Think Strategically: Puerto Rico’s Earth Cries Out
North of 1,500 earthquakes impact island
Everywhere we look around the planet, nature seems to be moving in ways never witnessed by most scientists.
We have begun to see how climate change is altering the natural cycle of life, from hotter and longer days to increased temperatures on most continents, especially in the arctic zones, where the artic caps are melting at a rapid pace. Other ecosystem failures are occurring in the world, for example, forest fires in California and, more recently, Australia that have destroyed both flora and fauna and thousands of homes.
In Puerto Rico, we have been enjoying an extended holiday season that began on Thanksgiving Day and ends Jan. 20 after Las Fiestas de la Calle San Sebastián. All celebrations came to an end for most families on Dec. 28 when two earthquakes, at 4.7- and 5.0-magnitude on the Richter scale, occurred in the area known as the Montalva Fault, some 6 km out in the sea from Guánica. The quakes have continued, and more than 1,500 aftershocks have been recorded within the same geographic area that includes Guánica, Yauco, Peñuelas, Guayanilla and Ponce as Puerto Rico’s Earth cries out.
Finally, as most Puerto Rican families were set to celebrate the Epiphany, or Three Kings Day, on Jan. 6, at 6:32 a.m., a 5.8-magnitude earthquake hit in the area known as Indios in Guánica. The impact created severe damages to homes, businesses as well as landslides. Then, on Jan. 7, a 6.4 earthquake struck the region at 4:24 a.m. local time. This time, the earthquake was felt across the entire island and left Puerto Rico without electric power for the second time in two years. Extensive damage to hundreds of homes was reported, causing more than 50 to collapse in Guánica, and downtown Guánica was basically destroyed with hundreds of businesses damaged. In addition, some schools have collapsed in Yauco, Guayanilla, Peñuelas and Ponce as well as severe damage to hundreds of other buildings. A second 6.0 earthquake followed at 7:15 a.m. local time, also causing extensive damage.
All told, more than 1,500 earthquakes have had an impact on and continue to hit the area.
Thousands of citizens are living in makeshift refugee camps, with tents, tarps, cars or other makeshift temporary shelters. Most fields have thousands of people sleeping in them, including sports venues, parking lots, shopping centers, farms and other locations in their communities outside their homes. These refugees are fleeing nature’s destructive power; they are afraid of losing their lives in their own homes, and there seems no end in sight for nature’s destructive power.
During Hurricane Maria, the government’s inactions allowed 4,645 Puerto Ricans to die, and this time, the island’s residents took matters into their own hands. The outpouring of support for our fellow neighbors includes thousands of private-sector companies sending help. Caravans of aid could be witnessed going south; however, why hasn’t the government evacuated the zone and set up a proper refugee camp at the National Guard’s Camp Santiago? This facility housed the Central American Games not that long ago, and it can be converted into a tent city quite quickly—and outside of the earthquakes’ current epicenter. If the government uses Camp Santiago, all support can be channeled to a single center where it can help all affected in the region. With its location near PR-52, and 45 minutes from the San Juan metropolitan area, this should be the place the government uses to support those in need.
Week in markets
Major indices near all-time highs as Iran takes 2nd stage
The stock market picked up in 2020, exactly where it left off in 2019, even rising with a strange mix of geopolitical issues and rosy economic reports. The way the market is behaving is signaling its likely chronicle for 2020. As the year takes shape, four vectors are likely to have an impact on investor behavior:
Vector 1: As an election year, 2020 will be affected by political risks and policy shifts.
Vector 2: The global, U.S. and Puerto Rico economic performance will be affected.
Vector 3: The U.S. presidential impeachment and election processes will take their toll.
Vector 4: How to sustain current market growth?
All major indices we follow closed at near-record highs as the geopolitical issues between the U.S and Iran took second stage. For now, it seems no further escalation is occurring. Even as Iran retaliated against the recent killing of its general by striking U.S. military bases in Iraq, but there were no reported casualties, and President Trump seemed to stand back from his initial position.
In the second week of trading of the year, the Dow Jones Industrial Average closed at 28,823.77, for a gain of 188.89 points, or 0.66 percent, and a year-to-date (YTD) return of 1.0 percent. In addition, the S&P 500 closed 3,265.35, for a gain of 30.50 points or 0.94 percent, and a YTD return of 1.1 percent. The Nasdaq closed at 9,178.86, for a gain of 158.09 or a 1.75 percent increase, and a YTD return of 2.1 percent. The Birling Capital Puerto Rico Stock Index closed at 1,733.66, a loss of 11.03 points, or -0.63 percent, and a YTD return of -0.9 percent. Meanwhile, the U.S. Treasury’s 10-year note closed with a 1.83 percent gain, or an increase of 1.67 percent. The U.S. Treasury’s 2-year note closed at 1.56 percent, or a gain of 1.96 percent, or YTD return of -0.1 percent.
Jobs growth and unemployment
The Bureau of Labor Statistics reported that total nonfarm payroll employment rose by 145,000 in December, and the unemployment rate remained unchanged at 3.5 percent, with significant job growth happening in retail trade and healthcare.
In December, the number of unemployed people was unchanged at 5.8 million. When compared year over year, it is noted that in December 2018, the unemployment rate was 3.9 percent, or 10 percent higher than December 2019, when it was 3.5 percent.
Final word: San Sebastián Street Party must be postponed
Amid all the suffering, anxiety, destruction, loss of life and crisis, a movement to postpone the San Sebastián Street Party has erupted in Puerto Rico. This effort has begun to attract several figures, including Gov. Vázquez, Archbishop González, several artists and a growing majority of other local people. San Juan Mayor Carmen Yulín Cruz has stated Las Fiestas de la Calle San Sebastián should go on as planned.
We at Birling Capital strongly feel the San Sebastián Party should be postponed; this is not the time for a party when we have thousands of fellow Puerto Ricans without homes, who are sleeping in tents or cars. This is the time to unite all our efforts to support our fellow neighbors in their time of need.
Francisco Rodríguez-Castro, president & CEO of Birling Capital, has more than 25 years of experience working with government, and multinational and public companies.
Puerto Rico’s 12 Governors Have Lacked Transcendent Goals
Puerto Rico’s 2020 elections outlook
Since 1948, Puerto Rico has democratically elected 11 of its 12 governors, beginning with Luis Muñoz Marín and, most recently, Ricardo Rosselló Nevares. We have had industrialists, engineers, lawyers, career politicians and the son of a governor. What we never have had, until recently, was an unelected governor who rose to power after a governor resigned during “The Summer of Ricky.”
Of Puerto Rico’s governors, 10 have been men and only two have been women. By and large, a great variety of smart and transforming initiatives were delivered or attributed to our governors, as well as significant blunders and mistakes.
Every governor is remembered for one or two key issues that permit us to examine our past governors’ accomplishments.
Luis Muñoz Marín: His legacy is as the “Father of Modern Puerto Rico” and the “Architect of the Commonwealth.”
Roberto Sánchez Villella: His legacy included the most efficient public administration of all Puerto Rican-born governors, and he is blamed for the Popular Democratic Party’s (PDP) loss in the 1968 elections.
Luis A. Ferré: His legacy includes PR-52, the Christmas bonus, a 40-hour workweek and the Museo de Arte de Ponce.
