Monday, December 28, 2015

[DONDEQUIERA] Letter to the Puerto Rico Government, US Congress, and Puerto Rico Bondholders: Let's Not Create Another Katrina Catastrophe!

In the latest op-ed piece about the Puerto Rico bond crisis, the New York Times reiterates a dichotomy between paying the bond holders and paying the police, hospitals, etc.  This is a worrisome comparison and should be removed from everyone's discussion of the Puerto Rico financial crisis.

I'm imploring everyone to rethink this comparison.  Whatever happens in the coming days and weeks, I urge everyone to prevent our on-going crisis from becoming Puerto Rico's Katrina.

Let's be honest and forthright when talking about the choices ahead.  Whether it is through bankruptcy, an external financial review board, or if it comes to it, other payment default legal proceedings, some tough decisions are coming.  However, let's all agree that there are many non-essential government services that can be defunded before we have to reduce our emergency preparedness.

I'm not suggesting that we make these budgetary changes now, I'm just putting forth my hope that we can agree that the last services to be placed under a budgetary microscope are those related to our ability to respond to an emergency, whether, it is an earthquake, a tsunami, a hurricane, or civil unrest (among many other possible threats).  But just like Katrina, we have time to prepare for the eventual changes that this crisis will bring, so let's us that time judiciously and plan for scaling back non-essential government services.

If we must make these types of tough choices, let's close the parks, close the sports facilities, the libraries, all of the municipal governments, anything but the services that help us protect and preserve the citizens of Puerto Rico.  The waters are indeed rising, please act responsibly.

Publicado por Blogger en DONDEQUIERA el 12/28/2015 09:51:00 a.m.

Tuesday, September 22, 2015

[DONDEQUIERA] Spam and the Anti-Design Pattern for Websites

The hard lesson learned from e-mail Spam, was easy to understand but difficult to digest.

So while it was easy to detect Spam, and see it's reach growing in the size of our Spam folders, it was much more difficult to internalize just exactly why it was happening.  Very simply it was the simple combination of two of humanities least favorite things, math and the science of very large numbers.

Large Numbers

As we reach the end of 2015, as predicted, the estimated number of Internet users is reaching 3,000 million; a number so large it becomes an abstract concept.  It's an abstract concept because it is exceedingly complex to create a mental image of its' magnitude.  We can visualize 100,000+ people, just imagine a full football stadium or concert.  If we stretch ourselves, we maybe see a crowd of 200 or even 400 thousand people.  Maybe we've even witnessed a million people together, but a 1,000 million? Never.


Now for the hard part, while you may detest Spam, have you ever wondered why it still exists?  After we've thrown a mountain of money to stop Spam, it keeps rolling into our e-mail accounts.  The simple, uncomfortable fact is, that it works.  For if it didn't work, do you think it would still be a problem?   To answer why, we have to use math.  So here it goes:

There are an estimated 14.5 billion spam messages generated globally per day.  Now I know that you might never open and click on one of those messages, but if only .1% (.001 multiplier) of those messages were opened, that would still generate 14.5 million positive results PER DAY!

Small percentages, even if not all that small can also baffle many. If there are four of us together and only one of us gets married, that means 25% are married.  Easy peasy, nice and cheesy, we get that immediately.

We can even grok 1 out of 10, or a hundred, or maybe even of a thousand.  If percentages get smaller than 1, then the confusion starts to set in.  Now we have to imagine a tenth, or a hundredth of a person. Say what?

Anti-Design Pattern

So keeping this in mind, what do you think will be strategy for websites?  For they too are ruled by large numbers and math.  And if you thought the Spam numbers were large, they are small compared to what's happening on the web.  The standard measure of success online is the advertising click through rate.

Currently, the overall web display advertising click through rate is .06% (.0006 multiplier), and the rich media click through rate is slightly more, 0.27%, but still very small.

Example pop-up ad from website visited to 
research this post
Therefore, we should think of some websites  as Spam we voluntarily seek out.  thus giving us our Anti-Design Pattern:
When you go to a website, and they immediately throw up an advertisement, that pop-up message, to join their email, our download their whatever, is an online website Spam message.  If you click through on that ad, the website has achieved it's goal, and captured a way to contact you.
Of course remember, whenever a website can successfully extract any form of online contact, they will Spam you incessantly. Just think about it.  See how Spam creeps into our online experience; even for the most sophisticated and discriminating web surfer?


The reason why I think website pop-ups are an anti-design pattern because this practice runs counter to what just about any "social media expert" will tell you.  Aren't you supposed to build a relationship and generate value, before you ask for permission?

Mandatory pop-up advertisements do the exact opposite.  They levy an "attention tax" on you as soon as you enter a website, before I've even got a chance to start a relationship or receive something of value.

Publicado por Blogger en DONDEQUIERA el 9/22/2015 09:13:00 a. m.

Friday, September 11, 2015

[DONDEQUIERA] Puerto Rico Squaredance

First these words from the prophet Marshall Mathers:
"All these people I had to leave in limbo
I'm back now, I've come to release this info
So I'll be brief and let me just keep shit simple..."
You know that one metaphor about re-arranging the chairs on the Titanic?  Well since we have to Boriqua-ize everything, try this one on for size.  The debt-reduction plan that Puerto Rico's Governor, Alejandro Garcia Padilla announced this week, amounts to nothing more than installing new glass windows in your house, right before a category 4 hurricane hits the island.

