with stellar results.

Prasa was able to provide water service to 62.5% of its customers by Oct. 13 and is currently providing 96.31%. The public utility installed more than 1,000 electric generators but needs over 400 more. It provided an water oasis in every town, efficiently and transparently communicated with the public via radio, TV and news outlets and continues to do so daily. It has discussed its billing process after the hurricane so no one is confused.

We have heard Díaz has often said he will not rest until every Puerto Rican has access to water, and we have no doubt he will accomplish his goal. Prasa is one of the most complex operations our government runs, and to see Díaz thrive during this emergency and succeed in reaching these impressive reconstruction statistics should be an example to every public servant.

We are fortunate to have a person like Díaz as CEO of Prasa. He has qualities that rise above the fray, not only in capability, responsibility, character and moral integrity, but also the the sensibility to help those in need, a trait learned from his parents.

Final Word: How to measure our leaders

While gauging the government through significant economic benchmarks is important, the way the government is managed must also be strengthened.

Benchmarking the government’s performance by comparing it to the past can enhance oversight and accountability of programs, improve the effectiveness and efficiency of services and determine what works while providing critical information needed for making difficult decisions.

It is effortless to evaluate the work of our leaders once it has been accomplished. What is not natural is considering things from their point of view.

No one has said it better than Atticus Finch in “To Kill a Mockingbird”:

“You never really understand a person until you consider things from his point of view–until you climb into his skin and walk around in it.”

Few know how hard it is to run a country, much less one that is divided or one that’s destroyed.

–Francisco Rodríguez-Castro is president & CEO of Birling Capital. He has served in government, multinational and public corporations for more than 25 years and has advised multiple entities in a diverse array of market segments. He has also participated in multiple mergers and acquisitions as well as in structuring transactions that combined surpass $10 billion.

 

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