Rafael Hernández Colón: The economic booms from Section 936 created gross domestic product (GDP) growth of 5 percent during the years 1987–1989, the highest since Operation Bootstrap. Construction began on the Teodoro Moscoso Bridge and the controversial Pabellón de Sevilla in Spain was built.
Carlos Romero Barceló: His legacy includes Minillas Tunnel, Roberto Clemente Coliseum and the creation of the Puerto Rico Federal Affairs Administration. He was frequently associated with the Cerro Maravilla shootings in 1978.
Pedro J. Rosselló González: His legacy includes the Puerto Rico healthcare plan, and starting the construction of the Convention Center, Coliseum of Puerto Rico and Superaqueduct. Rampant corruption also reminds us of some of his associates.
Sila M. Calderón: Her legacy includes being the only woman governor elected in Puerto Rico, who actively took action to eliminate corruption through a Blue Ribbon Committee that largely stalled the government’s work. She restored citizens’ confidence in government, revamped government finances and retained credit quality, spurred economic growth and job creation, and gave particular attention to the most disadvantaged sectors of the population. The controversial Special Communities Program provided $1.4 billion to poor communities and funded it with $1 billion from the now-defunct Government Development Bank.
Aníbal Acevedo Vilá: His legacy includes the adoption of the sales & use tax, the government’s shutdown and a shared government. He was also indicted and charged in a long-running public corruption probe, along with 12 other people; he was later acquitted.
Luis Fortuño: His legacy includes attempting to fix the government’s finances; Act 7 that eliminated 20,000 government employees; the 4 percent tax on pharmaceutical manufacturers; and the public-private partnerships law (P3) that converted the Luis Muñoz Marín Airport and PR-22 into world-class P3s.
Alejandro García Padilla: His legacy includes the Puerto Rico government debt crisis, declaring Puerto Rico could not pay its debts and would default on its bond payments, which forced U.S. Congress to enact the Puerto Rico Oversight, Management & Economic Stability Act.
Ricardo Rossello Nevares: His legacy includes spearheading Puerto Rico’s economic recovery after Hurricane Maria, which grew the GDP to 1.7 percent, a 136 percent increase, lowered unemployment to 9.0 percent, which was the lowest levels in 30 years, among other initiatives. He is also remembered by the controversial Telegram chat that forced him to resign.
Wanda Vázquez: While it is too early to tell, she provided much-needed stability to the government after Rosselló’s resignation.
It is often said that great governors have been those who served in times of crisis, and to a high degree, the mystery of human nature comes into play. One of the relevant cohesive stories from these 12 Governors is the fact that not a single one of them was able to develop a plan for Puerto Rico broader than their term in office. That is why we need to develop supranational goals, objectives that would live beyond the governor’s four-year term.
Week in markets: U.S. stocks rally, uncertainty removed
The U.S. stock market rallied to new record highs after the three elephants in the room revealed their kimonos and erased some of the uncertainty that had been lingering. The top issues include:
Brexit: With the recent dramatic turn of events in the United Kingdom’s general elections, Boris Johnson received a strong public mandate to finalize the U.K.’s exit from the European Union.
U.S. Federal Reserve Bank policy: This past week, the Fed did not lower rates, as was mainly expected, and signaled a pause in monetary policy for 2020.
U.S. & China trade deal: The nations are said to have agreed on what is called a “phase one” trade agreement, which includes agricultural purchases and tariff reliefs; however, this deal has not been finalized.
While these issues will continue to dominate the news until they are resolved once and for all, there are significant risks that volatility will increase as 2020 ushers in the new decade.
The Dow Jones Industrial Average closed the week at 28,135.38, for a gain of 120.32 for the week, or 0.43 percent, and a year-to-date (YTD) return of 20.60 percent. In addition, the S&P 500 closed the week at 3,168.91, for a gain of 22.89, or 0.73 percent, and a YTD return of 26.40 percent. The Nasdaq closed the week at 8,734.88, for an increase of 78.35, or 0.91 percent, and a YTD return of 31.60 percent. The Birling Capital Puerto Rico Stock Index closed the week at 1,6664.67, or a gain of 54.96, or 2.71 percent over the previous week, and a YTD return of 20.34 percent. Meanwhile, the U.S. Treasury’s 10-year note lost this week, closing at 1.82 percent, or a loss of -1.09 percent and a YTD return of minus-0.90 percent. The U.S. Treasury’s 2-year note rose during the week to 1.60 percent, a loss of -0.62 percent for the week, and a YTD return of minus-0.87 percent.
The current market rally has lasted more than 10 years up to March 2019, and it is the longest bull market in history. A diversified view can help you navigate significant volatile periods, even recessions, bubbles and market crashes. Doing so will allow you to thrive in bear markets while growing your portfolio.
The final word: Supranational goals needed; what are they?
• Transform Puerto Rico with robust economic development and sustained 4 percent growth over the next two years;
• Align P.R. as knowledge-based economy of not less than 25 percent within a period of 10 years;
• Create 300,000 new jobs in the private sector in the next six years;
• Increase the labor-participation rate to 55 percent;
• Reduce the unemployment rate to 5 percent in six years;
• Reduce the government apparatus by transferring to the private sector any operation that the private sector can perform more efficiently; and
• Transform the educational system, from the primary to university levels, into one focused on entrepreneurship and the trades.
—Francisco Rodríguez-Castro, president & CEO of Birling Capital, has more than 25 years of experience working with government, and multinational and public companies.
Risk rooted in colonial era weighs on Bahamas’ efforts to rebuild after Hurricane Dorian
When Hurricane Dorian made landfall on Great Abaco Island in the Bahamas on Sept. 1, 2019, it packed winds of up to 185 miles per hour and a 20-foot storm surge. A day later, it ravaged Grand Bahama for 24 hours.
Across both islands, the storm brought “generational devastation.” Thousands of houses were leveled, telecommunications towers were torn down, and roads and wells were badly damaged. The cost to the Bahamas has been estimated to be up to US$7 billion – more than half of the country’s annual economic output.
The problem is that not everyone has access to a house that can weather a storm like Dorian. The different ways in which Abaco and Grand Bahama – and their residents – were affected by the same event is yet another example of how disaster impacts are rooted in the historical development of society.
This happens around the world time and again. To really understand what happened in the Bahamas – and determine how it should rebuild – one needs to look back at how society has developed there.
The most catastrophic damage from Dorian occurred in communities like “The Mudd” – a shantytown housing the nation’s largest Haitian immigrant community – where land is not owned by residents, and daily survival is paramount. People there trade the risk presented by massive hurricanes for the necessity of a place to live.
While slavery was abolished in these territories in the 1830s, most descendants of slaves remained indebted and were forced to undertake low-wage agricultural labor for mostly white absentee landowners. Inequalities, injustices and discrimination were thus institutionalized in the colonies, and remain largely in place within now-independent societies.
Alongside invasion, conquest and colonization, contemporary vulnerabilities in the Bahamas reflect laissez-faire historical attitudes toward addressing long-term risk. This is the foundation of contemporary structures of governance, society and the economy – and a big part of why today poor Bahamians, Haitians and Haitian Bahamians struggle for survival.
How can we do better?