While the jury, read the US Congress and Wall Street, is still out on whether the new plan will be accepted, the news leaking out about the plan is very disturbing.  In general, the new plan seems to be constructed on basic financial and psychological assumptions about Puerto Rico which are just not true.  Chief among these assumptions are:

Lowering government spending will help the local economy grow

Only on the spreadsheets of the Governor's advisors and in the wet dreams of Republican presidential hopefuls does spending less equate to more and better paying jobs in the public sector.  As I've noted before, the financial clout and largess of our economy was purchased on the backs of various administrations creating unnecessary government jobs and doling out cushy government contracts.

Is it any coincidence that our economy peaked, just as the government payroll peaked?  No, the only way to grow the economy in Puerto Rico is to stimulate the creation of more high paying jobs.  Just as Operation Bootstrap brought the island out of an agrarian economy and into 20th century using high paying manufacturing jobs, Puerto Rico needs hundreds of new hi-tech global businesses and the creation of thousands of high paying jobs.

By tightening up tax policy and other business restrictions, the grey economy will produce more taxable income

While it isn't everyone's first talking point, the plan includes all of the previous tax reform policies.  Remember all of that hullabaloo about the IVA?  Well it's back!  Only this time the stakes are even higher.  The new plan contains even more policies that are aimed at making tax evasion more difficult.  I've written ad nauseum about this, so I won't rehash those points.  The bottom line remains the same, as long as the grey economy is easier, more profitable, and carry minimal risk of punishment, the underground economy will thrive.

Much of our current tax evasion problem comes from people and organizations who simply choose not to follow the existing rules.  Unless these new policies make tax collection easier to enforce, they are mere words and promises.

Labor participation rates will increase

This should be evident from the first two assumptions, but it is worth it's own discussion.  Think of it as their corollary.  One of the primary justifications for this new plan is that by adjusting our economic policies, it will encourage more people to join the labor market.  I can't think of a more ridiculous idea than suggesting that lowering wages will incite more young people to join the job market.  That is, unless you're a Republican, which theoretically the Governor is not.

In the past, this ploy was feasible, because they were cushy government jobs, however isn't that what this new plan is supposed to eliminate?  Where will these new low paying jobs come from?  Isn't our economy just about saturated with service economy businesses?  Let's get real here, thinking that Puerto Rico can compete with the low cost labor available in China, Mexico, or even the Dominican Republic is impossible.

Rico will eliminate it's debt

As hard as these new policies have been defended, you'd almost expect them to leave Puerto Rico free and clear of it's debt, but that has never even once been suggested.  So let's be clear, in order to pay for it's current debt, Puerto Rico must refinance, or restructure,  that debt with more debt.  Further, the only legal mechanism for restructuring debt is bankruptcy, which both Congress and Wall Street are dead set against.

So where does that leave Puerto Rico? In my summation, I'd say just about exactly where it is now.  The only thing different is that the "economic hurricane" that is just about to hit Puerto Rico has been upgraded to a category 5, but it's just going to hit us just a little bit later.  

With lower than expected tax incomes due to a stubborn and evolving underground economy, lower than expected labor participation rates, and without a rapidly growing economy, Puerto Rico will revisit, time and time again, the looming "economic hurricane" of outstanding debt. Alas, the lost Xanadu that Operation Bootstrap brought to the island will never be seen again.

Publicado por Blogger en DONDEQUIERA el 9/11/2015 09:03:00 a. m.

Tuesday, April 21, 2015

[DONDEQUIERA] The Illusion of Fairness: Part 1

As promised here is the follow-up on the "Incentives for the Payment of Taxes in Advance of the Tax Transformation Project Act."  In this installment, I'd like to breakdown the provisions which allow for citizens to prepay taxes.

First of all, it should be crystal clear to everyone, that tax reform is coming to Puerto Rico.  There is no question whether the IVA will pass or not, it is only a matter of time.  How else can you explain the Puerto Rican government creating a process for citizens to prepay taxes?  I mean let's get real here, it's in the title of the new law.

Our old friend Occam's Razor almost guarantees us that the only way to explain the creation of this new law is because it is a forgone conclusion that tax reform is coming.  I would go further to suggest that this law represents an unspoken covenant between the richest citizens of Puerto Rico and the Puerto Rican government.

Still not convinced?  Let's just imagine that the tax reformation does not happen.  If that's the case, then the Department of Hacienda has quite a mess on their hands.  They will have received payments for taxes, based on future tax rates that did not become law.  I guess they could simply refund the payments, that is, unless they really needed the cash (which they do).  What happens if the government spends some of the money?  Where will they get the money to make the refunds?

As I mentioned in the previous post, this program is aimed at a very selective group.  Here is a summary of the types of taxes eligible (PDF) and who would be likely to benefit from the discounted taxes.

Type of tax Beneficiaries

Owners of life or endowment insurance annuities
Capital Gains Individuals, estates, trusts
Capital Gains Corporations
IRA's and
Educational IRA's
Individuals with IRA or IRA educational accounts
Dividend Distributions Share holders of public corporations issuing dividends
Corporations with accumulated earnings and profits

Secondly, as you can see, these discounted tax payments are aimed at any citizen with annuities, IRAs, and stocks.  In other words, these discounted taxes will benefit the richest of our citizens.

In addition, it is also aimed at companies large enough to have long term capital assets and those fortunate enough to have large profits.

I'm always suspicious of laws that claim to be doing one thing, but actually authorize something completely different. In this instance, the press release from the Department of Hacienda claims the governor signed into a law a tax amnesty program.  However, if you read the release or review the law (Ley de Incentivos para el Pago de Contribuciones en antelación a la Transformación Contributiva), you will realize that it also sets up a new program for the most wealthy Puerto Ricans to prepay taxes at discounted rates.

