Caribbean Business - January 21, 2016

WEEK OF JANUARY 21-27, 2016 | VOL. 2 EDITION 10

| W E E K LY $ 2 . 0 0 | © 2 0 1 6 L AT I N M E D I A H O U S E , L L C | C A R I B B E A N B U S I N E S S . P R

Medical Tourism Campaign Hits Warp Speed

CRO Donahue Lobbying Lawmakers on Prepa Bill

Former Gov’t CIO Favors Congressional Oversight

Dominion Faces Uphill Battle to Electrify Vote

Promo Touts High Standards PAGE 6

Stresses Importance of Revitalization Act PAGE 7

Technology Key to FIscal Transparency PAGE 8

In Race Against Time as Primaries Near PAGE 33

COVER STORY

TOP STORY

Fiscal & Economic Growth Plan Retooled Gov’t Attempts to Make Case for Inevitable Default With Creditors

The Act 20/22 Study

Lower revenue estimates and a longer-than-anticipated road back to economic growth prompted the Puerto Rico government to revise this week its long-term fiscal & economic growth plan (FEGP)—the Alejandro García Padilla administration’s blueprint to tackle the island’s ongoing crisis.

Assuming the plan is successfully implemented, Puerto Rico would still be short $16.1 billion to cover its needs over the next five years—$2.1 bil-

action favorable to Puerto Rico, according to a government statement. “[This] denotes an even bigger problem,” Government Development Bank (GDB) President & Chairwoman Melba Acosta told reporters on Monday. “We are hitting rock bottom.”

Driving the changes to the FEGP were lower-than-estimated government revenue during the current fiscal 2016, from $9.46 billion to $9.21 billion, as well as a one-year delay

Investors Follow the Yellow Brick Road Tax incentives created by Acts 20 and 22 of 2012 to promote exports and attract investors should remain in place because they can boost Puerto Rico’s economic development, with several thousand new jobs created thus far and millions of dollars invested in local real estate, but the public and private sectors still need to capture their spillover effects, a study commissioned by the Economic Development & Commerce Department (DDEC by its Spanish

acronym) has found.

By spillover effects, the study means economic events in one context that occur because of something else in a seemingly unrelated context. For instance, if an incentive helps create several information-system companies, it would yield a demand for trained people in that field that may not have been there previously. A spillover effect would be a local college or university deciding to create a program to train individuals

in information systems to fill that void. Another example would be when an incentive creates the need for trained individuals in construction or engineering, and a university creates a training program to provide personnel for it.

The study “recognizes the need for the government as well as the private sector and service providers to capture the spillover effects of the laws.”

BY EVA LLORÉNS VÉLEZ PAGES 14-18

GDB President & Chairwoman Melba Acosta and Millstein & Co. Chairman & CEO Jim Millstein lion more than originally projected when the FEGP was first released last September. The financing deficit gap tops $23.9 billion over a 10-year period.

The new projections further demonstrate the need to restructure a large chunk of the commonwealth’s $70 billion debt, as well as congressional

on the island’s expected return to economic growth. The new figures are in line with the government’s also recently revised budget, which now stands at $9.27 billion, down from $9.8 billion when first approved last summer.

BY LUIS J. VALENTÍN CONTINUES ON PAGE 4

THURSDAY, JANUARY 21, 2016

2

Editorial

Contents PICTURE OF THE WEEK PAGE 26

We’re Off to See the Wizard

Advertising ...........................................................................................................46 Advertising Calendar............................................................................................46 Autos ....................................................................................................................43 Banking.......................................................................................................... 10-11 Column.................................................................................................................19 Economy ......................................................................................................... 12-13 Editorial .................................................................................................................2 Front Page ...................................................................................................... 14-18 Lead Stories ....................................................................................................... 6-8 Politics ........................................................................................................... 32-33 Poll .......................................................................................................................20 Smart Money .................................................................................................. 22-23 Technology........................................................................................................... 34 Top Story............................................................................................................ 1, 4

FINANCIAL DATA: Stock Comment ....................................................................................................12 Winners & Losers..................................................................................................12

SPECIAL FEATURES: North America International Auto Show .......................................................... 44-45 Special Report: Examining the Sánchez Valle Case ....................................... 26-31 Warehousing, Transportation & Logistics Industry ......................................... 35-42

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Although it borrows from film noir, the image illustrating this edition’s Cover Story is a fitting representation of the potential for capital generation and job creation underpinning Acts 20 and 22. The incentives provided by those two laws are beginning to draw huge investment to Puerto Rico. “You’re not in Kansas anymore,” is an assertion that Economic Development & Commerce Secretary Alberto Bacó can state with confidence.

After all, the 4% flat income-tax rate on income generated from export services driven by Act 20 and the 100% tax exemption on earnings and profit distributions on income generated from export services for investors who make Puerto Rico their place of residence, enabled by Act 22, are enormously attractive incentives.

In an exclusive interview with Caribbean Business, Bacó shared the findings of a study conducted by Estudios Técnicos, which reports on jobs created and capital generated thus far.

In 2014 alone, Act 20 created 3,713 direct, full-time jobs in Puerto Rico with an average salary of $45,000 a year and a total annual payroll of $78 million. The average salary in Puerto Rico is $27,500 a year, so Act 20 is having a positive impact in terms of increasing average salaries for local employees.

The total income of companies that have decrees under Act 20 is $1.2 billion, while the amount in individual taxes paid by the jobs created by the program is estimated at $13.7 million a year. And the study projects some 45,000 new jobs will be created in the service sector over the next 20 years.

To its credit, Gov. Alejandro García Padilla’s administration took laws that were established under the Luis Fortuño administration and promoted them to draw more investors to the island. This is the sort of continuity that Puerto Rico needs to attract capital that has taken

flight and create jobs that have been lost. Puerto Rico needs to stay the course to help offset a precipitous slide dating back to 2006 that has seen more than 250,000 jobs lost and more than 12,000 businesses close.

Continuity was essential to the success of Operation Bootstrap, the industrialization program that propelled Puerto Rico from a dirt-poor backwater in the Caribbean to a model for industrialization that was touted the world over. Our leaders would do well to remember that Puerto Rico’s industrialization took several administrations under Puerto Rico’s first elected Gov. Luis Muñoz Marín and an army of promoters to hit warp speed.

What started with a mere 1,000 jobs in its first four years had climbed to 59,700 jobs over the next five (1949-1953).

Sadly, Section 936 of the Internal Revenue Code was targeted for a 10-year phase-out by the U.S. Congress in 1996 because the program had the stench of corporate welfare—benefiting big pharma, but not creating jobs to match the big tax breaks these corporations were receiving. So, we threw out the baby with the bathwater. With the tax code’s demise went some 40% of deposits tied to Section 936 funds in Puerto Rico banks.

It is now a certainty that García Padilla won’t be re-elected to office as he stepped down as the Popular Democratic Party (PDP) president to make room for former Secretary of State David Bernier.

The pro-commonwealth PDP gubernatorial candidate will be running for La Fortaleza against the winner of the prostatehood New Progressive Party (NPP) primary between Resident Commissioner Pedro Pierluisi and Ricky Rosselló.

Whoever wins the mandate of the people in November 2016 would do well to continue promoting Acts 20 and 22, but on a massive scale. Let us remember the lessons of history—never should we give and give, but receive nothing in return. 䡲

4

THURSDAY, JANUARY 21, 2016

Top Story FEGP Retooled Continued from cover

What’s more, amid a $780 million payment on general-obligation (GOs) bonds due by June, the GDB chief admitted this could mean the end of the road for the government’s bid at avoiding a default on its guaranteed debt while keeping operations and services afloat.

“Absent some kind of a deal with creditors, a forbearance agreement or something else, it is very unlikely that the government can meet the June payment [on GOs],” said Acosta, adding that creditors should already be aware of the looming scenario.

“While we can sneak by for the next couple of months, the big payments that come due in June, the GOs and the other debt—we won’t have the cash to make those payments,” said Jim Millstein, chairman & CEO of Millstein & Co., who is one of the commonwealth’s lead restructuring advisers.

Creditors were briefed last week on the new

plan and will later be presented with a revised debt-restructuring proposal. Nevertheless, Acosta confirmed the administration is still seeking the “superbond” deal, whereby bondholders would exchange their existing commonwealth debt into a more secure paper. The idea is to “comprehensively” restructure most of the island’s $70 billion debt, taking into consideration each issuer’s particularities.

Although talks with creditors have yet to move into high gear, the GDB chief said meetings between the commonwealth and its creditors should resume “very soon,” with a new restructuring proposal “in a very advanced stage.”

The FEGP now extends until fiscal 2025, mainly in response to creditors’ demands to extend its original five-year period to 10 years, according to government officials.

The latter includes initiatives intended to bring back economic growth and fiscal stability, while also calling for a local fiscal-oversight board.

The latter has yet to be appointed by La Fortaleza after being enacted into law last November.

‘FISCAL GYMNASTICS’ CHOKE THE ECONOMY Although the FEGP had shown negative cash flow throughout the current fiscal year, the administration has avoided running out of money,

service commonwealthguaranteed debt.

Acosta noted how these measures—and the need to buy more time to work on a restructuring deal with creditors—allowed the commonwealth to pay its debt in January, including roughly $332 million due on GOs. “We have managed over the course of the

“While we can sneak by for the next couple of months, the big payments that come due in June, the GOs and the other debt—we won’t have the cash to make those payments.”

—Jim Millstein, Puerto Rico’s lead restructuring adviser

mainly by delaying tax refunds and payments to government suppliers, as well as using the so-called “clawback” provision, or tapping revenues pledged for other purposes to

first half of the [fiscal] year to avoid massive defaults essentially by borrowing from our suppliers and taxpayers. But we have reached the point where this just can’t go on anymore. It is having a really negative effect on the economy,” Millstein said.

The Puerto Rico government still owes about $245 million in income tax refunds, but Treasury expects to clear the outstanding balance by March. The commonwealth would also begin catching up with payments to suppliers, although the plan is to finish the fiscal year with an accounts payable tab at the same level as that of June 30, 2015—a

U.S. Treasury Secretary Jacob Lew

whopping $1.7 billion.

“We really don’t think we can keep delaying payments to suppliers and tax refunds,” Acosta added. “We are beginning to affect what are known as essential government services…. We have to look for other alternatives, as we certainly can’t continue depressing the economy.”

Cash flow in June would plunge to negative $923 million, if the government were to pay the $780 million GO payment. Given this challenging scenario, defaults could be “inevitable come June,” according to Millstein.

U.S. TREASURY IN THE LOOP Meanwhile, prior to his recent trip to the island, U.S. Treasury Secretary Jacob Lew had the opportunity to revise a draft of the new FEGP, said Acosta, who added that the federal agency also made recommendations to it. Lew was scheduled to meet Wednesday with García Padilla and his fiscal team to discuss Puerto Rico’s economic and fiscal crisis, as well as community and business leaders.

