Home' Trinidad and Tobago Guardian : July 30th 2015 Contents BG18 REGIONAL
BUSINESS GUARDIAN www.guardian.co.tt JULY 30 • 2015
Economists working for a group of hedge funds
and other firms with major investments in Puerto
Rican bonds said Sunday night that the government
could solve its debt crisis largely by stepping up tax
collections and obtaining additional financing over
the next two years.
The message of sustainability is sharply at odds
with the recent announcement by Puerto Rico s gov-
ernor, Alejandro García Padilla, that the common-
wealth s debt is "unpayable."
The face value of the territory s outstanding
municipal bonds is about US$72 billion. In addition,
it has about US$40 billion of unfunded pension
obligations to public workers on the island, and
other unpaid bills. The governor is seeking a mora-
torium on bond payments.
"There may be an issue of liquidity in the short
term," in Puerto Rico, "but the debt itself, in global
terms, is sustainable," said Claudio Loser, the chief
executive of Centennial Group Latin America, which
will officially release its report Monday morning.
The consulting firm, based in Washington, was hired
several months ago by the group of hedge funds
and other investment firms to analyze Puerto Rico s
economy and finances.
Loser said he believed that Puerto Rico would
need short-term financing of about US$2.5 billion
to get through 2016 safely. That amount, he said,
would be used to pay the commonwealth s current
overdue bills to vendors, make scheduled payments
on existing debt and finance a budget deficit pro-
jected to be less than US$500 million.
The economists have decades of experience with
the International Monetary Fund.
The governor based his analysis on a study by
another group of sovereign-debt experts, known as
the Krueger Report for its lead author Anne O
Krueger, also an economist with a background at
As a result of that report, the governor has
appointed a high-level task force to work out a five-
year program of structural economic changes on
the island. Senior economic figures in his admin-
istration have said the moratorium might last for
five years, or even longer.
In a response to the report Sunday night, Víctor
Suárez, chief of staff to Governor García Padilla said,
"The simple fact remains that extreme austerity
placed on Puerto Ricans with less than a compre-
hensive effort from all stakeholders is not a viable
solution for an economy already on its knees."
Loser said, "We feel that the moratorium is certainly
costly and not a good idea." He called instead for an
"orderly and consensual discussion" on ways to
resolve the debt obligations.
While the IMF is generally associated with bringing
fiscal austerity measures to countries in financial
trouble, Loser said his team was not calling for a lot
more belt-tightening on the island.
In a briefing for journalists, another economist,
Jose Fajgenbaum, said that much of the belt-tightening
necessary had already been done.
"The deficit has already been reduced," he said,
adding that the governor s own analysis also showed
that Puerto Rico might even achieve a budget surplus
by 2017. The commonwealth has not had a structural
budget surplus in more than a decade. Much of its
existing debt was incurred by issuing bonds to pay
previous debt and to plug budget holes.
The economists also said they were not suggesting
that Puerto Rico ought to impose any more tax
increases on residents who were already paying the
taxes they owe. Loser said the commonwealth was
managing to collect far less of the taxes due than the
50 states, and that it would not have to increase tax
rates at all if it could capture what residents are now
supposed to be paying.
The advisers also argued that Puerto Rico could
improve its finances by allowing for-profit companies
to operate its public works. The commonwealth had
already contracted with a Mexican firm to operate
its largest airport, and turned one of its highways
into a toll road.
"If anybody would say that we are promoting fire
sales, we are totally against that," Loser said. "I want
to make that clear."
The analysts declined to provide details about
whether they thought that all of Puerto Rico s debt
was sustainable, or whether the commonwealth ought
to default on certain types of debt while continuing
to pay other types. Puerto Rico has issued many dif-
ferent types of bonds, including general-obligation
bonds and revenue bonds.
"What we have said is there is no need for a general
restructuring of debt for the government," said Loser.
"We are not talking about specific issues."
He said the complex details of Puerto Rico s debt
structure were outside the scope of the report.
The study was commissioned by a group of hedge
funds and other investment firms known as the Ad
Hoc Group, which includes Fir Tree Partners, Brigade
Capital Management, Monarch Alternative Capital
and Davidson Kempner.
The Ad Hoc Group owns about US$5.2 billion of
debt, mostly general-obligation bonds and other
bonds that are guaranteed by the central govern-
Hedge funds and other investment firms that own
large amounts of Puerto Rico s debt have been scram-
bling since the governor announced late last month
that he would seek a "negotiated moratorium" on
the commonwealth s debts.
The announcement caught many of these so-called
distressed investors by surprise. They had been buying
up billions of dollars of the island s bonds over the
last two years at deep discounts, betting that fears
about a Puerto Rico default or restructuring were
Some of them also offered earlier this year to loan
Puerto Rico about US$2 billion, to help get the com-
monwealth through another year of its perennial
budget shortfalls. But the government declined those
offers, saying the terms were too onerous.
The island s financial problems deepened over the
last year, particularly after the commonwealth s credit
ratings fell into junk territory. Many of the mutual
funds that had previously held Puerto Rico s bonds
then sold them, and the distressed-debt investors
acquired them at prices far below what the sellers
They hoped for a profit but so far have suffered
losses. Some of their holdings fell by nearly 17 per
cent in the two days after García Padilla first discussed
a debt moratorium in an interview with The New
Privately, some hedge fund managers have expressed
frustration that García Padilla s administration and
his army of legal and financial advisers have been
able to convince many people that only drastic meas-
ures like a broad restructuring can save Puerto Rico.
New York Times
Puerto Rico should
collect unpaid taxes
The Caribbean Devel-
opment Bank (CDB)
has approved a US$2.34
million loan to finance
the installation and
commissioning of a 1
Megawatt Solar Pholto-
voltaic Plant which will
enable the Anguilla
Electricity Company Ltd
(ANGLEC) to introduce
renewable energy into
the mix for electricity
The project in Corito,
in the south of the is-
land, will also allow the
utility company to ex-
amine and assess the
response of its power
system to the incorpo-
ration of an intermit-
tent renewable energy
"The installation of
the Solar Photovoltaic
Plant will help reduce
the nation's reliance on
fuel for its energy re-
quirements," said CDB's
acting director of Proj-
ects Andrew Dupigny.
To ensure sustainabil-
ity of the project, the
contractor's scope of
works includes training
for ANGLEC's staff to
help them develop the
skills required to main-
tain and operate the
solar PV plant.
The power plant will
be designed, operated
and maintained to guar-
antee at least 20 years
of operation, within the
This loan is the CDB's
sixth intervention in the
energy sector in An-
guilla and supports the
government's goal of
transforming the coun-
try into a carbon-neu-
Anguilla's 2008 Na-
tional Energy Policy
presents a vision for the
country's future as one
of energy independ-
ence, with the island
meeting its energy
needs from reliable, af-
fordable and renewable
The government has
set a national target of
producing 30 per cent
of its electricity from re-
newable sources by
2030 and cutting
greenhouse gas emis-
A protester in Puerto
Rico whose sign
translates as "We didn't
take out a loan. We
didn't see a dime. We're
not going to pay."
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