Moving into the recovery phase of Dorian is daunting. Affected communities need support to not just return to “normal” but address structural injustice. The probability of stronger storms under climate change – and impacts distributed primarily onto the most marginalized – continues to increase.
A historically and socially conscious approach to recovery and reconstruction could address not only shelter and infrastructure needs, but broader issues of equity and justice.
Optimum building codes, planning policies and design strategies are critical. Much of the detailed hurricane-resistant structural knowledge is proven and available – small design changes make a substantial difference.
But without a plan for achieving equity and establishing basic rights and access for all, solutions will serve mostly the privileged. Colonial patterns of displacement, dependency and disadvantage are likely to be reinforced.
Dorian, like so many others recently, was a monster storm. But blaming disasters on nature – or human-induced climate change – allows those with power to maintain the status quo and to avoid their responsibility for the failures of development.
–The views expressed in the Opinion section are the writer’s own and not necessarily those of Caribbean Business.
IEEFA update: Evaluating Puerto Rico’s energy transformation, an opportunity to define and promote the public interest
PREPA is trying to solve 21st-century problems with 20th-century solutions
Puerto Rico is in the process of overhauling its electrical power system: evaluating its integrated resource plan (IRP), approving wheeling regulations, acquiring a concessionaire for transmission and distribution, and setting up private management of power generation plants, among other measures that will affect the island’s electrical system for years to come.
UNFORTUNATELY, A SCATTERSHOT APPROACH IS BEING TAKEN to address the complexities of restructuring the energy sector. It has become a battle of ideologies, private vs. public ownership, fighting over which side offers more promising performance. The policy proposals have become driven by ideological preferences rather than concrete action plans.
The travails of the Puerto Rico Electric Power Authority (PREPA), like PG&E in California, have demonstrated that it is not the type of ownership, private vs. public, that can bankrupt a utility. Rather, it is a lack of accountability and protection of the public interest.
I had the privilege of serving from 2014 until 2018 as Associate Commissioner and later, as Chair of the Puerto Rico Energy Commission, now called the PR Energy Bureau (PREB). During my tenure, when asked by a reporter if Puerto Rico could be held up as a model for the rest of the world, my answer was that it would be more appropriate to consider us “a model of what not to do” if we continued along the same course. That course has not changed.
A MULTITUDE OF STAKEHOLDERS AND CRITICS HAVE POINTED OUT THE MANY FLAWS contained in the IRP.
However, there is one major flaw from which all others emanate. Namely, there is a lack of definition of what constitutes the public interest. The relevant statute states that any changes must serve and protect the public interest. However, it does not define what the public interest is. The PREB has not defined it either. As a result of this lack of clarity, PREPA has framed the path forward through the lens of its own perceived advantage – promoting natural gas over renewable energy.
It is important to point out that PREPA’s interests are not the same as the public interest, the Authority should be considered a private/special interest even though it is a publicly‑owned utility.
Why is framing so important? It is imperative that frames are understood in order to not become trapped by them. As linguist George Lakoff explains, “frames … shape the goals we seek, the plans we make, the way we act, and what counts as a good or bad outcome of our actions.” Once a frame is set, it may be accepted as the norm by others.
PREPA HAS CONTROLLED THE FRAMING OF THE IRP by repeatedly using phrases and terms such as: “hybrid decentralized system,” “customer-centric,” “wind energy production occurs simultaneously with solar photovoltaic (PV),” “offshore wind will take too much time to study and develop,” “electric vehicles are not practical in PR,” “we have evaluated multiple scenarios,” and “PV and storage will not produce power as quickly as a mobile gas unit after an event like Hurricane Maria,” just to name a few recurring messages.
However, if asked to define what a decentralized system is, the answer would not be anything resembling what PREPA is proposing. PREPA’s version is a system with big centralized natural gas plants, and a transmission and distribution grid divided into eight regions that PREPA calls “mini-grids.” A truly decentralized system would rely instead on small generators, in this case solar generators, dispersed throughout Puerto Rico. Simply calling a system “decentralized” does not make it so.
PREPA HAS ALSO PROPOSED THE MINI-GRIDS AS BOOSTING “RESILIENCY” but for critical loads only (loads related to safety and health). There is no mention of the fact that after the devastation of Hurricane Maria, most, if not all, the critical loads on the Island now have some form of back-up power, either solar with storage or a backup generator. So, it is unclear what additional value these new “mini-grids” would bring.
PREPA also claims it has received anecdotal evidence of solar systems failing during the hurricane. Such statements frame solar as incapable of providing resiliency. In reality, it ignores the fact that, before Hurricane Maria, solar systems were installed primarily for bill reduction purposes (net metering) with technologies that only work when the electric grid is up and running. The framing ignores that current installations can have energy storage and the appropriate technology for off-grid operation.
DURING ITS EVALUATION PROCESS, PREPA CLAIMS TO HAVE EXAMINED MULTIPLE SCENARIOS. It is true that PREPA looked at several variables, however, in reality, the ones tested can be boiled down to just two options: the status quo and adding natural gas-fired central plants. The “variety” of scenarios merely changed the locations for situating the central gas plants.
Renewable energy has been severely short-changed during the evaluation process. Fundamentally, a system driven by renewable energy was never seriously taken under consideration. It is only viewed as a supplement to natural gas. Second, only utility-scale solar is evaluated. Individual and business investments in solar panels were brushed off and offshore wind was completely ignored. In addition, the potential for introducing electric vehicles was evaluated by only one “expert” who concluded EVs would not take off in PR.
PREPA has been able to frame and dominate the narrative of the energy transformation. Although not unique to PR, such framing happens in many other places, but it is extremely alarming and dispiriting when, as nations move increasingly toward renewable energy, opting for 21st century solutions, PR’s answer is a 20th century centralized fossil fuel-based system. Wouldn’t it be in the public interest to attempt a different framing?
* José H. Román Morales is an IEEFA consultant, expert in Puerto Rico’s energy transition.
–The views expressed in the Opinion section are the writer’s own and not necessarily those of Caribbean Business.
Statehood or Not – Show Puerto Rico the Money
Puerto Rico can Have a Fresh Start with a Stroke of a Pen:
–By Scott Smith, inspirational speaker, writer and animal defender.
The U.S. can afford anything it desires. The only catch is that it has to be a priority. Whatever the U.S. wants, the U.S. gets. If the United States wanted to go to war with Iran, how fast would they find a few trillion dollars? If Greenland would be willing to sell itself, how fast would the U.S. find billions of dollars?
Let’s look at two actual examples:
1. When the U.S. wanted to invade Iraq in 2003, was money an issue? Nope. A blank check was thrown at the war. And Iraq had nothing to do with 9/11. According to Brown University’s highly respected Cost of War Project, post 9/11 wars have cost trillions of dollars, and worse, killed hundreds of thousands of people.
2. In 2008, during the banking crisis, Congress came together in a blink of an eye and authorized a $750 billion check for the Troubled Asset Relief Program, aka TARP. It was literally a bailout for the banks and the auto industry. Additionally, the Federal Reserve pumped more than $4 trillion of stimulus into the economy from 2010 through 2014.
Remember, the U.S. can print its own currency. They can create money faster than a magician can say “Shazam.” It’s time for the U.S. government to wave its magic wand at the 3 million plus American citizens residing in Puerto Rico. We have a humanitarian crisis for both people and animals over there.