When asked about Lew’s visit, the GDB chief echoed comments by

La Fortaleza, saying the commonwealth government and U.S. Treasury have held continuous talks over the island’s fiscal crisis. While such administrative actions as providing Treasury’s pledge to guarantee commonwealth debt and a straightforward bailout have remained out of the equation, the Obama administration continues to pledge all the technical expertise available to help Puerto Rico.

In a letter sent last week to House Speaker Paul Ryan (R-Wis.), Lew called once again for congressional action over Puerto Rico’s crisis, saying Treasury’s existing tools aren’t sufficient to fully tackle the island’s woes.

The Obama administration proposed last November providing Puerto Rico with a broader, U.S. territory-exclusive bankruptcy regime that would allow it to restructure all its debt, including GOs. It also called for better treatment under federal healthcare programs and incentives encouraging work.

The García Padilla administration is banking on congressional action before the summertime that could help avoid Puerto Rico’s anticipated debt cliff. 䡲

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6

THURSDAY, JANUARY 21, 2016 Highlighting eight specific treatments in which healthcare professionals in Puerto Rico have a competitive advantage

Lead Medical Tourism Corp.

Developing Niche for Puerto Rico

BY JUAN A. HERNÁNDEZ j.hernandez@cb.pr

The Puerto Rico Medical Tourism Corp. (PRMTC) began 2016 with a strong campaign highlighting the qualifications, medical expertise and commitment of healthcare professionals on the island, as part of the government’s efforts to position Puerto Rico as one of the region’s main destinations for this specialized form of tourism.

Francisco Bonet, executive director of the PRMTC, confirmed the island participated in the New York Times Travel Show, held mid-January in New York City.

“This is the first time the PRMTC participated in this event, offering the full range of services available in Puerto Rico for people interested in getting high-quality medical treatment at very competitive costs compared

with those of the U.S.,” Bonet said.

According to the executive director, the corporation highlights eight specific procedures, or treatments, in which healthcare professionals in Puerto Rico have a competitive advantage over their counterparts in the U.S. and/or other destinations in the region.

Bonet specifically mentioned cardiology, ophthalmology orthopedics, pediatrics, dental, bariatric and cosmetic surgery, and cancer treatments.

Of these treatments and procedures, the ones with the highest demand are orthopedics, cosmetic surgery and dental.

AFFORDABLE MEDICAL SERVICE WITHOUT SACRIFICING QUALITY “Our two distinct advantages over any other place in the region that offers similar services are

quality and cost. No one has to sacrifice quality in healthcare services when coming to Puerto Rico because hospitals and physicians here have to comply with the same regulations and be accredited by the same boards as in the U.S. at a fraction of the cost,” Bonet explained.

The PRMTC executive also mentioned as advantages the fact that there are no currency exchange problems when patients come to Puerto Rico to receive treatment, and the island’s medical staff is mainly bilingual and bicultural.

Puerto Rico is hoping to carve a niche for itself in a market dominated

by Mexico, where more than 1 million people a year travel to receive treatment or therapy for different medical conditions. Other countries in the region with significant medical-tourism investments are Costa Rica,

“No one has to sacrifice quality in healthcare services when coming to Puerto Rico because hospitals and physicians here have to comply with the same regulations and be accredited by the same boards as in the U.S. …”

—Francisco Bonet, Puerto Rico Medical Tourism Corp. executive director

The Puerto Rico Medical Center is one of the facilities being showcased for Medical Tourism on the island.

Panamá, the Dominican Republic and Cuba.

Currently, the local medical-tourism industry has some 12,000 visitors a year, which in turn represent some $75 million in revenues for Puerto Rico. According to Bonet, by the end of 2017, the number of medical-tourism visitors to the island could increase to more than 30,000 a year, which could generate 2,600 direct and indirect jobs, and more than $300 million in revenues.

As part of the PRMTC

promotional campaign, the commonwealth government has become a sponsor of the Lifetime network morning show, “The Balancing Act,” which reaches some 50 million homes in the U.S. daily. Up until the month of June, the PRMTC will have TV spots and, at least twice in the semester (March and May), the corporation will have a live interview with doctors and patients who have traveled to Puerto Rico to receive medical treatment. 䡲

7

THURSDAY, JANUARY 21, 2016 Donahue says it will be back to square one if Prepa bill not passed in Legislature

Lead

Prepa Bill Must be Passed or Deal Will Fall Through

BY EVA LLORÉNS VÉLEZ, PHILLIPE SCHOENE & LUIS VALENTIN e.llorens@cb.pr; p.schoene@ cb.pr; l.valentin@cb.pr

With a Jan. 22 deadline Puerto Rico Electric Power Authority (Prepa) Chief Restructuring Officer Lisa Donahue is engaged in aggressive lobbying with lawmakers to prevent the fall of the utility’s restructuring support agreement (RSA) that took over a year to negotiate.

According to Donahue, lawmakers must pass the Prepa Revitalization measure, whose main goal is to implement the RSA by creating a new corporation that will exchange the creditors’ debt for new securitization notes.

The RSA came after Prepa negotiated the restructuring of its $9 billion debt with the Government Development Bank (GDB), its fuel lenders, monoline bond insurers and an Ad Hoc group of bondholders.

She said the legislation is crucial to the deal and if it falls through, both parties will have to start negotiations again.

“If we don’t get the legislation, we are definitely back to the table with the creditors. We don’t get the $115 million loaned back to us, which was part of the agreement that we signed prior to the [Christmas] holidays,” she warned in a recent interview with Caribbean Business.

Donahue said that her team has been aggressive in generating cash, managing cash and transforming Prepa, but described a grim picture for the utility if the deal isn’t sealed. “We try to get ahead of discussions with our fuel suppliers so that we are able to continue supplying power. And we continue negotiating with creditors looking for forbearance, because if we can’t buy fuel, we can’t buy power, so we have to make sure we continue

to protect supply, protect Prepa and protect the people of Puerto Rico—that is job one. But it would be back to square one,” she said.

Still, there are many majority lawmakers proposing numerous changes to the legislation. Donahue, utility officials, the GDB, local lawyers and lawyers from Cleary, Gottlieb, Steen & Hamilton

have objections with dispositions in the bill that would reduce the powers of the Energy Commission to regulate rates and numerous questions on the securitization. Senate President Eduardo Bhatia has expressed concerns about the securitization process and its impact on electricity rates on consumers.

Some economists have projected that electricity rates could jump by as much as 30%, thereby having a negative impact on Puerto Rico’s already weak economy.

“I would use a bankruptcy proceeding for Prepa as a pre-arranged—it is a bankruptcy with a deal.”

—Lisa Donahue, Prepa Chief Restructuring Officer

LLP have been in discussions to clear questions and concerns about the bill.

Donahue was hopeful she will be able to meet the Jan. 22 deadline even though some lawmakers

Donahue said the securitization of the bonds is the cornerstone of the deal. Some of the economic terms of the RSA establish that the Ad Hoc Group will exchange all of their debt for new

securitization notes and receive 85% of their existing claims in new securitization bonds, which must receive an investment grade rating. Bondholders will have the option to receive securitization bonds that will pay cash interest at a rate of 4.0% to 4.75% (depending on the rating obtained) or convertible capital appreciation securitization bonds that will accrete interest at a rate of 4.5% to 5.5% for the first five years and pay current interest in cash thereafter.

All uninsured bondholders will have an opportunity to participate in the exchange.

Fuel line lenders will have the option to convert existing credit agreements into term loans with a fixed interest rate of 5.75% per annum, to be repaid over six years in accordance with an agreed upon schedule or exchange all or part of principal due under the existing credit agreements for new securitization bonds. “[The securitization] is what drives the deleveraging and the five-year liquidity relief. So, we are working to answer many

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questions about the securitization. I think it is a new concept to the island.

[We are] making sure that lawmakers understand how it will work, how it is actually lowering the rate when you consider the existing debt service versus the deleveraging. So, 15% lower plus lower interest and then five years paying interest only versus paying principal and interest is actually savings,” she said.

Donahue said Chapter 9 will give supermajority creditors the ability to bind holdout creditors into the agreement.

Right now, Prepa has 70% of its bondholders on board, but the remaining 30% represents some $2.7 billion. Of that, creditors representing some $2 billion have to agree to the deal.

“A mechanism in the bankruptcy code allows you to bind them; it allows you to try them along. Part of what the deal offers is for the retail holders to have a backstop cash tender—backstopped by the Ad Hoc Group versus the opportunity to exchange into the securitization,” she said. 䡲

8

THURSDAY, JANUARY 21, 2016 Former Puerto Rico CIO welcomes congressional action in tackling debt crisis

Lead U.S. Congressional Legislation Opens Door to Tech-Based Governance Former Commonwealth CIO: ‘U.S. Actions on Puerto Rico’s Fiscal Crisis Should Bring Local Government Operations into 21st Century’

BY DENNIS COSTA d.costa@cb.pr

In an attempt to solve Puerto Rico’s fiscal crisis and help the commonwealth avoid future bond defaults, the U.S. Congress has carried out steps that have proven controversial.

Among the most maligned moves was a bill— filed by U.S. Senate chairs Orrin Hatch (R-Utah), Chuck Grassley (R-Idaho) and Lisa Murkowski (RAlaska) in mid-December—that would impose a chief financial officer with a say in Puerto Rico’s annual budget, among other measures designed to increase transparency in the commonwealth’s disclosure of financial information.

The U.S. Senate bill, S. 2381 bill, also called the Puerto Rico Assistance Act, brought echoes of the financial control board that Congress imposed on the District of Columbia in the mid1990s, and drew criticism from the Alejandro García Padilla administration, with some officials saying the bill would take the island’s relationship with the U.S. “back to the 19th century.”

Yet, according to a former top official in the García Padilla

administration, several clauses in the controversial bill—which has been placed on hold after the end of the past congressional session—open the door for a much-needed overhaul of the ways the local government operates, especially from a technological standpoint.

Giancarlo González began working as the commonwealth’s chief information officer in 2013.

During his two-and-ahalf years at the helm of the CIO Office, González pushed several initiatives geared to improving access to government statistics, chief among them the Data.PR.gov website, and held an annual Tech Summit that brought some of the tech industry’s biggest names to the island.

Events took a turn last June when Gov. García Padilla signed an executive order that dismantled the CIO Office and fused it with the Economic Development & Commerce Department. Days later, González resigned from his position and returned to the private sector.

POSITIVE ASPECTS OF S. 2381 Now, in the first interview he has given to a media outlet since his resignation, González provided his views on

several elements in S.2381 that are expected to survive in future congressional measures and could benefit the island in ways that may silence some of the bill’s harshest critics.

González highlighted various clauses in the bill, particularly Title 6, dubbed “Technical Assistance,” which details the ways in which the U.S. Treasury secretary should provide technical assistance to U.S. territories. “One clause says ‘ensuring that the agencies in the territory use financial systems that are compatible with the systems of other agencies… to provide for consistent, timely financial reporting,’” González quoted.

