Caribbean Business: Maldonado Convinced He Will Straighten Puerto Rico’s Finances – Positivism is the first step

Maldonado Convinced He Will Straighten Puerto Rico’s Finances

By on December 27, 2016

His last memories of the public service involved death threats, constant concern for him and his family, and constant tension brought on by multiple security measures.

Nearly 20 years have passed since that experience and, although times have changed, his supervisory approach the Department of Treasury in Puerto Rico has remained intact. The only difference now is that the island is in an economic recession and the productivity of this agency has only become more relevant.

Nowadays, the government barely has enough cash in its coffers to meet payroll expenses for the beginning of 2017.  In two months, the moratorium of lawsuits against the government of Puerto Rico for non-payment to its creditors expires, and even in the middle of this fiscal storm, the designated Treasury Secretary, Raúl Maldonado, is convinced that the finances of Puerto Rico can be upheld and stabilized in the short term.

142a0796“At this historical juncture, we have to contribute and sometimes it is difficult. My return to the government was negotiated with my family because of all the problems we had the first time I was in government, with the threats, but everyone agreed that there are ways in which one has no alternatives. I think this is the right path for me, “said Maldonado.

The previous death threats against Maldonado took place after he headed an investigation into money laundering schemes by powerful drug trafficking organizations in. Maldonado’s probe—carried out while he directed the Internal Revenues division during the first term of former Gov. Pedro Rosselló and with the cooperation of federal authorities—confiscate money from crime bosses, which brought on the dangerous nature of the work.

Two decades later, he insists that we must take such a route again.

Born in Cataño from parents who taught him respect for the trade union movement, Maldonado sat down with Caribbean Business and talked about his goals for the agency responsible for maintaining the Puerto Rico government’s cash flow.

CB: Despite the death threats you received in the past, do you believe that the Treasury should follow the financial path of criminal organizations and confiscate their money?

We have no alternatives. We all know where the social part of the country has gone and I believe that Treasury not only has a supervisory responsibility, but we have to attend to the social aspect.

What good is it to collect taxes if we have not corrected the social part of the country? We have a generation to teach them that these activities are not going to make any profit and Treasury is the agency that must take responsibility for that. Treasury is in a unique position, we can see a given person’s lifestyle, see their properties and as they say in the U.S., “follow the money.”

CB: We are on the verge of running out of liquidity, awaiting the expiration of the “stay” of Promesa in February, and we are in what could be called the perfect storm, what will be your priorities once you assume the reins at Treasury?

In the first place, we are gauging how deep a hole we are in. We are going to be a much more efficient agency. Why? Because the revenues are limited and we have a country with few resources. The merchants in Puerto Rico and the people have among the highest costs of compliance in the world, with a lot of complicated forms to fill, and the agencies are not efficient in processing what each business owner brings in. From day one, we can streamline the processes and make it more efficient. If we achieve this, business owners will have between 7% and 8% more disposable income in their pockets, same with individuals.

CB: How can you increase government revenues?

I think Treasury, from day one, must change the paradigm. What will we do if we are not going to put any more taxes? The people cannot take any more taxes. No economy has risen in the world, during a recession, by putting more taxes. If you reduce taxes, you activate the economy. Treasury will now change its paradigm and will be an agency that, apart from overseeing and stabilizing collections, will work on the side of economic development.

142a0837CB: Can taxes be reduced in this fiscal situation?

We will be tough on business operating within the law, but we will also educate them because my interest is for merchants to stabilize and stay in the system. But those who are in the illegal underground economy, we are going to take away their assets and take all their money. With that, we should be able to balance a little more the effect of the fiscal situation in Puerto Rico.

CB: Outgoing Gov. Alejandro Garcia Padilla said he was going to reduce the sales and use tax (IVU by its Spanish initials) and could never fulfill that promise. Do you believe that in this upcoming term some reduction of the IVU will be possible? To which sector should the tax burden be first reduced?

The greater burden is on the working middle class and small and medium local entrepreneurs. My goal is to look at taxes, not the IVU or income taxes alone. There are dozens of taxes that we are applying, in gasoline consumption for instance, and we must look at them all and see which of those we can reduce, which of those affect most of the population.

CB: You need the Legislature’s go-ahead in many matters to be able to execute the government’s public policy. Have you approached the new presidents of the Treasury Commissions in the Senate and House?

We are in that process since the transition for me [started] recently, but all of the legislators have had the opportunity to see the Plan for Puerto Rico, and it has been discussed previously during the drafting process of all the different bills we have. We understand that the Legislature is critical in this process. They have to be our partners and I am positive and optimistic.

I believe that, for the first time, there will be a consensus on where the country should go, not just the government, but the people. When we started the interview, I think you said that this was the perfect storm and to survive the perfect storm we all have to row towards the same side because if we don’t do that, we will sink. Everybody knows that. I believe that for the first time in history, there is consensus among the sectors and it is the opportunity to rethink the country quickly. We have to start on January 2 and make the changes.

CB: How will you balance the tax burden?

You have to be sensitive to the people and the small and medium business owners. That is the priority. Once the burden is reduced in those areas, the other part involves the big companies, those with much more complicated law, are working from a contributory point of view. We have to balance the tax burden where we are taking money from the people and the entrepreneurs.

CB: What is your position on Acts 20/22, which give incentives to wealthy individuals in exchange for investing in Puerto Rico?

Acts 20 and 22 have been efficient in some segments, but you have to look at them to see how they can best be used. You have to look at it seriously. It seems that in some segments they have contributed to economic development; in other areas, I will study them carefully because it seems that changes can be made.

