The evidence does not say what they say

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The evidence does not say what they say (i. e. , you’ve been had)

The evidence does not say what they say (i. e. , you’ve been had) By Carlos A. Colón De Armas, Ph. D. June 27, 2016

“If you don’t read the newspaper, you’re uninformed. If you read the newspaper, you’re

“If you don’t read the newspaper, you’re uninformed. If you read the newspaper, you’re mis-informed. ” Mark Twain

Negotiations with bondholders, debt restructurings, and bankruptcy are not justified, because Puerto Rico’s public

Negotiations with bondholders, debt restructurings, and bankruptcy are not justified, because Puerto Rico’s public debt can be paid as contracted

Government Approved Budget: 2015 -2016 (In thousands. ) Consolidated Budget = $28, 807, 832

Government Approved Budget: 2015 -2016 (In thousands. ) Consolidated Budget = $28, 807, 832 Public investment, $1, 056, 186 , 3. 7% Debt service, $4, 491, 362 , 15. 6% Payments to non governmental entities, $173, 110 , 0. 6% Payroll, $7, 260, 995 , 25. 2% Other operational expenses, $15, 826, 179 , 54. 9% Source: Puerto Rico Office of Management and Budget

Debt Service as a % of Total Resources (Working Group vs. Consolidated Budget) Working

Debt Service as a % of Total Resources (Working Group vs. Consolidated Budget) Working Group Resources General Fund and other select revenues GDB net operating revenue COFINA HTA revenues Incremental SUT and VAT revenues Other revenues (“plug”) Federal transfers Loans and bond issues Total resources Debt service GOs and selected agencies Other debt service (“plug”) Total debt service as a % of total resources 34% $8, 503 (96) 696 677 $9, 780 92% $4, 130 Consolidated Budget $8, 503 (96) 696 677 1, 121 10, 535 6, 477 895 $28, 808 $4, 130 361 $4, 491 42% 16%

General Fund Net Revenues (In thousands) Revenues Fiscal Year 2014 -2015 -2016 Difference July

General Fund Net Revenues (In thousands) Revenues Fiscal Year 2014 -2015 -2016 Difference July August September October November December January February March April May June TOTAL $624, 229 $626, 495 440, 579 549, 999 709, 025 759, 278 675, 822 626, 663 451, 883 488, 609 853, 978 844, 753 699, 533 670, 840 709, 302 767, 531 838, 612 929, 731 1, 332, 407 1, 284, 728 646, 871 713, 788 978, 662 $8, 960, 903 $8, 262, 415 $2, 266 109, 420 50, 253 (49, 159) 36, 726 (9, 225) (28, 693) 58, 229 91, 119 (47, 679) 66, 917 $280, 174 Estimate Revenues Fiscal Year 2015 -2016 Difference $605, 419 $626, 495 534, 841 549, 999 776, 711 759, 278 654, 015 626, 663 503, 956 488, 609 842, 333 844, 753 833, 174 670, 840 779, 811 767, 531 891, 187 929, 731 1, 365, 691 1, 284, 728 783, 368 713, 788 1, 229, 494 $9, 800, 000 $8, 262, 415 Source: Puerto Rico Department of Treasury. $21, 076 15, 158 (17, 433) (27, 352) (15, 347) 2, 420 (162, 334) (12, 280) 38, 544 (80, 963) (69, 580) ($308, 091)

Not much of what is being said and proposed is sustained by the evidence

Not much of what is being said and proposed is sustained by the evidence

Puerto Rico: GNP Annual Growth (In real terms and in %. ) 12, 0

Puerto Rico: GNP Annual Growth (In real terms and in %. ) 12, 0 Food stamps (November 1, 1974) Average (1948 – 1979) = 5. 56% 10, 0 Section 936 (October 4, 1976) Federal minimum wage (1983) 8, 0 Average (1980 – 2015) = 1. 22% 6, 0 4, 0 2014 2011 2008 2005 2002 1999 1996 1993 1990 1987 1984 1981 1978 1975 1972 1969 1966 1963 1960 1957 1954 (2, 0) 1951 0, 0 1948 2, 0 (4, 0) Source: Puerto Rico Planning Board, Statistical Appendix, Table 1, and author’s computations.

Puerto Rico’s Public Debt (In millions. ) $80 000 $72 602 $70 043 $70

Puerto Rico’s Public Debt (In millions. ) $80 000 $72 602 $70 043 $70 000 $55 928 $60 000 $50 000 $40 000 $30 000 $20 000 $10 000 - - - S&P = A/A- ; Moody’s = Baa 1 - - - $36 703 $25 215 $19 508 $14 242 $11 646 $5 957$7 505$8 837 $0 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 2014 Fiscal Year Source: Government Development Bank for Puerto Rico.