“If we want to ensure that, it has a lot to do with implementing the necessary technology.”

Another clause in the bill states that the U.S. Treasury secretary has to create and maintain a public website with searchable capabilities for the purposes of posting financial information, while yet another clause gives agency heads leeway in hiring expert personnel. “It means that the chief of any federal agency can send people to a [commonwealth] agency to solve a problem, and that is great,” the former CIO said.

Former Puerto Rico Chief Information Officer Giancarlo González

To give an idea of how such an implementation may come about on the island, González pointed to similar moves that the Obama administration has carried out, particularly through a program called “Presidential Innovation Fellows” that began in 2012.

“The program recruited the best engineers and programmers in the nation to work a year in programs assigned from the White House, such as, for example, the HealthCare. gov website,” González explained. However, the October 2013 launch of the website was plagued with technological problems and federal officials had to look for a new strategy.

18F TO THE RESCUE Enter the General Services Administration (GSA), which provides office space and maintenance to other federal agencies. Given the GSA’s

horizontally based, wideranging service structure, officials decided to establish a technological team within the GSA dubbed 18F (in reference to its office location in Washington, D.C., on the corner of 18th and F streets.)

“They hired from the top talent pool of Silicon Valley engineers and now have almost 100 people,” González noted. “If the Health Department has trouble with a project, for example, they send 18F to analyze the problem and solve it. We are talking about doers who are creating a marketplace of cloud services to improve government operations.”

White House officials then realized they needed a public policy framework to determine where to send 18F and which projects they should work on.

This prompted the formation of the U.S. Digital Service, which in turn helped insert dedicated

tech-savvy personnel inside every major federal agency. “You need those resources inside each agency, and immersed in its particular culture,” González said. “Air cover is also an important point.

One needs the freedom to implement the necessary solutions without a lobbyist complaining to higherups on the phone.”

When asked about the optimal tech-based structure inside any agency, González explained, “Three official positions are needed: a chief technology office, chief innovation officer and chief data officer. Under that, there should be at least one programmer, database specialist, graphic artist, designer and project manager.”

The former Puerto Rico CIO revealed that he was recently offered to head the tech department of the U.S. Small Business Administration under a similar structure, and alongside two former colleagues in the CIO Office.

While his colleagues are already working in the SBA, González hasn’t yet decided if he will take the job.

“If the federal government is setting up this kind of structure in every federal agency to ensure transformation, what makes you think they won’t want to do the same in Puerto Rico?” González said. “That’s why I believe that even if this particular bill doesn’t pass, the clauses related to technology will live on in future measures, and I sincerely believe these are tools that can solve many of the problems in Puerto Rico.”

10

THURSDAY, JANUARY 21, 2016

Banking/Finance

Stock market volatility hurting PRSI components

Puerto Rico Bank Stocks Continue to Take a Beating

Puerto Rico and Banco Santander Puerto Rico) is insured up to $250,000 by the FDIC.

After Erasing 22.36% in 2015, the PRSI has Lost 14.8% Since Jan. 1

BY JOSÉ L. CARMONA j.carmona@cb.pr

After losing 504.05, or 22.36% in 2015, the local shares that make up the Puerto Rico Stock Index (PRSI) have plunged nearly 15% since Jan. 1, the latest data released by the Government Development Bank for Puerto Rico (GDB) reveals.

The PRSI stood at 1,749.65 as of Jan. 1 and ended at 1,490.62 at the close of trading on Jan. 15—a difference of 259.03, or 14.8%, in just two weeks.

Over the past few weeks, the U.S. and global stock markets have been negatively impacted by plunging oil prices, as well as increasing investors’ fears on economic troubles in China.

The PRSI is a capitalization-weighted (or market value weighted) index created by UBS and the GDB. It is composed of five companies headquartered and/or with their main place of business in Puerto Rico.

The companies included in the index are traded on national stock markets (i.e., NYSE, AMEX) and in the over-the-counter market (i.e., NASDAQ).

Three of the five PRSI components are local bank stocks. The other two include a healthcare management firm and an electronic transactions processor.

The PRSI components are: OFG Bancorp, Popular Inc., First BanCorp, Triple-S Management Corp. and Evertec Inc. During 2015, the PRSI lost one of its components, Doral Financial Corp., as its banking subsidiary Doral Bank was shut down by the Puerto Rico Financial Institutions Commissioner’s Office, with the Federal Deposit Insurance Corp.

(FDIC) as its receiver.

MARKET VOLATILITY According to Zoimé Álvarez Rubio, executive vice president of the Puerto Rico Bankers Association, the losses in the shares of Puerto Rico banks in recent weeks responds mainly to stock market volatility in the U.S., Europe and most recently, China.

“On the other hand, we can’t ignore the weak economic situation facing Puerto Rico and the effect this has in all sectors in general. The banking industry, like any other industry, is exposed to the economic uncertainty Puerto Rico faces,” Álvarez Rubio told Caribbean Business.

Nevertheless, the Bankers Association executive vice president pointed out the strength of Puerto Rico’s financial institutions and their well-capitalized levels.

“In fact, some of our banks have passed the

stress tests and demonstrated to credit-rating agencies that they have the needed capital strength to manage and face adverse economic conditions. Our bank clients can rest assured. The local banking industry is solid and their money is safe in our financial institutions,” Álvarez said.

Each individual checking or savings account at Popular, FirstBank and Oriental (as well as nonPRSI banks Scotiabank

LOSSES IN SHARES’ VALUATIONS Since Jan. 1, all of the shares of the five components that make up the PRSI have lost value as a result of the markets’ selloffs.

Topping the list of nongainers is First BanCorp, which has erased 69 cents, or 21.2%, since the start of the year to close at $2.56 on Jan. 15.

It was followed by OFG Bancorp, which edged down $1.31, or 17.9%, to close at $6.01. Shares of Popular Inc. have skidded $4.20, or 14.8%, to close at $24.14. 䡲

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THURSDAY, JANUARY 21, 2016

11

Banking/Finance

Further bank consolidation could yield additional benefits for OFG

Merion Capital Initiates Coverage of Puerto Rico Banks Despite Risks and Uncertainties, Oriental Gets Outperform Rating

BY JOSÉ L. CARMONA j.carmona@cb.pr

Wayne, Pa.-based Merion Capital Group initiated coverage last week of Puerto Rico banks with an equity research report on OFG Bancorp by Joe Gladue, a Certified Financial Analyst (CFA) with a long track record covering the island’s top financial institutions.

Gladue initiated coverage with an Outperform (Buy) Rating on OFG, noting there are “risks and uncertainties that may not be resolved for several quarters.

“While a long-running economic recession on the island has affected the bank’s earnings and growth prospects, the stock has taken a severe beating more recently as the central government of Puerto Rico has approached a default on its debt,” Gladue said in his

investment summary.

“OFG has significant exposure to central government debt, as well as municipal government debt on the island.”

Gladue said there are certainly risks associated with owning the OFG stock, but pointed out the company is earning money, improving profitability and adding to tangible book value while returning capital to shareholders through dividends and share repurchases.

“We believe the company’s prospects are good and undeserving of the severe discount applied to the stock. As a result, we are initiating coverage of OFG Bancorp with an Outperform rating,” he said.

KEY POINTS STRESSED

BY GLADUE OFG boasts a net interest margin that is much higher than peer medians,

and an efficiency ratio that is lower (i.e. better) than most of its peers.

The company’s risk profile is improving as exposure to Puerto Rico

troubled loans in previous quarters, further derisking the balance sheet, Gladue said.

Despite losses in the first and second quarters of 2015, OFG’s tangible book value is still up 14.8% versus year-end 2012.

GLADUE’S PROFESSIONAL BACKGROUND Gladue comes to Merion Capital Group from San

“We believe the company’s prospects are good and undeserving of the severe discount applied to the stock.

—Joe Gladue

central government debt has declined significantly, and restructuring negotiations on the largest part of the exposure show favorable movement.

Meanwhile, OFG sold substantial portions of its

Diego based BofI Federal Bank. In addition to his primary responsibilities as vice president of corporate development, he was also involved in the bank’s risk management and C&I (corporate

Joe Gladue, financial analyst with Merion Capital Group

& industrial) lending activities.

Prior to BofI, Gladue spent 20 years as a sellside equity analyst, focused on small- and mid-cap banks with Legg Mason, the Chapman Co., Cohen & Co. and B. Riley & Co. In addition to Puerto Rico, his coverage has included banks in the MidAtlantic area and the West Coast.

He was named a 2005 Wall Street Journal All-

Star Analyst as well as a 2005 Forbes Best Brokerage Analyst. Gladue was also named the top thrift and mortgage finance industry analyst by Forbes. com for 2006.

Gladue has a B.S. in economics from the University of Notre Dame and an M.S. in finance from Loyola University in Maryland. He is a CFA charter holder, a PRM charter holder and holds Finra Series 7, 24, 63, 86 and 87 licenses. 䡲

12

THURSDAY, JANUARY 21, 2016

WINNERS & LOSERS WEEKLY PERFORMANCE OF PUERTO RICO STOCKS

WINNERS FOR THE WEEK STOCK -

SYMBOL -

52-wk LOW -

52-wk PRICE HIGH 1/8 -

PRICE 1/15 CHANGE -

52-wk HIGH 35.83 23.12 27.07 6.76 17.83

PRICE 1/15 24.14 14.56 21.59 2.56 6.01

LOSERS FOR THE WEEK

STOCK Popular Inc. Evertec Inc. Triple-S Management Corp.

First BanCorp OFG Bancorp

SYMBOL BPOP EVTC GTS FBP OFG

52-wk LOW 23.48 14.26 17.34 2.49 5.72

PRICE 1/8 25.84 15.47 22.07 2.99 6.30

CHANGE -1.70 -0.91 -0.48 -0.43 -0.29

Weekly Comment on Puerto Rico Stocks After jumping 228 points last Thursday—the Dow Jones Industrial Average’s best day since early December—market volatility was back in full swing when the Dow plunged nearly 400 points, or 2.4%, last Friday, spearheaded by growing fears about economic troubles in China and oil prices dropping below $30 a barrel. At the end of trading last Friday, the Dow was on track for its worst day since the late summer market turmoil. The Standard & Poor’s (S&P) 500 Index sank to its lowest level since October 2014, with major S&P sectors ending last Friday deep in the red. The technology sector was the biggest loser, skidding 3.15%. Meanwhile, the energy sector dropped 2.87% as oil prices fell 6.5%. After hitting a record high in late 2014, the energy sector has since lost nearly half of its value. After the close of last Friday’s session, the Chicago Board Options Exchange (CBOE) Volatility Index, considered Wall Street’s fear gauge, jumped as much as 29.2% to 30.95, its highest level since September. For the week, the Dow fell 2.2% to 15,988.08. The S&P 500 lost 2.2% to 1,880.29, while the Nasdaq dropped 3.3% to 4,488.42.