This is not a U.S. bashing article. I’m presenting an opportunity to bring Puerto Rico back to financial life.
The people of Puerto Rico have suffered enough. “No Mas” they said taking to the streets in July of 2019 with the biggest protests in the Commonwealth’s history, forcing the resignation of Governor Ricardo Rosselló. The protests were a long time in the making. Puerto Rico has been plagued with corruption (from healthcare, to education, politicians themselves and recently, a FEMA arrest was made), reckless spending and policies set forth by the U.S., stifling their economy for decades.
It’s been over 2 years since Hurricane Maria pummeled Puerto Rico. Financial relief has been slim and slow. Over 250,000 people have left the island since the hurricane hit. A total of 600,000 people in the last 10 years. Maria’s damage is estimated at $100 billion. A staggering figure. Just to put that in perspective, the annual GDP for Puerto Rico is about $100 billion.
That’s on top of Puerto Rico being in the financial doldrums since 2006 thanks to Congress abolishing section 936 of Puerto Rico’s corporate tax code, a law that gave huge tax breaks to U.S. corporations in Puerto Rico. When it expired in 2006, manufacturing and big pharma started leaving. The island has been in a recession for 13 years now.
Puerto Rico is $75 billion in debt with another $50 billion in underfunded pensions. Bankruptcy negotiations are still pending. In July 2019, the oversight committee and bondholders apparently struck a $35 billion restructuring deal. The Fiscal Agency of Puerto Rico did not agree with one word of the deal. Additionally, some bondholders are calling the selection of the oversight committee unconstitutional. So, it’s anyone’s guess how this will play out.
It’s time for U.S. to step up for the people of Puerto Rico. No longer should the U.S. allow Puerto Ricans to die on the front lines of American wars, as they have for more than 100 years, and not be permitted to vote in the general election. Nor should they remain financially shackled by the Jones Act, established in 1920, costing Puerto Rico over $500 million a year. The cost of living in Puerto Rico is the same as the average state in the U.S. Yet, If Puerto Rico were a state, it would be twice as poor as the poorest state of all, Mississippi. How can any society have a balanced budget with that logic?
Pretense and Solution –
The U.S. should write a check to Puerto Rico in the amount of $125 billion. Wipe out the $75 billion in municipal bond debt and fully restore the $50 billion in underfunded pensions. The monies should be distributed directly to the bondholders and pension accounts bypassing all politicians and oversight committees. $125 billion is not a lot of money for a $22 trillion economy. To be precise, it’s 1/20th of 1%. Essentially nothing.
Let’s use the 2008 banking crisis as a precedent. The U.S. deployed almost $5 trillion to prevent the oncoming 2nd Great Depression, which was caused by Wall Street’s gambling addiction to derivatives and mortgage backed securities. That’s not even including the massive budge deficits they were running, which would take the figure well over $10 trillion. But, for the sake of argument, let’s use $5 trillion as the example. $125 billion is only 2.5% of $5 trillion. Aren’t the people of Puerto Rico worth that?
Dr. Daniel Nina, professor of Business Administration and Social Sciences at the University of Puerto Rico Humacao Campus explains that whether Puerto Rico becomes a state or not, or receives some sort of bailout, they have to become more self reliant. Puerto Rico imports 85 percent of consumable goods. At the turn of the 20th century Puerto Rico was only importing 15 percent. For the past 120 years they’ve been moving in the wrong direction, forcing them to become more and more dependent on the rest of the world. According to professor Daniel, Puerto Rico’s agricultural and household chemical sectors are fully self-reliant. Other important sectors of the economy are nearing self-reliance. Ultimately, Puerto Rico must become more self-sufficient in most sectors of its economy in order to prevent becoming a welfare state again.
In order for this to start to happen, the 100 year old Jones Act needs to lifted permanently. It’s blatant protectionism for American shipping companies at the expense of consumers. In this case specifically, the people of Puerto Rico. In addition, Section 936 of Puerto Rico’s tax code should be reinstated to incentivize manufacturers and pharma companies to come back to Puerto Rico. This would put them on equal footing with the rest of the United States. It would give the Puerto Rican people a fresh start to rebuild their economy.
So, the multibillion-dollar question is, when will Puerto Rico become a priority for the U.S.?
–The views expressed in the Opinion section are the writer’s own and not necessarily those of Caribbean Business.
In the corporate realm there are initiatives to empower employees and, then, there are gimmicks—what they call whitewashing, if it is to clean an image tarnished by acts of malfeasance; or greenwashing, if the measures taken by the company are an attempt to cleanse ecological messes.
In the case of the W Certified Company™ program—commenced five years ago as an actionable crusade by Women Who Lead LLC (WWL), whose CEO & co-founder, Frances Ríos, and co-creator, Damaris C. Sánchez, established to ensure the inclusion of women in decision-making roles—true empowerment is the bottom line.
After several years of hosting the Women Who Lead™ summits, where women in positions of leadership spoke to up-and-coming executives about the importance of the empowerment of women in the workplace, the two co-founders noticed a misunderstanding in the corporate world about the meaning of true inclusion.
To that end, the two stalwarts of female empowerment launched the W Certified Company™ program to measure true inclusive benchmarks. As part of the methodology to achieve a true gauge of equality, surveys of women in leadership roles were painstakingly conducted at companies in Puerto Rico. Their results were validated by the reputable auditing firm RSM. The progress made in Puerto Rico’s private sector is impressive.
W Certified Companies™ must be fully engaged in the identification of women positioned to take on leadership roles. This is not cheap talk but rather true empowerment—you identify talent, train and empower. The W Certified brigades do not only identify talent, but also seek to drive succession planning at the surveyed W Certified firms—some 93 percent of their women leaders agree that their companies are successful on the talent and succession front.
As a whole, 89 percent of the women in the W Certified universe believe their companies have appropriately addressed concerns over equal pay, a substantial percent higher than the 80 percent with positive outlooks nearly five years ago.
One of the attributes demanded to earn the W Certified Company™ seal of approval is work conducted in the area of social responsibility. On that front, the companies scrutinized jumped from 80 percent engagement by their employees to 93 percent involvement over the past five years.
According to the most recent survey, women ages 18 to 34 ranked their development as a top priority, above equal pay and maternity leave, while cohorts in the 34- to 50-year-old demographic and those ages 51 to 69 valued flextime over development and equal pay.
The survey conducted by WWL shed light on many issues and concerns that some executives take for granted.
For the longest time, sexual harassment had been the dirty secret in maladaptive workplaces. Although the #MeToo movement and the tawdry remarks by the Offender-in-Chief exposed those issues, there is work to be done. Importantly, however, W Certified Companies™ ranked their companies near the 100th percentile in their commitment to the prevention of sexual harassment. The W Certified Company ™ program has that very clear and has the backing of law firm Estrella LLC, which provides support to WWL through workshops and training sessions that lead to healthier work environments.
Significantly, more CEOs are incorporating women in decision-making that leads to successful businesses. Captains of industry know that women are the drivers of 85 percent of purchases at home. “In fact, CEOs today want the best talent—period,” Ríos told Caribbean Business during a recent interview.
