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.