Publicado por Blogger en DONDEQUIERA el 4/21/2015 11:18:00 a. m.

Monday, April 13, 2015

[DONDEQUIERA] Photographic Collection From Okeanos Explorer: Exploring Puerto Rico’s Seamounts, Trenches, and Troughs

Publicado por Blogger en DONDEQUIERA el 4/13/2015 02:57:00 p. m.

[DONDEQUIERA] Science Alert: Exploring Puerto Rico’s Seamounts, Trenches, & Troughs

Mona Passage
NOAA To Explore the Puerto Rico Trench in Historic Dive

The National Oceanic and Atmospheric Administration (NOAA), on whose work we rely on during all tropical storm activity, is currently operating an exploration of the ocean surrounding Puerto Rico

The expedition will explore Puerto Rico's seamounts, trenches, and troughs.  Using both at-sea and shore-based science teams, the expedition will investigate unknown and poorly known areas, including the Puerto Rico Trench, Muertos Trough, Mona Passage, and the Virgin Islands Trough.

NOAA Okeanos Explorer Program
Amazingly, the expedition is able to live stream the dives over YouTube, as illustrated in this image from the mission plan.

Blast From The Past

I remember my teacher wheeling the television into my classroom so we could watch video from Apollo 16.  Truth be told, now that I think about it, that experience fundamentally changed my life.  It kindled a life long passion for science, to which I am forever grateful.

ROV Deep Discoverer 
So when I watch live video from our exploration of uncharted territory right on my very doorstep, forgive me, it gets me going.  It takes me right back to that classroom in the dark, watching my life change before my very eyes.  I hope it takes you there too, for we are witnesses to history in the making. Truth.

Publicado por Blogger en DONDEQUIERA el 4/13/2015 08:33:00 a. m.

Friday, April 10, 2015

[DONDEQUIERA] Prelude: Corrupt is as Corrupt Does

Puerto Rico Tax Collections Take The Easy Road
Very quietly this week, Governor Garcia Padilla signed into law, the 2015 Puerto Rico Incentives for the Payment of Taxes in Advance of the Tax Transformation Project Act. The new law offers an amnesty for payment of taxes.  The hope of the Garcia Padilla administration is the new incentive will encourage the payment of overdue taxes.  Beginning immediately, the amnesty will be open until June 30, 2015.

With the new law, the Puerto Rico government is looking to raise around $290 million during its operation.  The taxes collected are predicted to help reduce the government's fiscal deficit for this year.


What surprised me most about the news is who the new law is targeting.  Besides snuggling up to those evil evasores, with the new law:

"taxpayers can prepay, at incentivized rates, tax that will be payable in the future on the capital gains arising from the increased value of certain assets, including equity investments, and contributions to individual retirement and savings accounts."

Wait a minute, hold the phones. This is a pretty dense way of saying that, if you're rich enough to actually have capital gains, you can reduce your income taxes with this new amnesty law.  How convenient for those who have the "burden" of capital gains.


I'm saddened that our government doesn't have the will to pursue the taxes our laws demand be paid.  But, I've seen this before, it's fairly common.  In fact, our legislators are offering a two-fer, consequently with the Hacienda amnesty, CESCO is also currently offering an amnesty on toll violations

In a previous life I worked in IT for a major wireless carrier, so I know what collections is all about.  Cutting edge technology was always a factor in collection rate optimization.  Because going in, it was already accepted that collections would never reach 100%, ni por tanto.  If memory serves me, I think we had an average  30% success rate on past due collections.  Your company's rate may vary. ;-)

I offer this anecdote to provide a perspective for these questions:

  • What is the minimum accepted collection rate for this program?
  • What is the overall amount of past taxes due?  And how many people or companies are we talking about?
  • Just how many toll violations are there and how much is owed in the corresponding fines?
  • Don't we have their contact information?  What, we don't know how to "find" them?  
  • What is the Government's resolve concerning enforcing the rule of law? 
Puerto Rico's Prepaid Tax Program

Rarely do you see the clear intention of laws made to benefit the few, maybe only the "1 percent" of the Puerto Rico general population.  Of course, since corporations are now people, they're included in the 1% as well. For brevity's sake, I'll break down this new program and prove that it straight up "informal corruption."

Publicado por Blogger en DONDEQUIERA el 4/10/2015 09:29:00 a. m.

Wednesday, April 8, 2015

[DONDEQUIERA] It Takes A Pueblo - Culture Change in Puerto Rico

You need to walk a mile in the shoes of a (hu)man before you can understand the (hu)man.  In order to teach that (hu)man, you must understand the (hu)man.

Recent articles by Jay Fonseca and Samuel Oakford call our attention to the immigration of young upwardly professional Puerto Ricans p'al norte (migration to the US of A).  Here's another perspective to consider...

Where Do We Learn?

Without out access to a formalized school system, mankind suffers.  To doubt this suggests you doubt science.  And we know what Neil deGrace Tyson shows us; science doesn't need your belief to still be true.

However, whether a child relieves a formal education or not, they will always get educated by his(her) pueblo.  Especially so, by her parents,  his immediate family, or even groups and individuals outside their family (media,church, politicians, etc.).

Gettin' Schooled!

Melvin Resnick studied the history of English bilingualism in Puerto Rico and shared his findings in the 1990's.  In a landmark paper, he observed "motivated failure" within the English as a second language, educational system.