It also comes as no surprise that mentoring and coaching rank very high among all age cohorts when it comes to the topic of training and development. Such has been the success of the W Certified Company™ in its inclusion crusade that the Equal Employment Opportunity Commission has ranked WWL as one of the only companies in the entire nation and the only one in Puerto Rico as a significant partner.
If these efforts lead brigades of women in leadership roles to help significantly improve the bottom lines of Puerto Rico’s companies, the island will have a much better opportunity to slowly climb out from this terrible hole we have dug for ourselves. For this, Caribbean Business congratulates the winners and honorees in 2019 (see Special Report pullout).
THINK STRATEGICALLY: The Hawala System
P.R. Courts Ask for Pay Raise Amid FOMB Cuts to Pensioners; Stocks Breaking Records, Investor Sentiment High
The hawala system has existed since the eighth century between Arabic and Muslim traders along the Silk Road. Hawala is a method of transferring money without moving any money. Interpol’s definition of hawala is “money transfer without money movement.” Another explanation is “trust.” Hawala is an alternative remittance channel that exists outside of traditional banking systems. Transactions between hawala brokers or hawaladers are made without promissory notes because the system is heavily based on trust.
If the hawala system or the hawaladers are new to you, it is only because locally the hawala system is called the Central Government, Legislative Branch and the Judicial Branch. All are based on its citizens entrusting them with the power to lead the country in the best possible manner. The Judicial Branch is a system also based on trust, the trust that it will interpret and apply the rule of law in Puerto Rico. Here in Puerto Rico, the Big Hawalader of the Supreme Court is seeking to raise their base salaries 35 percent. Assuming the average superior court judge makes shy of $90,000 a year, the raise would signify an increase of $31,500 and the new average salary would be $121,500 a year. The most significant problem with this salary-increase request is that it comes amid the plan of adjustment of the Financial Oversight & Management Board (FOMB), where bondholders, retirees and most constituents are to receive significant haircuts on their bonds, pensions and obligations.
The country should be appalled with this request from the Judicial Branch because it does not reflect Puerto Rico’s reality and current dire financial condition. But remember, for the hawala system, trust is key. While most judges may be doing an ok job implementing justice, we know the system is flawed. Very little is accomplished on time; if you were to go to a courthouse on any Friday at 2 p.m., you would find it deserted. Nothing begins before 9 a.m., and most sessions are ended quite early. In addition, the courts’ infrastructure is in poor condition, and it has an outsize operation that has not adjusted to the realities of the demographic decreases. So, why not base the judges’ salaries on productivity, or percentages of the caseload that was resolved, or even by measuring the court docket decreases every month and evaluating how justice is being served expeditiously.
Measuring productivity is a concept the judicial branch would fight because they view their job as an art form, and artists take time. So, we must trust that justice will be served with prudence and compassion once the new salaries are implemented. However, before we conclude, let us review some of the data that compares the salaries of public servants in Puerto Rico with their peer group in the United States.
We compare the average salary of a judge with that of the per capita income in Puerto Rico; their pay is $70,657 or 365 percent higher than Puerto Rico’s per capita income. What is the basis of this salary increase? Why now? What metrics are being used to measure productivity? Does the Judicial Branch know Puerto Rico is in bankruptcy? All the right questions are not being answered. The fact is that our Hawala System based on trust is costing Puerto Rico a pretty penny.
Week in markets: U.S. stocks breaking records, investor sentiment high
The U.S. stock market continues to rally as it produced the fifth-straight week of substantial growth. The main drivers of the rally are:
•U.S. and China trade negotiations showing strong signs of continued progress.
•78 percent of corporations registering better-than-expected earnings growth has increased investor confidence.
•Global economic front is showing signs of normalization.
•U.S. Treasury yields have climbed to their highest level in months.
Although there are still several items to be finalized in trade negotiations, we are cautiously optimistic that in the near term, there will be a final deal that will provide the markets with the confidence it needs to maintain the current bull market.
The Dow Jones Industrial Average closed at 27,681.24 for a gain of 333.88 points, or 1.22 percent, and a year-to-date (YTD) return of 18.70 percent. In addition, the S&P 500 closed the week at 3,093.08, for a gain of 26.11, or 0.85 percent, and a YTD return of 23.40 percent. The Nasdaq closed the week at 8,475.31 for an increase of 88.91, or 1.06 percent, and a YTD return of 27.70 percent.
The Birling Capital PRSI closed the week at 1,661.96, or a gain of 63.75, or 3.99 percent over the previous week, and a YTD return of 20.14 percent. Meanwhile, the U.S. Treasury’s 10-year note rose during the week, closing at 1.94 percent, or an increase of 13.45 percent, with a YTD return of minus-0.80 percent. The U.S. Treasury’s 2-year note rose during the week to 1.68 percent, an increase of 8.39 percent for the week, and a YTD return of minus-0.88 percent.
Final word: Birling Capital’s 1st glance at 2020 outlook
For our vantage point, we would like to review the economic and market data dynamics that we are analyzing for the year ahead at Birling Capital:
•2020 global growth remains timid: With world a forecast of 2.7 percent for 2020, and 2.8 percent for 2021, we must wait until the ink is dry in the U.S. and China trade deal; we expect global growth to remain suppressed until the headline risks are eliminated, and supply chains return back to normal.
•Mixed monetary policy gamut: With most Central Banks adopting “swinging toward easing,” we must remain vigilant to the economic impact of the normalization of the U.S. and China trade war and its impact on the world economies.
•Growth in the European Union: The EU projected growth at 1.4 percent in 2020, which remains low as the EU has suffered the global trade disruption harder than other regions of the world.
•Brexit and the UK: The United Kingdom is set to expand 1.4 percent in 2020, assuming an orderly outcome to Brexit and a partial economic recovery for 2020.
•Asian growth in the spotlight: China is expected to grow at 6.1 percent for 2020, which is highly dependent on the outcome of the trade deal. Japan’s economy is set to decline to 0.7 percent in 2020, with fiscal measures expected to somewhat mitigate the growth volatility.
•Latin America and the Caribbean: We expect 2.5 percent growth in 2020. After the overall economy contracted by 35 percent in 2019.
•Middle East and Africa: With 1.3 percent growth to end 2019, we expect 3.5 percent growth in the region for 2020. For our year-end 2020 outlook, we plan to provide readers our yearly report, “5 Forecasts, 5 Themes & 5 Reactions for 2020,” in the last issue in December 2019.
Francisco Rodríguez-Castro, president & CEO of Birling Capital, has more than 25 years of experience working with government, and multinational and public companies.
Analysis: FirstBank acquires Banco Santander Puerto Rico
V2A examines banking sector after development
Editor’s note: The following was published by Vision to Action (V2A), a strategic consultancy firm that analyzes industries and has been publishing reports since 2009.
On October 21st the bank holding company of FirstBank Puerto Rico, announced the acquisition of Banco Santander Puerto Rico (BSPR) for a $63M premium to BSPR’s core tangible common equity ($362M) in an all cash transaction. In this insight we will analyze the new market shares in the Puerto Rico banking sector after this acquisition and the recently announced purchase of Scotiabank operations by Oriental Bank.