For the second week in row, the Government Development Bank’s Puerto Rico Stock Index (PRSI) fell, with all its components in the red as a result of the market’s massive selloff. For the week, the PRSI lost 108.17, or 6.77%, to close at 1,490.62. Leading last week’s list of nongainers was First BanCorp, which shed 43 cents, or 14.38%, to close at $2.56—not too far from its 52-week low of $2.49. It was followed by Popular Inc., which erased $1.70, or 6.58%, to close at $24.14. Shares of Evertec Inc. edged down 91 cents, or 5.88%, to close at $14.56. OFG Bancorp lost 29 cents, or 4.60%, to close at $6.01. Shares of Triple-S Management Corp. fell 48 cents, or 2.17%, to close at $21.59.

BY JOSÉ L. CARMONA SENIOR REPORTER, BANKING & FINANCE CARIBBEAN BUSINESS

Sin Comillas is a Spanish-language digital media website that specializes in business news in such areas as economics, banking, planning and tourism. Sin Comillas was founded in 2010 by economist and journalist Luisa García Pelatti.

CIAPR Sets Eyes on Bill 2742 to Revitalize Prepa The Puerto Rico Engineers & Land Surveyors Association (CIAPR by its Spanish acronym) is closely monitoring the evaluation and approval process for House Bill 2742, which aims to create the Law for the Revitalization of the Puerto Rico Electric Power Authority (Prepa) because it may include dispositions that may be detrimental to its objective.

The CIAPR recently presented its official position on the project through a memorandum before the Special House Committee on a New Public Policy on Energy, presided by Rep. Jesús F. Santa Rodríguez (Popular Democratic PartyCaguas), because the association considers it is its responsibility to express itself on publicinterest issues such as the improvement of the island’s energy system and the environment, in tune with the new global standards for sustainable development.

In its presentation, the CIAPR expressed concerns that the project doesn’t state the existing technical, financial and legal frameworks that gave rise to Prepa’s current situation that requires the utility to be restructured.

“The bill mentions minimal details of the corporation’s finances that only make sense to those who are familiar with Prepa information. It also doesn’t include the options that were evaluated, the analysis of the most relevant options and the adopted option,” said Ralph A. Kreil Rivera, president of the CIAPR. The bill also calls for reducing the number of members of the Governing Board from nine to seven, and that these appointments aren’t done by a foreign company. The CIAPR expressed great concern that this new arrangement eliminates two seats that by law were to be occupied by licensed engineers in Puerto Rico, one of whom has knowledge of the electrical engineering field.

“The elimination of these two positions would leave Prepa’s Governing Board without the technical input that only an engineer can offer, which is essential in a corporation of that nature,” said Kreil, who was also critical that foreigners could carry out the appointments, when Puerto Rico has professionals who are able to

Senate President Eduardo Bhatia complete this function.

Another area in the bill that the CIAPR feels should be clarified is the amendment regarding the Tax Exemption Section that includes subsidies to municipalities.

“We are worried that requiring municipalities to save on their annual consumption of electricity, without specifying the percentage, will lead mayors to sacrifice their citizens’ safety by shutting down the streetlights in communities to avoid being fined or penalized. This scenario would have negative effect on citizens’ vigilance and security, and the social cost would be incalculable,” Kreil said.

Regarding this issue, the CIAPR recommended municipalities be required to submit an annual work plan to save electricity that doesn’t include street illumination; however, if it is discovered there was wasteful use of the lighting, the municipality should be fined.

Kreil said the legislation’s purpose is to address Prepa’s immediate problems and, from that entity’s point of view, it is an adequate plan. However, if it is evaluated from Prepa clients’ perspective, the bill doesn’t clearly portray the effect the plan would have on Puerto Rico’s electric-power service or how much that service would cost in the short and the long terms.

13

THURSDAY, JANUARY 21, 2016

Gas Wholesalers Lower Gas Prices After Public Hearings Announcement

BY SIN COMILLAS

The price of gasoline in Puerto Rico is expected to decrease in the coming days. Gasoline retailers said at a recent public hearing that wholesalers slashed the price of gas by 8 cents as soon as it was announced that the Legislature would carry out public hearings. Gasoline wholesaler companies had to appear at the public hearing

Emerging Markets to Host Seminar on Puerto Rico Debt

BY SIN COMILLAS STAFF

Puerto Rico’s debt once again is the subject of analysis in New York. The Emerging Markets Trade Association (EMTA) has organized a Feb. 18 seminar titled “Puerto Rico Debt Crisis & its Significance for other Municipal Markets.”

EMTA considers the way the government of Puerto Rico manages its debt crisis will become a case study for other cities and states that face the same problem.

“The way the government handles debt payments in the future is yet to be seen but the

being held by the Senate Commission of Consumer Affairs, but requested 10 additional days to submit their presentations.

“We are giving them five days to come and testify,” said Popular Democratic Party Sen. Luis Daniel Rivera Filomeno.

Rivera Filomeno said he wouldn’t hesitate to file legislation that forces both gas wholesalers and retailers to honor the price reduction to consumers. He said the purpose of the hearings is for consumers to see the price drops in gas with the same expediency as when the price of oil rises. He said the result of the investigation should result in that the savings from the drop in gas prices due to the continuing fall in oil prices won’t remain in the pockets of wholesalers or retailers, but goes directly to consumers’ pockets.

implications of its decisions go beyond the local economy,” states information related to the seminar. The results of what happens in Puerto Rico could increase risk premiums, indebtedness costs and potentially destabilize other municipal markets.

The seminar will explore the government’s current challenges, the role of the federal government in the crisis and the effects the decisions will have on the municipal bond market.

Among participants in the seminars are Héctor Negroni (Fundamental Advisors LP); Matthew McGill (Gibson, Dunn & Crutcher LLP); Matt Fabian (Municipal Market Analytics); Andrew Rosenberg (Paul, Weiss, Rifkind, Wharton & Garrison LLP); and George Carroll (GO Bondholder and former municipal bond market professional). Arturo Porzecanski, from American University, will be the moderator.

P.R. Government Reduces Budget by $254 Million With Cuts

BY LUISA GARCÍA PELATTI SIN COMILLAS

There’s another tightening of the screw of austerity. Luis F. Cruz, executive director of the Office of Management Budget has announced a decrease of $254 million in the budget for the current fiscal year because the projected revenues of the Treasury Department have decreased by $508 million.

While the cuts will be on essential areas such as security, health, education and social welfare, Cruz insisted that essential services wouldn’t be affected. The largest cut, $119 million, is on the commonwealth’s debt payment, mainly because of a default on the $113 million payment of the Infrastructure Financing Authority. The remaining $6 million is for a payment that the Government Development Bank advanced in relation to a payment for Act 70, or the Retirement Window Law. The adjusted budget, of $9.525 billion (the original budget was $9.8 billion, from which a $275 million reserve is subtracted for a debt payment that requires legislative approval) has now been reduced to $9.271 billion. The commonwealth budget is now at the same level as in 2004.

Security spending will suffer a $24 million cut; health $12 million; $10 million in education and another $4 million to be subtracted from the social welfare budget. Payments to the Retirement System have also received a $19 million cut.

Cruz insisted that this adjustment to the budget won’t affect the government’s essential services and that they have been carried out in a “surgical” manner so as to have the least possible effect on the local economy. He stressed that the aim of these budgets is to guarantee the payroll of public employees for the rest of the fiscal year.

No specific details on the cuts were given. Only in the case of education was it mentioned that the budget cuts were related reducing assignments to nonprofit organizations. Cruz didn’t rule out another budget cut before June, but said he was confident it wouldn’t be necessary.

14

THURSDAY, JANUARY 21, 2016 FRONT PAGE

Study Highlights Success of Acts 20 and 22 Act 20 Created 3,713 Direct, Full-Time Jobs in Puerto Rico in 2014; Act 22 Resulted in $260 Million in Real-Estate Investments

Investors gather at a recent activity.

BY EVA LLORÉNS VÉLEZ

T

ax incentives created by Acts 20 and 22 of 2012 to promote exports and attract investors should remain in place because they can

boost Puerto Rico’s economic development, with several thousand new jobs created thus far and millions of dollars invested in local real estate, but the public and private sectors still need to capture their

spillover effects, a study commissioned by the Economic Development & Commerce Department (DDEC by its Spanish acronym) has found.

By spillover effects, the study means economic

events in one context that occur because of something else in a seemingly unrelated context. For instance, if an incentive helps create several information-system companies, it would yield a demand for trained

people in that field that may not have been there previously. A spillover effect would be a local college or university deciding to create a program to train individuals in information systems to fill that void.

Another example would be when an incentive creates the need for trained individuals in construction or engineering, and a university creates a training Continues on next page

15

FRONT PAGE THURSDAY, JANUARY 21, 2016

Continues from previous page

“The programs only have been around three years and we have to let them become ripe. I have noticed a [sense of] desperation in trying to move the process forward instead of letting it take its natural course.”

— Alberto Bacó, Secretary of the Economic Development & Commerce Department

Continues from previous page

program to provide personnel for it.

The study “recognizes the need for the government as well as the private sector and service providers

to capture the spillover effects of the laws.”

The research, conducted by the firm Estudios Técnicos, measured the impact of the law for the year 2014 and uses as a basis the annual reports submitted

by the companies that use the laws and their application for decrees.

The study, whose preliminary results were obtained exclusively by Caribbean Business, encompasses 328 decrees approved under Act 20, and 574 decrees approved under Act 22 from 2012 to November 2015.

However, to date, there are a total of 1,291 decrees that have been either signed or are pending approval.

To continue attracting investors, DDEC is promoting the 2016 Investment Summit that is slated to be held Feb.11 and 12 at the Puerto Rico Convention Center in San Juan.

The summit is a forum in which guest speakers seek to promote Acts 20 and 22, as well as other incentives such as those provided by Act 73, the Industrial Incentives Law, and Acts 273 and 399, which provide incentives for financial and insurance centers.

Act 20 of 2012 promotes the export of services through incentives that include a 100% tax exemption on earnings and profit distributions on income generated from export services; a 4% flat income-tax rate on income generated from export services or a 3% tax when

more than 90% of a service provider’s gross income is from export services; and a 100% property-tax exemption for the initial five years of operation for certain export services.

Along with Act 20, the government passed Act 22, the “Act to Promote the Relocation of Individual Investors,” which offers nonresident individuals 100% tax exemptions on all interest, dividends and long-term capital gains to entice them to move to Puerto Rico. An individual’s 183-day physical presence in Puerto Rico establishes a presumption of residency under the Puerto Rico Tax Code.

This new law has attracted much interest because U.S. citizens, even when they live abroad, have to file federal income-tax reports, with the sole exception of Puerto Rico, which is the only place in the world U.S. citizens don’t have to pay federal income taxes unless they report stateside income. Wealthy taxpayers who opt to re-establish overseas to a foreign country have to surrender their U.S. passports and pay an exit tax of 23.8% on unrealized capital gains, but not in Puerto Rico.