Most ESL students on the island confront real obstacles to learning English.  To illustrate the failure of teaching English, consider that most school children in Puerto Rico receive 12+ years of English (SL) education, but some 80% of Puerto Ricans remain functionally monolingual (Spanish only).

Resnick points to effort to convince the Puerto Rican people that the learning of English meant the loss of identity and subjugation to a foreign colonial power (coming after 400+ Spanish colonialism, in the end, most Puerto Ricans were pretty sick of the treatment by the Spanish).

The rhetoric can even go so far as suggesting that the resistance to learning English was a simple rejection of the United States' attempt to Americanize Puerto Ricans through the public school system.


This is just one motivated failure example, among an infinite others that occurs outside of the formal education system.  Me, I was raised in a pluebo that was prejudiced against the black.  In others it might be homophobia or prejudism against Dominicans.  Or maybe even as extreme as pueblos which forbid women from showing their faces or receiving any formal education.  For certain, in all of the varied places around the world, it's our pueblos that define who we are and how we see the world.

Throughout (hu)mankind's existence, we've repeatedly seen that only through education and community can we get (hu)man to act against his self-interest.  Just as our ancestors used a new found respect and belief in science to bring us out of the dark ages and into the age of enlightenment, we too must find our way out of the blinders which keep (hu)mankind ignorant and afraid.

So while we must depend on public and private schools to teach our children reading, writing, and arithmetic, we must find new ways of teaching our children something which goes beyond technology or even information literacy, let's call it perspective(science) literacy.  In perspective literacy we use science to teach (hu)man his place in the universe, her place in her pueblo, and how that science dictates our place within them all.

Into The Future

A new digital generation will soon bear the burden of humanity.  Grown from long term technology literacy and digital independence, this new generations relates differently; it doesn't need television news, consumes mass quantities of modern media, and shares nearly everything that happens in their lives on the Internet.

It will take considerable study of the impact of this new generation.  What tragedies are bound to happen?  Which tragedies have the highest probabilities of impacting our well-being?  How will this generation (or the next) be any less self-serving than most of it's predecessors?  Unfortunately, all of this a big ask of any pueblo, even for any group of (hu)mans.

Of course there are always tragedies which bring about the end of the world as we (Puerto Rico) know it; who knows it may even be a large scale extinction event, the kind that forever changes a pueblo.  It's been a while since Puerto Rico has faced one...we can only wonder what might be the first, or the next.  How will our pueblo change?  How will our pueblo survive?

Publicado por Blogger en DONDEQUIERA el 4/08/2015 12:03:00 p. m.

Tuesday, March 31, 2015

[DONDEQUIERA] The Magical Mystical Unemployment Rate: Inside Puerto Rico's mysterious drop in unemployment

[Roll up! Roll up for the magical mystery unemployment rate! Step right this way!]

The February unemployment figures came out for Puerto Rico and there was a surprising drop in the numbers; they dropped from 12.4 to 11.6%.  This was possible through a 9K+ net increase in employment.  And while the jump might seem dubious, unemployment has actually been dropping since October of last year.

Roll up, roll up for the mystery unemployment rate 
Roll up, roll up for the mystery unemployment rate 
Roll up (We've got everything you need), roll up for the
unemployment rate 
Roll up (Satisfaction guaranteed), roll up for the
unemployment rate

These days, I'm not even sure if unemployment rate is what Puerto Rico economists should focus on.  As I have suggested in the past, the labor force participation rate, is, for me, the most worrisome.

If we look, once again, at the U.S. Bureau of Labor Statistics, Economy At A Glance (Puerto Rico), we see a long steady drop in the labor force.  Starting in 2006, the decreases in the Puerto Rican labor force has dropped down to levels not seen since, 1989.

In total, there has been a drop of about 290 thousand participants in the Puerto Rico labor force since 2006.  Curiously, there has also been a drop of about 272 thousand people employed, during the same time period.  Finally, there has been a total population drop of 257 thousand, roughly the same amount, again, during the same period.

What's the narrative?

A reasonable explanation of these trends could be, as jobs were lost in Puerto Rico, a large majority of the unemployed decided to leave the island. So as the number of total jobs dropped, unemployment skyrocketed, but eventually leveled off, as more and more unemployed went off the grid.  They didn't migrate away, they broke with the Pack, and begin using informal economies to support their well being.

Enter the ever illusive, Puerto Rico informal economy.  The raison d'etat of 8 years worth of complete incompetence in all things IVU or IVA.  As was recently expressed, managing a micro-economy is hard, and few, if any, of our governmental leaders (and their administrations) have been in control of said micro-economy.

The magical mystery unemployment rate is coming to take you away 
Coming to take you away 
The magical mystery unemployment rate is dying to take you away 
Dying to take you away, take you today

Labor force participation rate, total (% of total population ages 15+) (modeled ILO estimate)

Getting back to the labor force rate, here is a graph from the World Bank.  Labor force participation rate is the proportion of the population ages 15 and older that is economically active: all people who supply labor for the production of goods and services during a specified period.  In Puerto Rico, this critical rate went from 48.9% (2005) to 42.6% (2013).  That means that only 4 out of every 10 people in Puerto Rico are working "inside" the traditional BLS type of "employment" model.  Prior to this drop the labor force rate had been climbing since 1990, where the rate was 44.7%.