The Puerto Rico banking sector has experienced a drastic consolidation process in the past ten years. Scotiabank and BSPR will be joining another five banks which operations have been absorbed by other banking entities during that period. As we have done after previous acquisitions, we are going to present how banking assets, deposits and credit portfolios will be distributed among the players still operating in the local market. Figure 1 shows assets and deposits market shares among Puerto Rico private commercial banks.
As can be observed, FirstBank will regain its second position in total assets after the acquisition of BSPR with a market share close to 23%. In terms of Deposits, FirstBank’s share could increase to 21% assuming all BSPR deposits are retained by FirstBank. With this acquisition FirstBank also strengthens its footprint in the metro area, where 16 of the 27 BSPR branches are located. Additionally, it gains a sizeable 13% deposits market share in the south region by bringing the two important BSPR branches in Ponce which together accumulate $339M deposits compared to the $211M of the two FirstBank branches in that municipality1.
Figure 2 shows the distribution of the various credit financing businesses among market players in Puerto Rico. As can be observed, local credit unions and other players have a non-negligible participation, particularly in the Auto Loans and Other Consumer Loans (mainly personal loans) segments. Their participation is welcomed, as they provide competition to the banking sector, whose consolidation is raising concerns to retail and commercial customers because they will have less options to choose from and because oligopolistic dynamics are more likely to take place.
The acquisition of BSPR provides FirstBank with a very strong commercial lending portfolio particularly in the small business and investment banking segments, and, to a lower extent, a sizeable credit cards business. FirstBank’s market share could increase from 18% to 32% in the commercial lending business and from 17% to 27% in the credit cards business2. Regarding the credit cards business, FirstBank will also be able to leverage BSPR’s relationship with American Express which brings a unique set of credit card products targeted to the affluent consumer. American Express also brings its strong merchant relations from its acquiring business, which FirstBank should leverage to offer distinctive offers to its credit card base.
BSPR’s personal loan portfolio is also an important addition for FirstBank. The personal loan business is the only one where Banco Popular has a market share below 30%. With the local credit unions share of 54%, the personal loans business represents one of the few opportunities for inorganic growth for the local banks. The Auto Loan business is another competed segment in Puerto Rico even after Popular’s acquisition of Reliable, since not only local credit unions but also federal credit unions and company financing divisions like Toyota Credit and BMW Financial Services provide financing at competitive prices. These players accumulate 29% of the auto loan business (see Figure 2).
The commercial credit business is probably the sector most impacted by the consolidation process. The share of local credit unions in this sector is small and Citibank customers are mostly concentrated in the large company segment. For the small and medium sectors, the banking consolidation process is translating into an important reduction in the available choices to apply for credit. Finally, it is curious how just two players (Banco Popular and FirstBank) dominate the auto lease financing in Puerto Rico, considering the high profitability of this business in the Island.
1 As of June 2019
2 These credit card balances and shares exclude balances from credit cards issued in the US (e.g. American Express proprietary credit cards like the Green, Gold, Platinum and Black cards)
Office of the Commissioner of Financial Institutions (OCFI), Federal Deposit Insurance Corporation (FDIC)
Accuracy and Currency of Information: Information throughout this “Insight” is obtained from sources which we believe are reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. While the information is considered to be true and correct at the date of publication, changes in circumstances after the time of publication may impact the accuracy of the information. The information may change without notice and V2A is not in any way liable for the accuracy of any information printed and stored, or in any way interpreted and used by a user.
THINK STRATEGICALLY: ‘What is Essential is Invisible to the Eye!’
U.S.-China Trade Deal in Works, Brexit by Month’s End; Markets, Economy Forecast to End Year on High Note
The DNA of a U.S. President
Since the United States became an independent nation, we have had as president farmers, lawyers, generals, movie stars, engineers and career politicians. One thing we have never had was a president who lacks a moral compass, does not distinguish between right and wrong, or lacks empathy, compassion and honesty. As we analyze the current situation in the United States, it is noted that the greatest presidents have been those who served during great times of crisis.
In Antoine de Saint-Exupéry’s book, “The Little Prince,” there is a brief discussion about the importance of love and friendship, while the fox asks the little prince to domesticate him, the little prince explains what friendship entails, and a more substantial part—missing someone, needing a person. The confused fox is told—“what is essential is invisible to the eye”—to describe the feelings of friendship. Presidential power and influence, in no small degree, are invisible to our eyes. It has to do with the distinct personality of each president, and for that, there is no single measurement. For example, President Washington’s integrity, President Lincoln’s fight for equality, President Truman’s principles and courage, President Kennedy’s charm and wit, President Reagan’s ability to unite the United States or the powerful connection many felt with President Obama.
If we choose to harness presidential power with a single phrase, it has to be potency of language and words. There is no better example than JFK’s inaugural address and its famous line, “Ask not what your country can do for you; ask what you can do for your country.”
These words transcend time and are as relevant today as they were in 1961.
One of the differences of President Kennedy was the fact that he rarely talked about himself using first-person singular pronouns or in the third person, in stark contrast to President Trump.
While we have an opportunity to watch each presidency, one thing that is quite particular in all presidencies is the fact that all the power, symbols, mantras and actions are synthesized by one single reaction: the ability to convey a message.
In the end, the presidency is all about character, honesty, respect, confidence, passion, clarity and caring. Qualities we can conclude are essential but invisible to our eyes.
Week in markets: Positive trade, Brexit news drive markets
Most stocks rose marginally as the news of a possible trade deal between the United States and China is in the works, and Washington officials have pointed to an agreed-upon framework that would lay the foundation for a more permanent solution. Subsequently, the United States has stated that for now, no further tariffs would be implemented. In the Eurozone, there are reports of at least a glimmer of hope that a Brexit deal would be possible by Oct. 31. Although British Prime Minister Boris Johnson pointed out there was much work needed to reach a permanent agreement, most international markets recorded significant gains, which made the period the largest weekly gain in more than 16 weeks.
While the markets’ optimism is key to these current gains, we stress there are quite a lot of moving parts for the trade deal to be a permanent agreement, and there are hundreds of hurdles the U.K. must pass or meet before the Brexit deadline. Until both are signed, sealed and delivered, there will be constant volatility.
As we review the week, we note the Dow Jones Industrial Average closed the week at 26,816.59, for a gain of 242.87 points, or 0.91 percent, and a year-to-date (YTD) return of 15.0 percent. The S&P 500 closed the week at 2,970.27, for a gain of 18.26, or 0.62 percent, and a YTD return of 18.50 percent. The Nasdaq closed the week at 8,057.04, for an increase of 74.57, or 0.93 percent, and a YTD return of 21.40 percent. The Puerto Rico Stock Index closed the week at 1,644.57, a gain of 24.33, or 1.50 percent over the previous week, and a YTD gain of 69.15 percent.
Meanwhile, the U.S. Treasury’s 10-year note rose during the week, closing at 1.73 percent, or a gain of 13.82 percent, with a YTD return of minus-0.95 percent. The U.S. Treasury’s 2-year note rose during the week to 1.59 percent, an increase of 13.57 percent for the week, with a YTD return of minus-1.03 percent.
Final word: 4Q market outlook, and into 2020
We forecast the stock markets and economy will finish 2019 on a high note and enter 2020 with solid footing. With all indices trading at YTD double-digit returns and the new trade deal framework, indications are that volatility may be curtailed during the fourth quarter.