TOO EARLY TO STUDY LAWS’ BENEFITS While the study acknowledges that any analysis on the laws’ impact is premature because it takes at least five years to observe their effects on the local economy, the study did conclude that Acts 20 and 22 have the capacity to yield investments, stimulate construction and help spur the service industry.

“The programs only have been around three years and we have to let them become ripe. I have noticed a [sense of] desperation in trying to move the process forward instead of letting it take its natural course,” DDEC Secretary Alberto Bacó said to Caribbean Business.

The secretary noted the need to attract new capital to Puerto Rico, which has lost about $150 billion in capital because of property devaluations and the downgrades in bank stocks and the island’s credit rating.

The study found that Act 20, or the Export Services Law, could represent an impact of 1% of Puerto Rico’s gross domestic product, which was around $103 billion in 2014. “This is high compared with similar programs such as

the EB-5 (a program created in 1990 to stimulate the U.S. economy through job creation and capital investment by foreign investors), which had an impact of 0.7% in the U.S. economy in a period of 20 years,” the study says.

In 2014 alone, Act 20 created 3,713 direct, full-time jobs in Puerto Rico with an average salary of $45,000 a year and a total annual payroll of $78 million. The study didn’t say if these numbers met DDEC’s goals, but it does say that those numbers are expected to go up in the coming years. The average salary in Puerto Rico is $27,500 a year, so Act 20 is having a positive impact in terms of increasing average salaries for local employees.

The total income of companies that have decrees under Act 20 is $1.2 billion, while the amount in individual taxes paid by the jobs created by the program is estimated at $13.7 million a year.

“The projection is that some 45,000 new jobs will be created in the service sector over the next 20 years,” the study says.

Bacó said the growth of Act 20 has been spurred by Continues on page 16

16

Continues from page 15

the high number of local businesses that are now taking advantage of the law to export their products. Overall, Act 20 has shown growth in three categories. These are local businesses that want to export their products; new residents who have moved to Puerto Rico because of Act 22 and now want to export services through Act 20 incentives; and businesses that weren’t originally from the island, but have moved their operations to Puerto Rico, he said.

Exporting their services and products has become important for many local businesses as the island’s population continues to shrink. Puerto Rico’s nearly 10-year economic

THURSDAY, JANUARY 21, 2016 FRONT PAGE

The projection is that some 45,000 jobs will be created in the service sector over the next 20 years, the study says.

Besides Condado, investors have moved to Dorado, Rincón and Humacao. malaise has resulted in more than 200,000 people leaving the island for the U.S. mainland between 2010 and 2014, a 10% drop, according to the U.S. Census Bureau.

The numbers reflect a 61% increase in Act 20 decrees from 2012 to 2013, a 138% increase from 2013 to 2014 and a 151% increase from 2014 to 2015. In 2013, some 53 decrees were signed under Act 20 compared with 129 in 2014.

Act 22, or the Individual

Investors’ Law, on the other hand, resulted in $260 million in real-estate investments in Puerto Rico during 2014, something particularly relevant due to the excess inventory of homes (both apartments and houses) that have to be sold. The act also yielded $50 million in property mortgages and $73 million in consumption expenditures for that year.

“The projection is that the law could have an impact of $1.7 billion over the

next 10 years,” the study says.

Act 22 shows a 617% increase in decrees from 2012 to 2013, a 104% increase in decrees from 2013 to 2014 and a 34% increase from 2014 to 2014.

FOCUS ON LONG-TERM

EFFECTS AND WORKING IN TANDEM Still, the study acknowledges that the true impact of Acts 20 and 22 can’t be Continues on next page

Nicholas Prouty, managing partner Putnam Bridge Funding

17

FRONT PAGE THURSDAY, JANUARY 21, 2016

Continues from previous page

measured only by the number of jobs created, but by their long-term effects over the “internationalization” of local services—designing products in such a way that they can meet the needs of users in many countries—as well as the development of technical knowledge that can stimulate local innovation.

“This requires the private sector to broaden its business horizons and seek a market beyond internal demand,” Bacó said.

Another important finding from the study is that Acts 20 and 22 must work in tandem to be successful. Bacó said that in the past, there was a law in Puerto Rico that promoted exports but it wasn’t successful.

“The programs have been successful, but they are just one of the 15 to 20 initiatives that we have.

These alone aren’t going to take us out of [the commonwealth’s] economic problems,” he said.

In that regard, Bacó said Puerto Rico still needs an economic alternative similar to Section 936 that gave tax credits to U.S. subsidiaries operating in Puerto Rico and was gradually phased out by 2006. “The time is good to do it now. The matter has been on the table in the U.S. House & Ways Committee and we should all be together to get this because it is best for these businesses to stay in the U.S. than to move to a foreign jurisdiction like Ireland,” he said.

FAMOUS NAMES UNDER ACTS 20/22 Bacó as well as DDEC’s Assistant Secretary Juan Carlos Suárez disputed

claims that the local government is benefiting U.S. investors in favor of the local residents who are carrying the brunt of paying taxes.

Bacó said Act 185, the Private Equity Funds Act, gives local investors “the same benefits that millionaire investors get under Act 22. “Anyone who has money to invest can benefit,” he said.

Still, he noted changes have been made to make Acts 20 and 22 more efficient and prevent abuse.

Act 22 already requires millionaire participants to make investments and buy housing as it is focused upon enhancing foreign investment.

“More importantly, they have to open up local bank accounts. We have to continue the evaluation,” Suárez said.

While DDEC does background checks on millionaire investors to take out any “undesirable people,” the investors are required to open up bank accounts because banks also do background checks.

“We have denied decrees to about 2% or 3% of the applicants. We believe this is a right, not a privilege,” Bacó said, adding that individuals have been rejected for failing criminal background checks.

Regarding Act 20, officials want to increase the number of jobs that each business creates. The law doesn’t specify a minimum number of jobs that each decree must establish. To date, though, the average number of fulltime jobs per decree is 11.

Bacó said he is also making efforts for the decrees to be more transparent.

For example, Act 20 applicants must agree to appear with the government in press conferences and provide information about

Economic Development & Commerce Secretary Alberto Bacó and Assistant Secretary Juan Carlos Suárez their decrees because it helps promote the positive aspects of the law.

The government tries not to reveal information on Act 22 applicants

new investments, the acts have spurred new types of services in the areas of human resources, law, banking, insurance and real estate. They have also

The projection(for Act 22) is that the law could have an impact of $1.4 billion over the next 10 years. because they are families that expect a certain degree of privacy, he noted.

NEW INDUSTRIES While the study says more needs to be done for the island to benefit from the spillover effects of the incentives, Acts 20 and 22 have helped create a new industry that helps cater to the needs of beneficiaries of the laws. Besides

brought more companies from the defense industry, which must operate in a U.S. jurisdiction.

Individuals who have benefited from the laws are spread all over the island in places such as Dorado, Humacao, Rincón and San Juan.

Among the well-known individuals and companies are Richard Melero, the principal of a

commercial and real-estate firm; the St. Claire Group, which is taking control of Empress Hotel in the Isla Verde neighborhood of Carolina; and Elliott Group and Interlink, which have taken over Ambassador Hotel in the Condado neighborhood of San Juan.

The select list also includes the Morgan Reed group, which is buying properties in Santurce and other areas in San Juan, as well as Putnam Investments, which is headed by another Act 22 businessman, Nicholas Prouty.

Orlando Bustos, the head of OHorizons Networks, a management consulting firm, is also a beneficiary of the programs and recently purchased real estate around Meliá Hotel in Rio Grande.

Other people who have moved to Puerto Rico and have been featured by Caribbean Business include

Frank L. Holder, chairman of the Latin American region of FTI Consulting, which includes offices in Buenos Aires, Bogotá, Madrid, Mexico City, Panama City, São Paulo and Rio de Janeiro. Holder, who was previously based in Miami, is a specialist in forensic and litigation consulting, with expertise in risk management, national security, operational risk and uncovering money-laundering operations.

The list also includes important hedge funds such as Randy Swan’s Swan Wealth Advisors, Mark Graham’s Blue Alternative Asset Management, John Helmers’ Long Focus Capital, Damon Vickers’ Nine Points Capital Management, Peter Schiff’s Euro Pacific Management, Steven Stuart’s Garrison Investment Group and Thomas McOsker’s and Nick Paidas’ BloxTrade. 䡲

18

THURSDAY, JANUARY 21, 2016 FRONT PAGE

Mixed Results From 2015 House Study

No Money yet Available for Computer Program That Would Help Measure Tax Incentives

BY EVA LLORÉNS VÉLEZ

E

ven though Gov. Alejandro García Padilla enacted a law in November 2015 that would create an interagency computer program that would help measure the effectiveness of economic incentives and tax credits given to companies and individuals, the Puerto Rico Statistics Institute has yet to receive the funds to pay for the new system.

Statistics Institute Director Mario Marazzi said the $1 million allocated by the new law to pay for the system is “too little” and additional funds are necessary.

“It can be done, but we have to be prudent with the resources,” he said.

Following the enactment of the law, the Statistics Institute contacted the Puerto Rico Industrial Development Co. to request the funds, which is the agency charged with overseeing the various tax incentives given to companies and individuals, but was told that its board had to meet first to approve the allocation.

“I don’t know when the board is going to meet,” Marazzi said.

The law signed in November creates a web portal under the purview of the Statistics Institute that allows agencies to communicate with each other to allow for the validation of the information given by those benefiting from incentives to ensure

that public funds are wellspent.

The portal would allow the commonwealth government to monitor whether the beneficiaries of these incentives are complying with the legal requirements and conditions to have them and measure the productivity of the incentives.

Puerto Rico has dozens of incentives to promote investments and economic development, including at least 17 major laws that provide tax credits for a wide range of activities.

For instance, if an individual opens up a business that can help revitalize an urban center, he or she can qualify for a tax credit on 75% of the funds invested. Anyone investing in a tourism project can also get a tax credit on about 50% of the investment. In the area of manufacturing alone, there are at least 15 laws that provide incentives and tax credits for companies.

Most people agree that the government, in a time of fiscal crisis, must have some control over the incentives given to companies and individuals, and that there must be a positive impact on the economy but, to do that, sound and reliable empirical data is necessary.

MIXED RESULTS FROM 2015 STUDY With this in mind, the P.R. House of Representatives conducted a study in early 2015 that evaluated the impact of dozens of

incentives because there was a lack of data on the effectiveness of these programs.

According to the P.R. Treasury Department, from 2008 to 2014, the commonwealth government didn’t receive an estimated $1.5 billion in revenues because of the incentives, and another finding was that many agencies that grant incentives don’t have reliable information on these programs.

Government officials, however, do have some indications as to which incentives have been effective and which ones have been ineffective, as the study by economist Ramón Cao found that incentives given to some sectors were bigger than the economic contribu-

beds in Puerto Rico decreased by 5.11% from 2000 to 2011.

The study also concluded that the tax credits given to the tourism and construction sectors were more than the revenues the government re-

“It can be done, but we have to be prudent with the resources.”