And Here is The Kicker

So if all of the major economic indicators show declines in the past 8 years, how has the Puerto Rico gross domestic product(GDP) and GDP per capita been able to sustain their continued growth?  How is retail purchasing in Puerto Rico rising?  How?

[Dying to take you away, take you today]

Publicado por Blogger en DONDEQUIERA el 3/31/2015 12:06:00 p. m.

Thursday, March 26, 2015

[DONDEQUIERA] Mall of San Juan - Praise the Lord

Sure, I know how curious people can be, but, if you ask me, Puerto Rico has a new house of worship.  Move over Plaza Las Americas, there is a new temple in which to praise the all mighty.  The new "Our Lady of Holy Capitalism," is open for business.  Let us stand back and adore thee.

As thousands demonstrated yesterday, the new Mall of San Juan opened to unprecedented numbers of shoppers and gawkers.  From all accounts, it looks like the new shopping mecca is an instant success, as predicted.  

Publicado por Blogger en DONDEQUIERA el 3/26/2015 06:24:00 p. m.

Wednesday, March 18, 2015

[DONDEQUIERA] Puerto Rico's Debt Crisis: An allegory of stupidity and greed

Puerto Rico Bonds: Perfect for Everyone!
Have you ever purchased a home or a car?  In these transactions there are three key principals:  the buyer, the salesperson, and the seller.  During such transactions, there is an agreement between the seller and the salesperson, that for each sale, the salesperson receives a commission for said sale.  While agreements vary, usually the commission is based on a percentage of the final sale price.

I think that's fairly well understood by most people, but let's up the ante.  What if  we are talking about municipal bonds?  As a thought experiment, let's say the principal actors in this "hypothetical" situation are Oppenheimer Funds Investment Management (buyer), UBS Investment Banking (the salesperson), and the Autoridad de Energía Eléctrica (the seller).  In this "hypothetical" transaction, the Autoridad contracts UBS to help them sell $3.5 billion in municipal bonds.  Now for simplicity purposes, let's imagine that Oppenheimer Funds purchases all $3.5 billion of the bonds.

So the burning question for this "hypothetical" sale, is: "How much did UBS earn in this transaction?"  Now, I'm not an economist or even a financial advisor, but math tells us that even a small percentage of $3.5 billion is still a shit load of money.

The Moral of This Story

Trying to unravel in the ins and outs of our debt crisis is a mess, so, as my first Spanish teacher used to tell me: "Don't make a trouble for you're head."

After all of my investigation into this debt crisis, all I can conclude is that the commission on $70 billion is an even larger shit load of money.  Over the last twenty years, our sales of municipal debt has exploded.

There are probably very sophisticated economic theories involved in why this has happened, but if we use a hybrid of philosophical razors, I think the moral becomes clear.

First, let's use Hanlon's razor (which I mentioned recently).  Hanlon's Razor states: "Never attribute to malice that which is adequately explained by stupidity."  I don't think current and past Puerto Rico administrations intended to do anything evil in selling so many bonds.  I think they sold so many bonds because they could.

And finally, let's use Ockham's razor.  Okham's razor states that among competing hypotheses that predict equally well, the one with the fewest assumptions should be selected.  All things being equal, the motivation for selling so many municipal bonds is greed.

Let's face it, it's pretty common within our commonwealth to exchange lucrative government deals for favors.  Whether these deals are in exchange for prior financial support during a politician's campaign or simply the action of a politician showering contracts on friends and families, one thing is painfully clear:

The sales of Puerto Rico municipal bonds over the last twenty years have generated a lot of profits in the form of takedowns, management fees, and underwriting expenses.   Because in the end, isn't it always about the benjamins?

Publicado por Blogger en DONDEQUIERA el 3/18/2015 09:35:00 a. m.

Tuesday, March 10, 2015

[DONDEQUIERA] IVA Propaganda - Departamento de Hacienda

I found some nice pro-IVA artwork on the Departamento de Hacienda website.  Here are my favorites:

Income Tax Versus IVA

Everyplace is using IVA

Less taxes, um hum, sure...

No more income tax withholding

Again, income tax and IVU is less than IVA - refunds

My absolute favorite!
Besides the consultants (KPMG), the clear cut winner with the IVA so far, are the advertising agencies and the ad sellers (mostly El Nuevo Dia, or should I say GFR Media?)

Publicado por Blogger en DONDEQUIERA el 3/10/2015 03:25:00 p. m.

Monday, March 9, 2015

[DONDEQUIERA] Risk Assessment for 2015 Puerto Rico Tax Reform

Ooooo doggie, did I strike gold. I found me a glory hole!

I was poking around on the Transformacionpr Web Site and found the risk assessment for the new Puerto Rico Tax Reform (PDF), prepared by KPMG.  As an introduction to this new glory hole information, I offer you the top five threats to a successful implementation of the VAT (IVA) in Puerto Rico
  • 1) Current Economic Instability - Yeah, this is pretty high risk, it's what we call a doozy.
  • 2) Ad Hoc Legislative Changes - Already happening! So I'd also pretty high risk, like 100% likely.
  • 3) Continued Culture of Tax Evasion - Funny how easy it was to find pertinent information about IVA evasion in other countries.  Don't hear so much about that part of "other places use it too!" See the tale of the Scorpion and the IVA.
  • 4) Inconsistent Enforcement Efforts - In a kleptocracy like ours, this is a given.  This is almost certainly to go hand in hand with the the culture addressed above.
  • 5) Population Loss - In the end, the true measure of the new tax reform is will it rescue the economy?  Will it prevent the mass exodus of Puerto Ricans looking for greener pastures in a much evolved United States.  Almost exclusively, when this happened before, many went to New York.  Now much more of the US is ready to receive the flood of Puerto Rican refugees.  Prediction: highly probable.
I didn't want to get to heavy into this, but if you study the risk document, it is rich with context and strategy.  Let's get this party started!