Economic forecast: The U.S. economy will grow between 1.3 percent and 2.1 percent during 2020. This is supported by continued job growth, low unemployment of 3.5 percent and low-interest rates.
Stock markets: We are forecasting the stock markets will continue their growth and will outperform the bond markets. However, volatility will continue until the trade deal is signed.
Fixed income: With the current scenario of low-interest rates, we do not see much upside for bonds. However, every investor should maintain an adequate balance of not less than 30 percent in relationships to support periods of increased volatility.
Eurozone outlook: With the European Union (EU) economic sentiment index at 100 percent, unemployment at 6.30 percent and inflation at 1.40 percent, we note the International Monetary Fund has slashed global forecasts because of the trade wars. However, once the trade tensions have subsided, the EU’s recent quantitative easing monetary policy will allow the economy to grow faster than in 2019.
Global economic growth: As a direct response to slower growth, most central banks in the world have started to ease monetary policy in an attempt to stimulate economic growth.
Global manufacturing: After being impacted by much weaker global demand and trade tensions, late 2019 and into 2020 should be positive for the manufacturing sector.
All investors must review their portfolios and prepare them for 2020 to appropriately capitalize on opportunities. In the end, what matters is having a trusted adviser.
Francisco Rodríguez-Castro, president & CEO of Birling Capital, has more than 25 years of experience working with government, and multinational and public companies.
Mitigation Plans for Coastal Municipalities Do Not Include Dealing with Sargassum
Although the algae represent a health and economic problem for citizens and the tourism industry, concern over it still does not show on the radar of municipalities and agencies as an issue to be addressed.
The awareness that the governments of coastal municipalities and the central government have about sargassum and the challenges that this marine species present to communities, ecosystems and businesses has not been enough to integrate how it will be managed in the mitigation plans prepared by the Puerto Rico Planning Board (JP in Spanish), and the 78 municipalities.
After hurricanes Irma and María in September 2017, the Central Office of Recovery, Reconstruction and Resiliency, known as COR3, asked the JP to update each municipality’s mitigation plans.
For that task, the Federal Emergency Management Agency (FEMA) approved an allocation to the JP of $3,128,916, which was increased in July 2019 to $5,396,144. With hose funds the JP hired Atkins Caribe, LLC as an external consultant to update the municipal mitigation plans. The contract is for $1,748,786.
Mitigation plans are necessary in order to request recovery funds provided by FEMA. They include eight criteria that endanger life and property. According to the JP, the hazards considered in the risk analysis for updating mitigation plans are climate change, earthquakes, tsunamis, landslides, drought, floods, strong winds and erosion.
To this date, 11 out of 78 municipalities have delivered the final draft of their mitigation plan to FEMA. Of those, eight are coastal towns. None mentioned sargassum management strategies. This, despite the fact that in the last decade, several beaches around Puerto Rico have experienced the events of large quantities of algae reaching the shores, causing a strong stench, losses in tourism, navigation challenges for fishermen, and possible public health problems resulting from hydrogen sulfide (H2S) emissions from the decomposing sargassum. Those events in which the algae arrive in massive quantities to the beaches, coastal or estuarine areas, are known as surges.
“As part of the updates within the risks that are being considered right now, no municipality has identified it as a risk, but it could be considered (the sargassum,)” said Planner, Rebecca Rivera-Torres from the Planning Board.
“On the Board’s behalf, if the municipality expresses the interest of considering sargassum as one of the risks, the Planning Board has no objection to added. The mitigation plan is a municipal plan. So, the priorities of the municipality will be reflected,” the official said during an interview with the Center for Investigative Journalism (CPI in Spanish.)
Of the eight hazard criteria weighted in mitigation plans, two have been scientifically investigated for their possible link to the phenomenon of massive sargassum arrivals that began earlier this decade: climate change and erosion.
On the one hand, the climate crisis continues to show a trend of rising sea temperatures, which has been pointed out as an element that, coupled with the accumulation of nutrients and sediments that float toward the sea surface west of the African continent, facilitate the development of massive quantities of sargassum that subsequently reach the coasts of Caribbean territories.
On the other hand, scientists at Texas A&M University have been working for several years on experiments on the potential use of sargassum to help mitigate coastal erosion by inserting the algae in the sand and dunes. In other instances, its accumulation on the shores is associated with temporary coastal erosion events.
One of the eight coastal municipalities that already delivered its final draft of the mitigation plan to FEMA was Humacao. As in other municipalities of the eastern coast, some beaches in this town have seen limited recreational and tourist activity due to the accumulation and decomposition of sargassum on the shore during the summer. One of the areas affected this year has been the Palmas del Mar private housing complex.
Although the Humacao municipal government acknowledges the problem that may arise from accumulated sargassum on its beaches, the issue was not included in the mitigation plan.
The director of the Humacao Municipal Planning Office, Anilda Fernández-Vega, said she complied with sending the information required by Atkins for the municipal mitigation plan, and that information did not include sargassum. Nor was it mentioned by Department of Natural and Environmental Resources (DNER) personnel in its interventions as part of the work groups in which agency representatives consulted different sectors as part of the process prior to developing the mitigation plan.
“Sargassum is a maritime phenomenon and the municipality has no jurisdiction over it. In fact, any intervention on the coast by both the municipality and the citizens requires authorization from the DNER,” Fernández-Vega said in written statements.
“The reduction or elimination of the sargassum from the waters and coastal areas corresponds to the DNER. The mitigation plan does not show that during the workshops activities, the DNER requested that a strategy to manage sargassum events be included as a mitigation project,” added the geographer and planner, who clarified that her office has not received citizen complaints about the sargassum situation.
The municipal official also said she has no communication with the DNER to coordinate sargassum cleaning actions on the beaches of Humacao.
The DNER, says it cannot act if the municipalities and citizens do not request it.
“What they have to do is notify. That is what the protocol says,” said the director of the office that runs the DNER’s coastal zone and climate change management program, Ernesto Díaz, in reference to the document that his agency published in 2015 to handle the sargassum that reaches the coasts.
However, the absence of initiatives of the central government and some coastal municipalities to determine the uses that can be given to the sargassum collected on the coasts, leaves communities and the tourism sector devoid of strategies to deal with the situation.
In the opinion of oceanographer Jorge Bauzá stresses that including sargassum management in mitigation plans is indispensable. The inclusion of sargassum in mitigation policies can contribute to the development of recovery strategies and different positive uses that result from the use of the algae.
“When we talk about mitigation it’s about how we can reduce our vulnerability, and in the case of sargassum, studies show that it is a situation of climate change, a situation of balance, the product of human activity, and that it reaches the shore and is creating an ecological impact, an impact on public health and an impact on the economy,” argued Bauzá.
Among the best-known value-proposition strategies is turning the species into biogas, its use as plant fertilizer, and its conversion to develop products such as construction materials and notebooks, among others.
“As we prepare for the hurricane season, there are coastal municipalities that must prepare for sargassum surges. They have to integrate it into their mitigation plans by region, by coast and by community,” the PHd in oceanography said.
Bauzá advocates the use of sargassum that reaches the coasts of Puerto Rico. According to the scientist, the seaweed can be used for the development of fertilizer, food for farm animals, biofuel, bricks, biomedical products, handicrafts, among other valuation proposals.