—Puerto Rico Statistics Institute Director Mario Marazzi tions they made to the local economy. For example, the tax exemptions granted to hospitals through Act 168 of 1968 have the objective of promoting the development of hospital facilities and help reduce service costs.

However, the study found that the incentives didn’t meet their objectives because hospital

ceived. The tourism sector received $170 million in credits from 2008 to 2014, while the construction sector got $400 million.

The study did recommend keeping the industrial incentives and agricultural incentives in place.

Economic Development & Commerce Secretary Alberto Bacó acknowledged

that each incentive should be evaluated individually.

He recalled that in the past, there were certain farming incentives that allowed people to buy agricultural businesses, but didn’t create jobs. Bacó said the tax credits for urban centers are so plentiful that even businesses that could prosper without any incentives have received tax credits.

“But there are incentives that do yield revenues to the coffers, and the truth is that those incentives are often the only way to compete. Puerto Rico needs to be competitive because we have no capital. Those are the ones [incentives] that we should keep,” he said.

Bacó has championed several incentives, including the Industrial Incentives Act, Export Services Law and Act 22, which seeks to attract wealthy investors to Puerto Rico.

He noted that because of the ongoing fiscal and economic crisis, Puerto

Rico has lost more than $150 billion in capital because of falling property values and the downgrades of the island’s credit rating, as well as that of local banks.

Regarding the 2015 House study that has shown some incentives haven’t been cost-effective for Puerto Rico, businessman Miguel A. Ferrer, who is the publisher of Caribbean Business, said if the incentives help bring new investors, there is no cost to the island. “If you bring someone who wasn’t here in the first place, then there should be no cost,” he said.

He also noted that even if the House study has shown that tourism incentives haven’t been cost-effective to government coffers, the tourism industry contributes a lot of money to the economy.

“We have thousands of tourists coming here who we wouldn’t have otherwise,” he said. 䡲

THURSDAY, JANUARY 21, 2016

19

Column

By Dr. Pedro Rosselló

The Internationalization of Higher Education: A New Paradigm Editor’s note: This is the fifth in a series of seven columns derived from research undertaken as a requirement for a doctoral degree in Education from Universidad del Turabo.

The impact of globalization on education, in addition to the pressure on universities to internationalize, creates the need to define a new purpose for higher education systems. The times, and the exponential speed at which changes are currently occurring, require nothing short of a new paradigm of education based on our new global reality. The main component of this model of education is centered on the development of a new citizen who can transcend the limits of national borders, with a cosmopolitan view of the world: a global citizen.

This vision defines new objectives and challenges for all higher education institutions in the 21st century. According to scholar Zha Qiang (2003), these requirements include not only academic and professional requirements, but also multilingualism, as well as

social and intercultural skills and attitudes. Additionally, the complexity and level of specialization in research, and the magnitude of investment that is indispensable in certain research and development fields, demand intense institutional collaborative efforts and international cooperation.

Authors Burbules & Torres (2000) indicate that globalization is forcing the redefinition of certain fundamental concepts in the new world context, including, among others, “state,” “identity,” “citizenship,” “community,” “new social movements” and “local” (as it relates to “global”). According to these authors, all this is a reflection not only of changing concepts, but also of developing relationships, practices and institutional arrangements. Other scholars on the subject (Appadurai, 1990; Beck, 2012) add that globalization will alter the notions of place, home, space and time, causing jurisdictions to “de-territorialize,” thus creating a metamorphosis of identity, wherein local aspects will no longer strictly define our identities.

These redefinitions

compel schools to evolve from a local and/or national framework to a global one. Since its inception in ancient times, the school was initially dedicated exclusively to the formation of members of elite classes. Subsequently, schools evolved, becoming instruments of public instruction. Learning was geared to meet immediate needs that were familiar and local.

Public policies reinforced national traditions, based on what was near, known and homogeneous. These paradigms are now transformed under globalization. The Talloires Declaration of 2005 defines this new trajectory for today’s universities: “The university should use the processes of education and research to respond to, serve and strengthen its communities for local and global citizenship.

The university has a responsibility to participate actively in the democratic process and to empower those who are less privileged.”

Several elements can be drawn from this new educational reality. One of the main impacts of globalization is the exchange of benefits of higher

education in the emerging “economy of knowledge,” which positions universities in a fundamental central role. Educational leaders are being challenged to create new paradigms and innovative practices to develop intellectual communities in a globalized world, which entails discovering and utilizing new technologies to create cognitive, behavioral and affective competencies for successful leadership in a global context.

Aside from pedagogical challenges, the autonomy and governance of educational institutions are also being impacted by these trends. National educational systems are being transformed by globalization. The fundamental elements that have ruled higher education over the past several centuries must give way to a new phase based on internationalization. Online courses and distance learning, the establishment of sister campuses or virtual universities, as well as joint ventures to conduct research are rapidly evolving and being

implemented. All of this goes beyond the current capacity of the State to establish educational policy, and requires that educational leaders and faculty members acquire new capacities to deliver this new level of education.

In this regard, several scholars (Blaess, Hollywood & Grant, 2012; Acosta & Genyelbert, 2013) suggest the creation of professional learning communities, so that faculties can deal with the challenges of globalization. All faculties must be able to teach and function in a multicultural setting.

This entails the revision of models centered on people as human beings, as well as recognizing and valuing all cultures.

As Norman Cousins, (author, journalist, professor and peace activist, 1915-1990) once stated: “The new education must be less concerned with sophistication than compassion. It must recognize the hazards of tribalism.

It must teach people the most difficult lesson of all—to look at someone anywhere in the world and be able to see the image

of himself, or herself. The old emphasis upon superficial differences that separate peoples must give way to education for citizenship in the human community. With such an education and with such self-understanding, it is possible that some nation or people may come forward with the vital inspiration that people need no less than food. Leadership on this higher level does not require mountains of gold or thundering propaganda. It is concerned with human destiny. Human destiny is the issue.

People will respond.”

In our next column, we shall examine the specifics involved in defining and developing a global citizen. 䡲

Dr. Pedro Rosselló is a two-term former governor of Puerto Rico (19922000). He was president of the New Progressive Party for 12 years. He holds a Master’s degree in Public Health, a Doctorate in Medicine, plus a Doctorate in Education, and is currently a lecturer and scholar at Universidad del Turabo.

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THURSDAY, JANUARY 21, 2016

Poll

Facebook dominant among teens, gaining ground with adults

Top Apps in Puerto Rico

Facebook, WhatsApp Dominate Favorite Mobile Apps

BY ROSARIO FAJARDO r.fajardo@cb.pr

Apps have become ubiquitous in people’s daily lives, and Puerto Rico is no exception. A recent Gaither International survey found that three out of every five (60%) respondents 12 years and older in Puerto Rico used apps on their mobile phones. This translates to roughly 1.8 million people regularly using their phones for internet-related activities.

App use was higher among women, Gaither reported. They accounted for 59% of local app users.

It was also higher among Millennials, generally defined as those with birth years ranging from the late 1980s to the early 2000s, who accounted for 37% of app users.

When asked for the five apps they use the most on their phones, the top mentioned was Facebook.

In fact, almost a quarter (73%) of those who use apps mentioned the social-networking application as one of their five most used. This result is inline with recent Gaither data showing that Facebook is the most visited website by Puerto Ricans.

A close second as their favorite app was WhatsApp, with 69% of respondents using it. YouTube rounded out the top-three with 54% of app users mentioning it as one of their most used.

The rest of the top 10 include the following: Pandora (35% of respondents), Instagram (24%), Google Maps (19%), Snapchat (16%), gaming apps (14%), mail apps (12%) and banking apps (8%).

These results are based on a poll conducted throughout December 2015 and the beginning of January, among a representative sample of 500 respondents

12 years and older.

A Caribbean Business report (Oct. 15, 2015) found that Facebook is continuing to grow among social-network users in Puerto Rico. During 2013, Facebook had already captured 81% of these users. However, during 2015, Facebook increased that percentage to 86% of the island’s social-network users.

Overall, Facebook’s daily user base in Puerto Rico has increased to about 1.25 million people—up from 1 million in 2013, Gaither reported.

Even though Facebook’s user base is older on average than that of other networks such as Instagram and Twitter, Facebook still remains dominant among teen users ages 12 to 17.

Among that group, 80% said they used Facebook during the past 24 hours, 29% used Instagram and 6% Twitter.

Instagram has grown among teens from 25% in 2013, while Twitter has decreased from 10% in 2013.

Among adults in general, the same trend holds true, with Instagram gaining users and Twitter losing some.

Social-network users have been growing very slowly among respondents 55 and older, which is consistent with older adults generally not considered regular online users. For example, during 2013, only 6% of them said they had used a social network during the previous 24 hours.

This percentage has only increased to 9% in 2015, Gaither reported. However, Facebook has seen significant growth among that group. During 2013, 64% of them had used Facebook during the previous 24 hours. For 2015, this percentage has jumped to 76%. 䡲

Polling is conducted by Gaither International and the results are reported exclusively by Caribbean Business.

Source: Gaither International

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THURSDAY, JANUARY 21, 2016

Smart Money Puerto Rico is the Answer’ Garnering Success to Promote Tax Incentives and Create Jobs Envisioning a Vibrant Economy

BY EVA LLORÉNS VÉLEZ

As Puerto Rico struggles with a $70 billion debt load that has caused many residents to move to the U.S. mainland, there are still those who have placed their bets on a future economic prosperity and have succeeded in convincing others of the many possibilities and opportunities the island has to offer.

More than a year after the nonprofit, nonpartisan organization Puerto Rico is the Answer (PRANS) took on the challenge of helping identify and attract business ventures using as a tool the incentives available through the island’s fiscal autonomy, its efforts are bearing fruit.

The organization was born after its co-chairman, Gabriel Hernández, accepted a challenge from businessman Miguel A. Ferrer, who is the publisher of Caribbean Business, to come up with ideas to help Puerto Rico’s economy grow. Ferrer, who is also PRANS co-chairman, said Puerto Rico enjoys a fiscal autonomy that can offer investors a combination of tax credits and incentives, coupled with U.S. citizenship, the U.S. dollar and the same legal framework as stateside.

Following its official launching in September 2014, PRANS identified 20 sectors in which Puerto

Rico is competitive, such as the areas of biotechnology, energy, banking, telecommunications, transportation, real estate, agro-industry, manufacturing, tourism, engineering and construction, among others.

Fast forward to 2016 and PRANS has already gathered a roster of some 100 local businesspeople and experts in their fields who are helping the or-

of local businesspeople, but also has an alliance with ConPRometidos, an organization that seeks to engage the Puerto Rican diaspora in efforts to promote Puerto Rico as an ideal place to do business.

PRANS focuses on promoting the incentives offered through Acts 20 and 22 to promote exports and incentives for wealthy investors in Puerto Rico;

“I personally speak every day to three or four persons about Puerto Rico. I refer them to other people, and we are creating a flow of curiosity about Puerto Rico.”