Public Debt as a % of GNP 120% 100% 88% 80% 60% 40% 102%

Public Debt as a % of GNP 120% 100% 88% 80% 60% 40% 102% 105% - - - S&P = A/A- ; Moody’s = Baa 1 - - - 73% 61% 59% 58% 57% 60% 56% 67% 20% 0% 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 2014 Fiscal Year Source: Government Development Bank for Puerto Rico.

General Fund: Revenues vs. Expenses (In $ thousands. ) Revenues Rev. – Exp. 2001

General Fund: Revenues vs. Expenses (In $ thousands. ) Revenues Rev. – Exp. 2001 -1% (78, 718) (464, 032) 12 2002 000 +7% +492, 078 (1, 674, 106) 2003 10 +2% 000 +150, 531 (438, 299) 2004 +7% +515, 004 (802, 849) 2005 +11% +915, 817 (681, 467) (444, 326) (1, 806, 138) 14 000 8 000 20066 000 -5% 4 000 2 000 Expenses Revenues Sales tax starts 19 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1 81 19982 1983 1984 1985 1 86 19987 1988 1989 1 90 19991 1992 1993 1994 1995 1996 1 97 19998 2099 2000 2 01 20002 2 03 20004 2005 2 06 20007 2008 2009 2 10 20011 2012 2 13 20014 2015 16 0 Sources: 1970 -2013: Comprehensive Annual Financial Report (CAFR) of the Government of Puerto Rico. 2014 -2016: Puerto Rico Office of Management and Budget.

Excess public spending took away resources from public investment. The resulting reduction in investments

Excess public spending took away resources from public investment. The resulting reduction in investments proved to be the coup de grace for an economy that was weakening since the 1970 s.

Income, Expenses, and Investment in PR (In millions. ) 2003 2015 Cambio promedio anual

Income, Expenses, and Investment in PR (In millions. ) 2003 2015 Cambio promedio anual Disposable personal income At current dollars At constant dollars $42, 132. 6 $61, 789. 1 $8, 723. 3 +3. 24% $9, 656. 5 +0. 85% $41, 970. 4 $61, 911. 3 +3. 29% Personal consumption expenditures At current dollars At constant dollars $8, 832. 2 $9, 675. 6 +0. 76% At current dollars $11, 619. 1 $8, 956. 0 -2. 15% At constant dollars $1, 871. 9 $1, 360. 6 -2. 62% Gross domestic investment Source: Puerto Rico Planning Board, Statistical Appendix, Tables 1 and 2.

Investment as a % of GNP (Current dollars. ) 30, 0% 25, 0% 20,

Investment as a % of GNP (Current dollars. ) 30, 0% 25, 0% 20, 0% 15, 0% 3, 7% 4 2 2 , 3% , 1% 2 2 21 , 8% % 9 1 , 1 18 , 8% 0% 5, 4% % 5 1 , % 1 , 2 14 13, 5 13, 1% 10, 0% 5, 0% 15 20 14 20 13 20 12 20 11 20 10 20 09 20 08 20 07 20 06 20 05 20 04 20 20 03 0, 0% Source: Puerto Rico Planning Board, Statistical Appendix, Table 2, and author’s computations.

Investment as a % of GDP - 2014 (Current dollars. ) d ga ia

Investment as a % of GDP - 2014 (Current dollars. ) d ga ia po B Pa a re na ha m ma á( s Do 20 m 13 in ica C ) n hil Re e pu b. . . Ge US rm an y Pu Sp er ain to Ri c Gr o ee ce Sin In Ch in a 50, 0% , 2% 6 4 , 6% 8, 8% , 5% 40, 0% 1 3 27 % 27 2 , 4%21, 5% 9, 4% 19, 3% 19, 8 30, 0% 1 2 1 1% 2, 2% , 3 20, 0% 1 1 10, 0% Source: World Bank. Note: For Puerto Rico, GNP and 2015 data are used.

Conclusion

Conclusion

How do we fix this? Ü Short term: § Solve the liquidity crisis with

How do we fix this? Ü Short term: § Solve the liquidity crisis with a 2 -year loan for a maximum of $2, 000 million. § Link the repayment of that loan to the reduction in the operational expenses of the government. Ü Long term: § Start a process leading to the increase of investments on the Island, spearheaded by the government. § Develop a new economic strategy that is not directly tied to any particular status option and that promotes wealth creation.

Loan strategy (In millions. ) General Fund Revenues Expenses Excess of revenues minus expenses

Loan strategy (In millions. ) General Fund Revenues Expenses Excess of revenues minus expenses Loan payment (1) Available for investments (2) 2017 $9, 100 (8, 000) $1, 100 (1, 100) $0 2018 $9, 200 (7, 500) $1, 700 (1, 050) $650 Notes: 1) Assuming a negotiated interest cost of 5%. 2) Could be higher if some debt service is allocated to the different issuers including the public corporations.

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THEY SAY I SAY THE MOVES THAT MATTERTHEY SAY I SAY THE MOVES THAT MATTER
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