Although sargassum has always been present on the high seas and on the Caribbean coast, its accumulation in large quantities during some seasons is a recent phenomenon. For this reason, marine scientists are immersed in research projects on the causes of the surge in parts of the Caribbean and the Atlantic as of 2011.
Also, territories of the region continue to devise strategies to deal with sargassum. One of the initiatives with an emphasis on the Caribbean emerged in late June 2019, when the Mexican state of Quintana Roo hosted a sargassum summit. A total of 12 countries and the French island of Guadeloupe participated and signed a 26-point collaboration agreement. Mitigation was one of the aspects highlighted in the regional cooperation document.
Puerto Rico did not participate in that summit.
When Ernesto Díaz was asked if the government of Puerto Rico treats the issue of sargassum as a minor issue, the DNER official denied that this was the case.
“I believe that the 44 coastal municipalities, the Puerto Rico Hotels and Tourism Association, everyone is very aware of the situation and how, sporadically, a hurricane or floods will bring these tremendous problems, because it not only affects the business owner, it affects employees, and those who serve hotel operations and businesses in that area. Nobody is going to sit on a shore or on a terrace to have a drink or eat with this situation,” said the DNER scientist.
Despite the importance that Díaz has given to sargassum for years from his post at the DNER, the researcher admitted that it is necessary to develop planning and detection strategies prior to the arrival of the algae to the coasts.
Besides a guide presented in 2015 by the DNER for sargassum collection on the beaches, there is no public mitigation policy that integrates the management of this marine specie.
Also, the federal government has no plans to inquire about the effects of this algae. “Currently, ERDC is not carrying out research on sargassum,” said Víctor González, who spoke on behalf of the Engineering Research and Development Center of the United States Armed Forces, assigned to the U.S. Corps of Engineers, told CPI.
Some municipalities consider including sargassum in their mitigation plans The eight coastal municipalities that have already delivered their final draft of the mitigation plan to FEMA are Santa Isabel, Vega Alta, Arecibo, Dorado, Aguada, Mayagüez, Patillas and Humacao, according to the information provided by the JP. The drafts “Natural Hazards Mitigation Plan” are available on the agency’s page.
The municipal governments that are still working on their mitigation plans could include the management of sargassum, but it is not clear whether it should be an initiative of the JP or the municipalities.
At least that’s what several municipal officials told the CPI.
“In the case of the mitigation plan, we do have to consider it because citizens don’t know what sargassum is used for and they always go to the municipality to look for a way to dispose of it because they see it as waste,” said Luis Rivera, special assistant to the mayor of Yabucoa.
Rivera believes the JP should consider the issue of sargassum management in the guidelines related to working on the updated mitigation plans.
“It would have to come from them (the Planning Board) because they don’t include it in the guides. Maybe because it’s not a year-round problem, but rather a seasonal issue of a little more than two months, then maybe for the Board’s purposes, there isn’t much awareness and given that it does not affect the northern area as much, but rather the southern and eastern areas, perhaps the situation goes unnoticed because it is not an island wide problem,” said the Yabucoa official, adding that the final draft of the new mitigation plan for his municipality will be ready between November 2019 and January 2020.
The CPI asked the Planning Board of Puerto Rico if the guides for the mitigation plans changed by municipality or region, depending on whether they are coastal, of the mountainous or urban area. The agency explained in an email that the mitigation plans “work in the same format, which is in compliance with the requirements of the Federal Code of Regulation.” However, “the plans address the risks according to the particularities of each municipality.”
In the southern municipality of Lajas, its mayor, Marcos Irizarry, said he considers integrating the sargassum issue into the new plan he hopes to have ready by the end of the year. For the past few years, Playita Rosada in Lajas has had to close several times due to high algae accumulations. Irizarry explained that the sargassum they collect from this beach is used as material to cover the municipal landfill, in addition to allowing farmers to use it as fertilizer.
Irizarry said he hopes the JP recognizes the importance of including sargassum in the conversations and orientation sessions related to mitigation plans.
For planner and special assistant of the municipality of Luquillo, Jardany Díaz-Salgado, any sargassum mitigation strategy must be based on the premise that this marine plant brings benefits to other species and can represent a source of income, if properly used in economic and ecological projects.
“We believe that, from the scientific point of view, sargassum is a natural process that helps with beach recovery, which helps to mitigate erosion, that delivers organisms that bring nutrients. When the sargassum arrives at night, during high tide, it traps snails that serve as food for the coastal birds,” Díaz-Salgado explained.
About the new mitigation plan, the planner said that “the issue of sargassum is something to be included. After Hurricane María, there are many things that are being added to that plan. We are evaluating the plan we had when we met with the Planning Board to determine what the most pressing needs are.”
“Now there are issues such as climate change and rising sea levels, which we knew were happening, but were not included in the risk plans,” Díaz-Salgado said.
Lack of research on the relationship of sargassum with climate crisis and erosion Given the rise in sea levels experienced in recent years, waves and erosion have a greater impact on the coasts.
Sargassum surges during the current decade occur on different types of beaches, including those that have been undergoing erosion for years.
Three scientists from the University of Texas A&M presented pilot projects in which they have used sargassum to restore dunes, to try to increase coastal protection against erosion. The work raised the potential of sargassum and other marine plants in creating the natural shields that protect the coasts.
On the other hand, the coincidence of the sargassum surges with the loss of beaches in some places has motivated some scientists to inquire about the possibility that the excessive accumulation of the algae can accelerate further the erosion that these areas have already been experiencing. The impact of sargassum in large quantities can inhibit oxygen in the water and affect other marine grass. Similarly, the collection of sargassum without proper training can lead to accidental removal of sand and other seagrass from the beaches.
According to coastal geologist Maritza Barreto, the continued presence of sargassum on the Caribbean coast makes it essential to study the links between surges and coastal erosion.
“Sargassum could have two effects with respect to erosion. However, as a student of the coastlines, I have no information that it produces sand or erosion. It would be necessary to monitor the width and elevation of those beaches that are affected by the sargassum for a minimum of one year,” the professor of the Graduate School of Planning at the University of Puerto Rico said.
The need to study the possible effects of sargassum for a period of at least one year responds to the fact that the beaches are dynamic and constantly changing in terms of width and elevation. A beach eroded during a season of sargassum accumulation could be restored and have the sand back in weeks or months. These scenarios will also depend on the type of sand, the behavior of the swell, as well as the general characteristics of the beach.
For Bauzá, it is important to study the link between sargassum and erosion, based on the impact of algae on corals.
“The stain of the sargassum has a shadow effect and prevents the light that corals need. Imagine having these sargassum for months, they will affect a community of corals, corals that are already threatened by high temperatures and bleaching. Corals are natural barriers. If that natural barrier that dissipates the wave is threatened, those waves are going to reach deeper into the beach given the rise in sea levels and the beach will erode,” the oceanographer warned.
“If there’s evidence that it affects the distribution or quality of coral, we have a big problem. If I lose the coral’s capacity in distribution or quality, I have a serious problem because the coral has a function in protecting the beach,” said Barreto, who also warned about the dangers of losing seagrasses that also fulfill a function of protecting the beaches.
Rafael R. Díaz Torres is a member of Report for America