—Caribbean Business Publisher and PRANS Co-Chairman Miguel A. Ferrer

ganization by spreading the word about the incentives. More recently, the group has also gathered the support and cooperation of the P.R. Manufacturers Association and P.R. Chamber of Commerce. PRANS not only counts on the expertise

Act 73, or the Industrial Incentives Act; and the newest kid on the block, Act 185, which provides incentives for private equity funds; and Acts 273/399 that give incentives for financial and insurance centers. A recent study commissioned by

the Economic Development & Commerce Department shows that Acts 20 and 22 alone have resulted in more than 1,000 decrees in three years.

PRANS Executive Director Maria Elena Cristy said that right now, the organization has 24 prospects concerning companies and individuals interested in investing in Puerto Rico, which have the capacity of creating “hundreds of jobs.”

Besides promotion, Cristy said PRANS puts the investors in touch with local firms and individuals that can provide services such as helping them move to Puerto Rico, finding real estate and obtaining legal advice, which has resulted in creating an entire service industry geared to help these investors find solutions to their needs.

Right now, there are banks and law firms that have created entire offices and departments just for the needs of investors, such as those from Acts 20 and 22. Cristy mentioned that some of the investors who are already in Puerto Rico have also expanded local operations, such as those of Honeywell.

In its first year, PRANS was also the organization with the most invitations to over eight forums and two meetings to speak about the island incentives. “We have done a lot in a year,” she said.

AN ‘ACTION TANK’ WITH AN ARMY OF VOLUNTEERS Hernández said the organization has changed to an “action tank” that seeks to help bring investors to Puerto Rico

Caribbean Business Publisher and PRANS Co-Chairman Miguel A. Ferrer

through its army of 100 volunteers from the private sector who have the task of devoting at least seven days a year promoting Puerto Rico as a place to do business.

“If you multiply that, it’s 700 days working to promote Puerto Rico,” Ferrer said. “I personally speak every day to three or four persons about Puerto Rico. I refer them to other people, and we are creating a flow of curiosity about Puerto Rico.”

Among recent successes, PRANS noted that Santander Consumer International is expanding its service operations in Puerto Rico, creating 500 new jobs, through the incentives of Act 273.

Ferrer said numerous banking operations have sprouted in the Hato Rey

area of San Juan, including three international banks.

He also noted that Act 185, the Private Equity Funds Act, allows for more investments in Puerto Rico.

Act 185, which became law in late 2014, allows for domestic or foreign investment vehicles structured as partnerships and limited liability companies to choose to be treated as a fund under the act and obtain tax benefits.

For investors, interest and dividend income received from their funds is taxed at a fixed rate of 10%, while capital gains are tax-exempt. In addition, capital gains from the sale of ownership interest in their funds are Continues on next page

THURSDAY, JANUARY 21, 2016

23

PRANS spurs new industry providing services to investors

Continued from previous page

taxed at a fixed rate of 5%, unless proceeds from the sale are reinvested in a Puerto Rico private equity fund. In addition, investors who are Puerto Rico residents benefit from the availability of deductions for net capital losses and additional deductions with respect to their initial investments.

Ferrer said there are already five to 10 private equity funds in Puerto Rico, and this year the number is expected to go up to 15.

Hernández said that in a few years, the service sector will be a huge component of the island’s private sector, which will include a whole new industry that will serve investors benefiting from the incentives.

MORE WORK NEEDS TO BE DONE However, promoting the island as a business destination isn’t always easy and Puerto Rico needs to do more to improve the island’s business environment. For example, Ferrer said Puerto Rico still needs to relax the permitting process to facilitate opening new businesses.

He also said, “Puerto Rico needs to improve its financial reputation,” referring to the negative media publicity created around the commonwealth’s fiscal and economic problems.

“We have to be seen as a place where businesses can grow,” he said. In that regard, Ferrer said the government needs to

PRANS Executive Director María Elena Cristy

be able to restructure debt and eventually reduce taxes for everyone.

Hernández stressed the importance for the government to maintain continuity in all programs, despite the changes in governing administrations, to avoid hurting the island’s credibility.

Even with the current array of incentives available under local laws, Ferrer believes Puerto Rico

needs something similar to the Section 936 tax incentives under the U.S. Internal Revenue Code, which gave tax credits to U.S. subsidiaries operating on the island and was phased out years ago.

Section 936 was eliminated following a campaign that dubbed the incentives “corporate welfare” that was costing the U.S. government millions in revenues. But

PRANS Co-Chairman Gabriel Hernández

Ferrer said studies show the repeal of Section 936 didn’t bring about an increase in the revenues of U.S. coffers.

He was talking about a study by the Congressional Quarterly and another from the U.S. Government Accountability Office (GAO) in 2006 titled, “Fiscal Relations with the Federal Government and Economic Trends during the Phaseout of the

Possessions Tax Credit: GAO-06-541.” “….IRS officials believe that despite the repeal of Section 936, many taxpayers with operations in Puerto Rico could be incurring approximately the same or even lower tax liabilities that they did under Section 936 by restructuring their activities through CFCs (foreign controlled corporations),” the GAO study said.

“This project works because it relies on successful businesspeople who are willing to help foreign investors, our economy and their own business sectors.”

—Miguel A. Ferrer

PUERTO RICO IS A SAFE INVESTMENT PRANS’ website contains a list of some of the most common questions asked by investors. One of them is whether it is safe for an investor to put his or her money in Puerto Rico. The answer to that is yes. PRANS says the island offers investors not only a safe place to put their money—with tax benefits—but there is also no taint as a shady tax haven. The website notes that there are more than 30 international banks in Puerto Rico with $40 billion in assets.

On the question about how an investor can maximize a return on capital investments, PRANS replies that Puerto Rico shares a common currency and common citizenship with the U.S., but the island isn’t a state, so residents don’t pay federal taxes on income derived locally. Besides a tax code that is favorable to corporations, the island has Act 73, which provides incentives for a wide array of business ventures.

On the question whether Puerto Rico is the right choice in which to invest, the website urges potential investors to do the math with their tax attorneys or by themselves, and provides examples of different ventures, such as a small software design firm that sets up on the island’s west coast, along with a list of the incentives available to that company.

“This project works because it relies on successful businesspeople who are willing to help foreign investors, our economy and their own business sectors,” Ferrer said. 䡲

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THURSDAY, JANUARY 21, 2016

Special Coverage

“If the [U.S. Supreme Court] justices say Puerto Rico isn’t sovereign, I don’t think it follows that they can say the rest [that Puerto Rico could prosecute for the same offense].”

—Juan Matos, a lawyer and former public defender in Puerto Rico

THURSDAY, JANUARY 21, 2016

27 U.S. Supreme Court could redefine ‘sovereignty’

Efrén Rivera, UPR law professor, and Juan Matos, former public defender, speaking to Eva Lloréns Vélez and Juan Hernández, CB reporters.

A Criminal Case Backfires Into Puerto Rico’s Sovereignty

BY JUAN A. HERNÁNDEZ & EVA LLORÉNS VÉLEZ j.hernandez@cb.pr; e.llorens@cb.pr

I

f back in the 1960s, in the heyday of Operation Bootstrap, anyone had said Puerto Rico’s political future was going to depend on the judging of two already convicted felons, then Gov. Luis Muñoz Marín would probably have said “let justice be done.”

But more than 60 years after the passing of Act 600, which

“recognized the right of self-government of the people of Puerto Rico,” judging a person in the commonwealth’s courts nowadays just doesn’t seem to be a matter of justice being done, but an exercise in high politics, if we are to follow the arguments in the U.S. Supreme Court in the case of “Commonwealth of Puerto Rico v. Luis M. Sánchez Valle, et al.”

In questioning Adam G. Unikowsky, counselor for the respondents, Associate Justice of the U.S.

Supreme Court Elena Kagan asked why sovereignty isn’t to be considered the intended goal of the U.S. Congress with respect to Puerto Rico in the 1950s when it “gave an enormous amount of Home Rule authority, basically everything…” to which Unikowsky answered that “the history, the legislative history and the events, the historical record show that Congress wanted to delegate autonomy, which is different from creating a sovereign.”

This is the crux of the matter in the case before the U.S. Supreme Court; whether if in fact, Congress didn’t create/ grant/recognize sovereignty to Puerto Rico with the passing of Act 600 in 1950, which gave way to the creation of the Commonwealth of Puerto Rico, because, if it didn’t—and that is what the respondents are hoping the court will decide— there will be no difference between the federal Continues on page 28

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Special Coverage

Continues from page 27

courts and any court in Puerto Rico. Therefore, a person couldn’t be tried in a commonwealth court for the same crime he or she had already been tried in federal court; otherwise, the double jeopardy clause would be violated.

It now seems to be written in stone that states in the United States have a separate sovereignty that permits them to try any person regardless of whether that person has already been tried in federal court, thus circumventing the constitutional right not to be tried twice for the same offense. In Associate Justice of the U.S. Supreme Court

Antony Kennedy’s words, “the atom of sovereignty had been split.”

DUAL SOVEREIGNTY AN INVENTION? But for law professor and former dean of the University of Puerto Rico Law School, Efren Rivera, the dual sovereignty is but “an invention.”

“The dual sovereignty theory is a jurisprudential invention. It isn’t in the U.S. Constitution. What is in the Constitution itself is that no one can be accused twice for the same crime…and initially, that only applied to the federal government,” Rivera argued.

According to the law professor, after a process of “selective incorporation,”

“The dual-sovereignty theory is a jurisprudential invention. It isn’t in the U.S. Constitution. What is in the Constitution itself is that no one can be accused twice for the same crime…”

—Efren Rivera, law professor and former dean of the University of Puerto Rico Law School the U.S. Supreme Court extended the application of the first eight amendments to the Constitution –the Bill of Rights– to the states. This meant that their restrictions would

also be applied against actions of the states by fiat of the 14th Amendment adopted in 1868, made to address citizenship rights and equal protection of the laws, the amendment

was proposed in response to issues related to former slaves following the U.S. Civil War. The 14th Amendment was one of the Reconstruction Amendments.

The reach of the amendment was that “no state could prosecute a person [who] had already been exposed to a conviction in federal court, and vice versa.” Back then (mid1800s), the states weren’t considered sovereign.

The concept of dual sovereignty came to be well into the 20th century when the top court itself became aware of the possibility of “certain anomalies” stemming from the unique sovereign doctrine—people who committed a serious

crime were opting to be prosecuted under the jurisdiction with the more lenient punishment, thus foiling justice.

According to Rivera, the court’s answer to that “anomaly” was recognizing states had a separate sovereignty from the Union; therefore, they could prosecute regardless of the person having been tried in federal court before. Thus, quoting Justice Kennedy, “the atom of sovereignty had been split.”

CHANGE IN VISION IN

TERMS OF FEDERAL CRIMES For Juan Matos, a criminal law specialist and Continues on next page

THURSDAY, JANUARY 21, 2016

Continues from previous page

former U.S. Public Defender, the change is in response to the “change in role, in terms of criminal litigation” that the federal government experienced during the 20th century.