Publicado por Blogger en DONDEQUIERA el 3/09/2015 10:28:00 a. m.

Thursday, March 5, 2015

[DONDEQUIERA] The Elusive Puerto Rican informal Economy

Funny thing happened to me while I was trolling the economic data for Puerto Rico yesterday.  Surprise, surprise, I found yet another paradox.  According the Puerto Rico Government Development Bank (GDB), Puerto Rico's Economic Activity Index and Retail Sales are growing.   How is this possible?  With lower population and lower employment rates, shouldn't the economic activity be shrinking?  How can there be more money in the economy when there are less people working?

Ask yourself, how could there be more money in an economy, when there is less income?  The only logical conclusion is that there is another source of income.  Now ask yourself, what other sources of income are there that aren't from employment?  Now you might respond, clearly you are overlooking self-employment. Unfortunately, the labor data available for the GDB doesn't support this theory.  On the contrary, self-employment is at it's lowest since 2008.  So if it's not self-employment, then what could be the source of this money?

According to Occam's Razor, the only answer to this riddle is the elusive Puerto Rican informal economy.  Estimated at $17 billion dollars, or 27% if gross domestic product  [of Puerto Rico], the black market is the primary target for both the IVU and the IVA.

When the debate surrounding the IVU caught my attention back in 2006-07, I started watching the growth of a local pulgero, a flea market.  I watched as the IVU became the law of the land, the size of the pulgero grew rapidly.  However, as the years went by and the informal economy continued growing, my local pulgero maxxed out.  Recently, the number of stalls, constructed out of wagons (steel enclosed trailers typically used for goods transport), has roughly stayed the same.  I share my heuristic, to call into question, the origin of the informal economy.

I love the way, the Puerto Rico informal economy has become an accepted fact.  I love it for the irony it represents, for not only does this represent the cash-based economy where goods and services are exchanged outside of law, it also includes drugs and guns trafficking.

It boggles the mind that so many "law-abiding" citizens are complicit with major crime and the syndicates they represent.  Since it is, by definition, off the books, there is no way to estimate the breakdown of the estimated $17 billion.  I wonder though, how much of this economy is drawn from drugs, guns, and prostitution?

Of course, within a kleptocracy like ours, an informal economy is the most nefarious type of corruption.   It slowly leaches into our daily lives, increasingly corrupting more and more of our society.

Much heralded, is the community that protects the gang that helps them to survive, providing "jobs" and income for the community where none existed.  But I many of the participants in Puerto Rico's informal economy would openly support murderers, thieves, and extortionists?  Especially, if you factor in that Puerto Rico's population is approximately 95% Christian?

Sadly, I'm left with only the illogic from Star Tek's classic "I Mudd" episode.  "You say that Jesus and The Bible are your strength, but openly allow murder, stealing, and bearing false witness.  But if God was your copilot, you wouldn't take what isn't yours."

Publicado por Blogger en DONDEQUIERA el 3/05/2015 10:36:00 a. m.

Wednesday, March 4, 2015

[DONDEQUIERA] The Fable of the Scorpion and the Puerto Rico IVA

Recently the ex-governor of Puerto Rico, Anibal Acevedo Vila made an interesting announcement on his blog, entitled "Refrescando la Memoria."  In his discourse, he suggests that the IVU, which he signed into law in 2006, is one of the reasons that the Puerto Rico economy has not emerged from it's decade old depression.

Yes, let's refresh our memories and see what emerges, but first, I'm reminded of an Aesop Fable, that might help us with our memories:
A scorpion and a frog meet on the bank of a stream and the scorpion asks the frog to carry him across on its back. The frog asks, "How do I know you won't sting me?" The scorpion says, "Because if I do, I will die too." 
The frog is satisfied, and they set out, but in midstream, the scorpion stings the frog. The frog feels the onset of  paralysis and starts to sink, knowing they both will drown, but has just enough time to gasp "Why?" 
Replies the scorpion: "Its my nature..."
The Moral

As some of you political monsters out there might remember, during his political campaign against ex-govenor Pedro Rossello, Acevedo Vila was likened to a scorpion. So let's keep that in mind as I unwind the tatters of history and reveal the moral.

But didn't Acedo Vila, himself, sign the bill into law? Yes, but he remembers thinks a little differently: "Aunque tenía dudas muy fuertes sobre la imposición de un impuesto al consumo, acepté la propuesta del PNP. (While I had strong doubts about the IVU, I agreed to the PNP proposal.)"   So let's deconstruct that statement, because it's a doozy.  So the PDP governor, accepted the IVU proposal from the opposition party, the PNP.  Yeah, that happens here, like, never.

Maybe the blog post is a secret cry for help, because the governor is surely suffering some type of memory robbing affliction. Maybe it's the early stages of senility, because Acevedo Vila must not remember having had the power to veto while governor. Anyway, I digress.

The Informal Economy

When the IVU was implemented it was heralded as the way to increase tax collections from the informal economy (the black market) and those pesky tax evaders.  But like a horrible punch line to a sadistic joke, long story short, it didn't.  As the landscape changed, so did the behavior of the evaders, as well as the merchants and consumers of the black market.

