For ex governor Luis Fortuño Library activity held September 21, 2015 at UMET, Cupey, Puerto Rico. In collaboration with RUM professor Walter Ruiz, Ph.D. retired.
Puerto Rico’s government lies impotent as the forces of entropy dismantle its economic infrastructure. Both physical and institutional assets are being destroyed by neglect and obsolescence. Resources are being squandered by short-sighted, politically motivated, and ill conceived priority sets and decisions. Precious time has been lost. Tax reform, proposed by the Governor, was deformed at the legislature. As a result, the already intolerable tax system has become worse. Given the iron fists with which political parties control the huge public sector, and the influence they exert on the relatively small private sector, much needed government re engineering is now almost an impossibility.
Social capital has been squandered. The debt has become the target. Populist discourse and talk of default by government officials have inflicted serious damage. The rule of law as a guiding principle has been shaken.
A radical change of direction is required. “My word is my bond”. The spirit of this expression must be reinstated. It will require an unambiguous and sustained effort. Once such change is adopted, leadership will be indispensable in order to stay the course. A course that must be specified in a program of capital investments. Not in a list of construction projects lacking any strategic role. A list that smells of pork barrel. No, just the opposite is needed.
Capital is scarce, financing is expensive and difficult to obtain given our country-risk profile. Thus, we must choose carefully as the projects portfolio is configured. The guiding principle must be set on increasing our capacity to add value to the world economy. Political correctness must be set aside. The Keynesian recipe for jump-starting the economy by hiring workers to dig holes in the ground, only to fill them up again, may work as a countercyclical policy on the very short-run for close highly capitalized economies. These conditions are not met in Puerto Rico. In fact, we have had an overdose of such unproductive approaches. It is time to think strategically. The goal must be to create a productive economy capable of adding value to the world economy. A modern infrastructure of the most recent venture is required to attain such a goal.
Reconstruction shall mean just that. After years of neglect, bad choices, outright abandonment, and lack of purpose, the basic utilities must be retrofitted and rebuilt. Some of the capital investment projects that should be made part of the investment program are known already. Some of them have even been started only to be stopped, forgotten and abandoned. Lets recall a number of these projects just to illustrate the kind of effort we must tackle.
- Completion of the transition from petroleum to natural gas in the island’s power generating units with a goal of achieving reliable, stable consumer energy cost below $0.14/kwh within the next three years.
- Construction of gas pipelines inter-connecting converted and/or new gas generating units in the north and south to the new and the existing import, storage and re gasification facilities on the southern coast.
- Completion of the so called “super” aqueduct system interconnecting water reservoirs around the island, thus providing assurance against extreme droughts and continuance of service. Completion of the Rio Valenciano reservoir project interconnecting and supplying the PR 30 corridor municipalities.
- Construction of a submarine cable connecting Puerto Rico to the Virgin Islands to expand the electricity transmission grid, thus enabling the supply of electricity at competitive prices to an expanded territorial market.
- Expanding the metro rail project and its feeder systems consistent with an urban redesign of the San Juan Metroplex area.
- Converting the toll roads and freeways grid into an “intelligent” and safe ground transportation system.
- The institutional infrastructure must also experience a process of reconstruction and upkeep. Transaction costs have rocketed as a response to an out-of-control bureaucracy, excessive protectionist and ill conceived government meddling in private sector activity.
Production, not distribution, must be the overriding goal of all infrastructure projects. Careful planning must not be avoided. We must realize that employment is a cost factor. Production, value added, competing and exporting. These are the keywords that must be kept in mind. Employment in private industry will follow capital investments. Choosing a portfolio of major infrastructure initiatives with high synergy index is the way to go. Political interfering will only insure continued failure.
Certain facts must be incorporated early into the planning and implementation phases of the investment program. For example, the Puerto Rico government utility’s water management record is just unacceptable. The public utility’s management has no clear estimate of the potable water it produces. Nevertheless, it estimates that 60 percent of production is lost to leakage or theft. An aggressive program designed to identify and incorporate illegal consumption, implementing a 100% remote meter consumption reading is urgently needed.
Three hundred thousand properties have been identified, with no legal water facilities. The Electric Power Authority appears to have over two-hundred-thousand more clients than the water and sewers utility. Of these, only a small percentage of client meters are regularly monitored. The majority of client consumption is still periodically estimated. Consumption of a significant segment of the population is never actually read. Again, it is estimated. Therefore, an unacceptable portion of treated water is lost to leakage and theft. This translates into lost revenue and must be terminated.
Problems in other areas of infrastructure have remained in the doldrums for years. One of these pertains to solid waste disposal. Here is a dormant crisis. Landfills throughout the island are polluting underground water deposits. Noncompliance with Federal regulations is the standard procedure. Meanwhile, sterile battles are fought against waste-to-energy projects. Paralysis is the resultant condition.
An all-fronts program is required to tackle this problem. Approval and construction of the Energy Answers project in Arecibo should proceed immediately. In addition, an all out-effort should be implemented in order to develop additional compost facilities, as well as recycling, conservation, and zero-trash programs.
Education may well be thought of as an investment. However, this is far from being the case in present day Puerto Rico. In fact, public education has become a welfare system dominated by an obtuse bureaucracy and short-sighted union leaders and activists. The enormous chunk that public education siphons from annual budgeted expenditures cannot be classified as investment. It must be called for what it is, i.e., government dole. This has to stop.
In conclusion, the capital requirement necessary to achieve minimum real rates of growth of output will be hefty. It is our estimate that lift-off requires gross domestic investment effort sustained at rates of 14 per cent of GDP, for a twelve years period. It goes without saying that financing such an effort will represent a challenge. For this reason alone, lost credibility and confidence in the Commonwealth government must be regained. The parlance of prepotency and default must be replaced by true adherence to the rule of law and with a willingness to comply with commitments and debt service schedules.