CB: What do you think about the mechanisms of the moratorium law? Is it necessary to extend it until the situation stabilizes or until a plan to finance government operations has been put in place?

Negotiations are going to take place quickly. For an investor, transparency and an enforceable work plan are key. This dynamic must take place within the first 30 to 45 days. We have to do it. Obviously, the governor is going to have to make his decision at the time, but we have to give him that opportunity.

CB: Will it delay or delay the payment of refunds?

Our goal is to not let that happen. Who was left hurting the most [by the delay in reimbursements]? Those who have that least. Our goal is to favor that sector.


Rosselló Details 112-Day Plan to Bring Liquidity to Gov’t

By on December 23, 2016

SAN JUAN—Faced with a precarious fiscal situation for the Puerto Rico government and a possible lack of liquidity to pay public workers come January, Governor-elect Ricardo Rosselló gave details Thursday about his administration’s plans to address the economic debacle that is only expected to worsen next year.



Rosselló admitted that there is a lack of cash in the central government’s coffers to cover January’s payroll, but added that he is ready for such an eventuality.

“The numbers don’t lie, you have seen that. It’s sad that they have been made public during the last month of the outgoing administration, but when we took on the challenge, I knew the situation was precarious. I decided to take charge, nevertheless, and take responsibility in addressing this issue,” said the governor-elect during an announcement of the newest Cabinet designations in the Museo de Arte de Puerto Rico in San Juan.

He added that the people must also know how the outgoing administration wasted millions in taxpayer dollars.

“On the one hand, they said they were defending retirees, yet were taking $580 out of their pockets. What was the reason those taxpayer funds were detained, and why government providers did not see that capital?” the governor-elect questioned.

Rosselló went on to say that he has gathered his legislative team and talked to mayors and the New Progressive Party (NPP) leadership to set up a 112-day cation plan in which expenditures related to politically appointed positions would be cut back.

The governor-elect also said he will focus on working out a renegotiation on good faith regarding the terms of the commonwealth debt. “Starting on the day I get sworn in as governor and the Legislature does likewise, we will submit executive orders and facilitate legislation that same week. On January 9, our Legislature has committed itself to not only carry out a protocol ceremony, but also treat it as a normal work day in which a few appointments and some bills will be passed through,” he explained.

Rosselló also announced that on January 10, they will reveal the findings and the complete report from the transition committee. The from January 11 to 14, he will submit legislation proposed by his administration on topics such as public-private partnerships, as well as emergency fiscal measures.


Incoming Administration Evaluates Fiscal Board’s Calls for “Right-Sized” Gov’t

By on December 22, 2016

SAN JUAN–The incoming New Progressive Party (NPP) administration plans to consolidate agencies and eliminate duplicity of services as part of the Fiscal Oversight Board’s suggestion to “right-size the government” but which non-essential entities will be targeted for a possible repeal is still subject to analysis.


Incoming House Government

Committee Chairman Jorge Navarro (CB)

“How it is going to be done? We still have to analyze and wait for what La Fortaleza will say,” noted incoming House Government Committee Chairman Jorge Navarro, whose committee will be in charge of government restructuring.

Navarro did not say which services are considered “non-essential” to the point that the Fiscal Oversight Board has suggested for elimination. “We would be analyzing that,” he said.

In a letter to La Fortaleza, the board stressed the need to “right-size the government,” citing that it has 70 treasury units with no centralized accounting system, no central office to manage federal funds and a central procurement office that manages purchases for only some government entities, for instance.

“Puerto Rico needs to transform its government to be better positioned to deliver only essential services (such as public safety, education, healthcare and welfare) more efficiently,” the board said.

The board added that in education, Puerto Rico needs major outside-the-box thinking and comprehensive reforms to achieve the dual objectives of improving K-12 outcomes across the board and right-sizing the public school footprint to better fit a declining student population.  This alone would unlock potential savings of more than $1 billion over 10 years.

For higher education, Puerto Rico should implement a means-tested tuition policy that aims to improve graduation rates and time towards a degree and supports the elimination of the current funding formula.

On healthcare, Puerto Rico should focus on determining the amount of resources it can afford to invest on a long-term sustainable basis and the most efficient allocation of those resources.  In the near term, to reduce the current expenditures on healthcare, the government should look to reduce healthcare operational costs and the scope of insurance coverage. In the long-term, Puerto Rico should pursue value-based care opportunities to improve patient outcomes while lowering total cost of care.

The board also called for the “right pricing of services” to reduce subsidies.  “For decades, Puerto Rican citizens have paid virtually the same price for all sorts of government-provided services, whether it be heavily subsidized ferry trips to Vieques where passengers pay a tiny fraction of the true trip costs, or a University of Puerto Rico tuition level that requires substantial subsidies from the central government,” the board said.

The board, nonetheless, said “right-pricing” does not mean a regressive system that punishes low-income students and working families.  “Instead, it means thoughtful economic strategies, such as means-based university tuition, supplemented with Pell grants, or mechanisms to protect prices, such as charging tourists higher prices more aligned with the real price of improved ferry services.  In the current environment, all government fees and subsidies need to be reevaluated and right-priced based on the true cost of delivery and the ability to pay.”

The board also called for privatizing a number of government assets, such as real estate, the state insurance fund and ports.

Whether or not the incoming government will yield to the board’s suggestions remains to be seen. Navarro said that the board’s suggestions are guidelines that the incoming government will decide whether or not to accept but he said “we cannot continue to punish the people.”

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