Unlike our fable, in this version, Acevedo Vila isn't the scorpion, he's the frog. And the willing participants of the black market and those wily tax evaders are the scorpion.  For you see, as ugly as it sounds, if there is one thing tax evaders excel at, it is bending the rule of law to their favor.

What's My Point?

If one of the motivations for the new tax law is to capture taxes from the informal economy and tax evaders, then the VAT (IVA) is doomed already.  For just as certain as the sun rises in the east and sets in the west, the moment the VAT becomes law, people will find a way to beat the new system. It is just our nature, we can't help ourselves, even if we tried.  Therefore, all of the tax revenue projections are based on a flawed assumption.

Publicado por Blogger en DONDEQUIERA el 3/04/2015 07:55:00 a. m.

Thursday, February 26, 2015

[DONDEQUIERA] Exiting the Puerto Rico Debt Crisis

In a thought provoking piece from the Bloomberg View, the editors are recommending that Puerto Rico be allowed to slip into bankruptcy.  A bold suggestion, that I'm sure will ruffle some feathers, but it is not without merit.

As some of you know, I'm a serial entrepreneur with a long string of failed businesses.  In some circles this would grant me a badge of honor, for me, it's just another badge I've accumulated in a long career.  When building a startup, it's critical to know your exit plans; do you intend on taking the company public, do you hope to sell it, or will this become a life-style business?  So for purposes of a thought experiment, let's apply the same analysis to the Puerto Rico debt crisis.

You can file this under more assumption analysis of our debt problem, but let's say that we have a magic wand, and the VAT(IVA) works perfectly. Then what?  We see right away, that we just can't get away from revisiting our assumptions:

  • $79 Million in outstanding bonds.
  • Interest payments of these bonds are 13% of our annual budget.
  • S&P and Moodys determine the grade of our bonds, their grade determines the amount of interest our government must pay on both outstanding bonds and new ones as well.

To solve our debt problem, the VAT(IVA) must produce a budget surplus, or at the very least, balance the budget so we don't need to issue any more bonds.  Additionally, the VAT (IVA) should prevent any further degradation of outstanding bonds.  Further degradation means that the VAT(IVA) would have to overcome the additional interest due.

Here's what the Bloomberg View editors have to say about that:
"Shrinking Puerto Rico's debt will require running a budget surplus for years and an economy that grows at a nominal rate consistently higher than the interest rate on Puerto Rico's debt. Neither is likely."  
Let's be clear, the goal is not to eliminate all bonds, but to bring them under control and eliminate the burden of massive interest payments we currently have.

It is a simple truism that you can not solve a problem quickly that took decades to create.  The VAT(IVA) is not a silver bullet solution.  Even with perfect execution, one that generates a budget surplus, we would still need to keep that surplus until the public debt is under control.

Troubling Unknowns

  • How will an aging tax-base impact collections? 
  • What if more citizens take their chances in the United States and move away?
  • What if citizens find a way to avoid paying the VAT?  A common solution to not paying tax on a purchase is to find an alternative source, can you say Amazon? What about Ebay.  While we try to tax Internet purchases? Hmm, good luck with that one.
  • With Radio Shack and Doral Bank ready to disappear, how will additional business closings affect the problem?  
  • What if the federal government raises the minimum wage?

I used a dominoes analogy of our debt crisis early, but chess will do just fine.  If our debt crisis is like a game of chess, then we are only just a few moves away from checkmate.  With each move we take, we move one step closer to checkmate, so now the question becomes, "What happens when Puerto Rico defaults on our bond payments?"  Let's explore that scenario, but be prepared for one thing, much wailing and gnashing of teeth.

Publicado por Blogger en DONDEQUIERA el 2/26/2015 09:13:00 a. m.

Tuesday, February 24, 2015

[DONDEQUIERA] Puerto Rico Governor Calls Us All Crooks

What makes the Daily Show and other "fake-news" shows so effective,a and funny, is when they can draw on the assumptions of how current events are explained and reported.

Holy Freaky Assumptions Batman!

So lets take the implementation of a VAT (IVA in Spanish) in Puerto Rico.  What are the plan's basic assumptions?

The obvious ones are:

  • The Puerto Rico economy is in a bad way, IMHO, which never really recovered from the global financial meltdown of 9/11.  Still crippled from that downturn, the banking meltdown of 2008 put our economy on life-support.
  • We owe a shit load of money, and want to borrow more.
  • People are fleeing Puerto Rico like rats jumping a ship, something the country already saw happen after the Great Depression; when millions of Puerto Ricans jumped the pond in search of a more prosperous life.
  • There continues to be a large black and grey market within Puerto Rico.

The subtle assumptions are:

  • To fix our economy we must reform our tax system.
  • We need to fix our tax system, because our current tax laws are generating less income.
  • Finally, we are not raising more tax income, because there are some who are evading the current system. 

So, with that logical sequence of assumptions, we can can come to one conclusion, that the Governor of Puerto Rico, Alejandro Padilla believes that Puerto Rico is full of liars and crooks who will do anything to keep from paying taxes.  And there you have it, comedy gold.  With the focus on this new assumption, let the joke begin, the IVA, I mean.

Publicado por Blogger en DONDEQUIERA el 2/24/2015 11:45:00 a. m.

Wednesday, February 18, 2015

[DONDEQUIERA] Throwing Good Money After Bad - Digital Media Literacy In Action

Department of Education to Improve Internet Infrastructure

Recently the Puerto Rico Department of Education announced the start of a $15 million technological upgrade program that aims to improve the infrastructure for Internet connectivity at the island's 1,384 schools.

On the face of it, this sounds like an awesome initiative.  And I want to believe that it IS a great thing, but the thing about knowing something, is that you can never un-know it.


Early in my entrepreneurial journal, I remember this one anecdote.  At the time I was working with a startup and their mobile learning application.  We were discussing past programs that aimed at improving the Internet infrastructure for some of the public housing communities here in Puerto Rico.  In one program, free WIFI was installed within the communities, soon after installation, it was learned that the WIFI antennas were being used for target practice.


Over the course of the last few years, I've learned that my efforts to spread FLOSS within Puerto Rico were being limited by a lack of digital media literacy, or digital literacy.  These new literacies  consist of the knowledge, skills, and behaviors used with digital devices and their content.

Within this area of practice, implementing technology projects, without an overall literacy program, is typically unsuccessful. Why?  Because, without proper education, it doesn't matter how much Internet infrastructure we throw at or lagging education system, its' impact will be minimal.

So in a way, granting teachers and students access to high-speed Internet is like granting them access to an electron microscope or particle accelerator.  Sure the potential for advanced learning is there, but without proper guidance and instruction it is unlikely.

Perhaps the most important piece of education missing is for the teachers and administrators.  As we know, most school-aged children are digital natives.  Using the new tools will be easier for them, but what about the non-digital native teachers?


Let me preface this analysis with the heartfelt wish that I am proven wrong. Let me be wrong, please, I'd love to eat these words.

First, "Danger, Will Robinson!"  Of all of the governmental agencies here in Puerto Rico, the Department of Education has the most convictions for fraud.  So all I want to say is that $15 million is still a big enough number to have a shiny new Mercedes glimmering in even the most steadfast government official's eyes.

Two, I've seen many such announcements before.  After the initial press conference, most fade from our memories and we never hear of them again.  That is, until the FBI raids and arrests begin (refer to previous point).  In between, these projects fall into a black hole and all evidence of their existence disappears.

Finally, if the infrastructure does come into fruition, it will lie fallow and be underutilized.  Woefully, the project will fall short of the project's plan. It will not result in the development of technological projects in the classroom.  It will not increase student retention and academic achievement. And finally, it will not further teaching staff skills.

In perhaps one of the oldest idioms, I will just remind everyone that "you can lead a horse to water, but you can't make him drink."

Publicado por Blogger en DONDEQUIERA el 2/18/2015 09:58:00 a. m.

Tuesday, February 17, 2015

[DONDEQUIERA] Same as it ever was

Well here we go once again, I'm struggling with  a heavy gift. For I am allowed to glimpse the future and I am saddened by it. Most everything I have written here about Puerto Rico's economic situation has come to fruition. So I share what I can, describe what I can, and predict what I can. But sometimes it all seems for nothing.
Over the long weekend the debate and analysis of our ongoing economic crisis continued. With the governor pushing for the implementation IVA , and everyone pushing back against it. 1 analysis I read from the center for a new economy here in Puerto Rico provides a good overview of the pros and cons of the proposed new tax .
One observation that the analysis was clear on was that placing a tax on food, medicine, and education was immoral. I agree. However, one aspect of the new  tax that was not pointed out is the potential problem for citizens who already do not pay income tax, such as the poor, the retired, and the disabled.
The basis for this new tax is replacing income tax for the majority of citizens with the new tax which is based on consumption, or what is known as a value added tax. But suppose that a citizen or household currently doesn't pay income tax under the current tax structure, then this new 16% tax on goods and services will go straight to the bottom line of their household budgets.
One other troubling aspect of this tax reform is the intention to refund the value added tax to those currently exempt from income tax, as mentioned above. How was this return process work? When will it begin? How will the government know how much I am do in my return?
As the debate continues, hopefully we will learn more about the details 10 plans to implement the new tax, and wait with baited breath to see if the new tax reform passes the Puerto Rico House of Representatives and Senate.

Publicado por Blogger en DONDEQUIERA el 2/17/2015 08:44:00 a. m.

Friday, February 13, 2015

[DONDEQUIERA] The Last Domino Game For Puerto Rico

In science, in life, in religion, nothing  necessitates   change like facing certain extinction.   Just as the bird evolves a curved beak, an ability to eat arsenic, or man's ability to survive extreme climate differences, all were driven by the need to survive.

Here in Puerto Rico, the news has been coming hot and heavy.  Each new piece of information compels us closer to an uncertain future.  Each ficha leading us closer to the end of the game.  When there are no more fichas that can be played, the game is trancao.  That is where Puerto Rico's future is headed.  

Soon we will reach a point where we must evolve, or we will face the end of the world, at least, as we Boricuas know it.  And the disruption, discord, and wealth destruction that will happen, if we go that route, will forever change this island, and perhaps even our "owners," the US of A.

The funny thing about life, is that we subconsciously know that things must change, and we accept it as best we can.  Change happens right before our eyes, it happened yesterday,  it's happening  today, and  it will happen  tomorrow.   Sometimes though, sometimes, those changes cause us to change as well.

For good, or for bad, I have a front-row seat to the upcoming spectacle.  It will be one for the history books, for sure.  For me, I've been working to prepare myself for change, even rapid-change.  In the end, I have only one solace.  While the machinations of politicians, corporate citizens, and corporate owned-governments play out this final game of dominoes.  I prepare. Those who prepare, survive, and perhaps evolve along the way.  

Publicado por Blogger en DONDEQUIERA el 2/13/2015 09:20:00 a. m.