“The fact that there are like a million federal crimes today…that is a 20th century phenomenon. In the beginning, the cases tried [in federal court] were a minimum….

This thing about federalizing criminal law is new and all double-jeopardy jurisprudence responds to that specific time (early 20th century),” said Matos, who pointed to increasing demands from many jurisdictions “to simply do away with the dual-sovereignty concept because double jeopardy is double jeopardy, regardless of the jurisdiction.”

Such is the argument made in the brief submitted by the Florida Association of Criminal Defense Lawyers as amicus curiae, or a friend of the court.

Interestingly enough, the Sánchez Valle case has similarities with the historical situations that prompted the U.S. Supreme Court of the early 20th century to develop the dual-sovereignty doctrine.

In 2008, Luis Sánchez Valle and Jaime Gómez Vázquez were indicted by a federal grand jury with a series of counts of violations of federal laws concerning the possession of weapons. Both men pleaded guilty and have already completed their respective federal sentences. But they now face the possibility of having to go through a new trial,

this time under the commonwealth’s jurisdiction for the same weapons case. The difference this time is they face a fixed 10-year prison sentence for the charges.

Should it be the other way around—the federal government trying to prosecute a person who has already been tried in a commonwealth court— even with the dual-sovereignty doctrine in place, it would be rather difficult, according to Matos.

He said if the office of the U.S. District Attorney for the District of Puerto Rico is interested in prosecuting a person who has already been prosecuted by a commonwealth court, it has to ask permission from the U.S. Department of Justice (DoJ), regardless of the outcome of the prosecution, to proceed with the indictment. Authorization is granted by the DoJ only in cases where the purpose of the law has been foiled.

But this kind of case isn’t frequent because there is ample understanding regarding law enforcement between the commonwealth and the U.S. District Attorney, Matos indicated.

PUERTO RICO’S POLICY ON CRIME MAY HAVE BACKFIRED It now seems that the Puerto Rico government’s public policy regarding crime has backfired, not only for Gov. Alejandro García Padilla’s administration, but also for those of former Govs. Luis Fortuño and Aníbal Acevedo Vilá.

Since the Acevedo Vilá administration, the policy on crime has been

29

“To say that Puerto Rico is sovereign for doublejeopardy purposes only, would be...saying that Congress doesn’t have plenary powers over Puerto Rico.”

—Juan Matos, a lawyer and former public defender in Puerto Rico

based on “collaborating with the federal government” because of its allegedly tougher laws and that the absence of a right to bail are considered greater deterrents than commonwealth laws. At the same time, all the administrations have made a point of announcing tougher stances against crime, and they have been heralding the enactment of stiffer laws that they themselves have refused to put into force because they refer the cases to the

federal prosecutors, Sánchez Valle being the case in point.

Back in 2008, at the time of the arrests of Sánchez Valle and Goméz Vázquez, some government officials, including perhaps Fortuño himself, may have pointed out the effectiveness of the administration’s anticrime strategy after sending to jail, without bail, two criminals.

A similar announcement was made by García Padilla when he signed

into law the amendments to the Firearms Law that set a fixed 10-year prison sentence for those convicted of arms violations.

In Fortuño’s case, indeed Sánchez Valle and Goméz Vázquez may have been sent to prison without bail to await trail, but their punishment didn’t seem to be proportionate to the crime when compared to the Fortuño administration’s standards of mano dura, which had become institutionalized by then.

In the case of the García Padilla administration, the toughness of the law wasn’t even put to the test because all arms violations are sent directly to the feds, and it now seems that this same collaborative agreement with them won’t allow for a local prosecution.

So, it could be said the government of Puerto Rico is effectively in the very same spot the states were in during the early 20th century—seeking to prevent justice from being foiled. And then something more—trying to prevent losing more than 60 years of a political status preached over an alleged sovereignty, so into question, that the commonwealth government’s lawyers themselves opt not to use it as an argument to prove their case before the top court.

SOVEREIGNTY A ‘SLIPPERY’ TERM The U.S. Supreme Court is facing the huge task of trying to define the term “sovereignty” as it pertains to Puerto Rico to determine if the commonwealth has “dual sovereignty” that would allow

local officials to prosecute Sánchez Valle and Goméz Vázquez for the same offense for which they were convicted in federal court.

And sovereignty, as Associate Justice of the U.S. Supreme Court Anthony Kennedy put it during a recent oral hearing, is “a slippery word” in that it has different meanings.

Rivera, who teaches constitutional law, said part of the problem is that the term has significantly different meanings in the U.S. and Puerto Rico.

“That is when we get confused,” he told Caribbean Business.

When most Puerto Ricans think of sovereignty, they think of the autonomy enjoyed by Basque region or Catalonia, referring to the powers delegated to those autonomous states by the Spanish Constitution, which allows them to exercise self-government.

However, Rivera says the meaning of sovereignty in the U.S. follows the English tradition of “home rule.” While the term often refers to an independent entity, U.S. states are considered sovereign even though they are part of the Union. The 10th Amendment of the U.S. Constitution provides that “powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”

The sovereignty of a state is determined with reference to the U.S. Constitution, which is the supreme law of the land. States may Continues on page 30

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THURSDAY, JANUARY 21, 2016

Special Coverage Continues from page 29

generally legislate on all matters within their territorial jurisdiction. This power doesn’t arise from the Constitution, but is an inherent attribute of the states’ territorial sovereignty.

The Constitution does, however, provide certain specific limitations on that power. For instance, a state is relatively limited in its authority regarding the regulation of foreign imports and exports or the conduct of foreign affairs, according to various legal websites. States must respect the decisions of courts of other states, and are limited in their ability to vary their territory without congressional permission. In addition, the U.S. Supreme Court has found that states are limited in their ability to burden interstate commerce.

Territories aren’t considered sovereign as states because they are under the sovereignty of the U.S. and Congress exercises powers over them. Unlike states, territories don’t have congressional representation with voting rights, but must abide by their rules.

Unlike Guam and the U.S. Virgin Islands, Puerto Rico isn’t governed by an organic act from Congress.

All the discussion on whether Puerto Rico has dual sovereignty is necessary for the U.S. Supreme Court to determine if the two men can be tried for the same offense twice. The justices in the past have said the federal government and the states are sovereign and that individuals can be prosecuted separately in state and federal courts.

THE CASE BEFORE THE U.S. SUPREME COURT The question in the Puerto Rico v. Sánchez Valle case, now before the U.S. Supreme Court, is whether Puerto Rico is also a sovereign and therefore able to pursue a subsequent prosecution for the same crime after a federal conviction.

Sánchez Valle and Gómez Vázquez were prosecuted on gun charges in local and federal courts in Puerto Rico. They pleaded guilty to the federal charges and asserted that they couldn’t be prosecuted for the same crimes in local courts under the Constitution’s double-jeopardy clause. Puerto Rico’s Supreme Court agreed, contending it would be double jeopardy because the island is a territory whose ultimate source of authority to prosecute rests in Congress.

The commonwealth government, however, petitioned the U.S. Supreme Court to reverse the P.R. Supreme Court ruling, insisting the contrary that the island’s sovereignty is based on its 1952 Constitution. The commonwealth government further contends that Puerto Rican laws derive from its Constitution and are passed by a popularly elected Legislature, and that the U.S. Congress delegated that autonomy through a compact.

Rivera added that the commonwealth ruling has put the island at odds with the First Circuit Court of Appeals, which has said Puerto Rico can prosecute individuals convicted by federal court for the same offense.

Unikowsky, the lawyer for Sánchez Valle and Gómez Vázquez, argued that the

“Part of the problem is that the term has significantly different meanings in the U.S. and Puerto Rico. That is when we get confused.”

—University of Puerto Rico Law Prof. Efrén Rivera ultimate source of power in Puerto Rico is Congress, a position shared by the Obama administration, and that Puerto Rico isn’t sovereign. Nicole Saharsky, an Assistant to the U.S. Solicitor General, pointed to the fact that under the current constitutional framework, Congress can’t confer sovereignty to Puerto Rico unless it becomes a state.

While there are jurists who say that sovereignty is indivisible, the U.S. has already “split the atom on sovereignty” by declaring that states are sovereign.

The U.S. has also issued a series of cases based on the dual-sovereign doctrine to justify exceptions

to the protection against double jeopardy.

Rivera said that in U.S. v. Wheeler, which commonwealth government lawyers used to defend their case, the top court ruled that the dual-sovereignty doctrine permits federal prosecution of an Indian for statutory rape following his guilty plea in a tribal court to contributing to the delinquency of a minor, both charges involving the same conduct.

The top court ruled that tribes have an inherent sovereignty that didn’t flow from the federal government.

In U.S. v. Lara, a case from 2004, the U.S.

Supreme Court upheld the opinion that federal and tribal prosecutions didn’t violate double jeopardy because tribes were separate sovereigns.

In 2008, the U.S. top court dealt with the question of sovereignty in the context of an individual who was held in military detention at Guantanamo Bay in Cuba. In that case, Justice Kennedy held that the prisoners had a right to habeas corpus—a legal recourse by which a person can seek relief from unlawful imprisonment— and that the Military Commissions Act of 2006 couldn’t interfere with that right. Kennedy said

the U.S. maintains “de facto” sovereignty on the Guantanamo Bay prison, while Cuba had the “de jure” sovereignty, Rivera explained.

REDEFINING SOVEREIGNTY? Asked if they believe the U.S. Supreme Court could come up with a creative solution in support of the double prosecutions, Rivera and Matos, were more inclined to believe the top court will rule that Puerto Rico isn’t sovereign. While Congress authorized the island to have its own constitution, they also said Continues on next page

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Juan Matos, former public defender

31

Efrén Rivera, UPR law professor

Continues from previous page

the Puerto Rico Constitution can’t violate Act 600 of the federal relations law of 1950. This law was an act of Congress, signed by then-U.S. President Harry Truman, which enabled Puerto Rico to organize a government of its own, pursuant to its own constitution.

The lawyers also noted that the legislative history and record from the 1950s contains testimony from the U.S. Secretary of the Interior, Resident Commissioner and thenPuerto Rico Gov. Luis Muñoz Marín to the effect that Puerto Rico’s political status didn’t change and that Congress merely delegated powers.

The U.S. Supreme Court justices could also issue a new definition of sovereignty to allow multiple prosecutions for the same offense in Puerto Rico.

Justice Kennedy suggested

looking at other issues besides sovereignty. The top court acknowledged that it accepted the case out of concern that there may be a rush in the lower courts to see who prosecutes first.

“Has there been any suggestion by commentators and so forth that this whole inquiry of sovereignty and source of power is a little bit misplaced?” Kennedy asked.

Unikowsky replied that there are journal articles that say the top court should look at something else, but the top court has declined to follow that approach.

The justices could also modify the dual-sovereign doctrine to allow the island to prosecute without stating that it is sovereign or they could rule outright that Puerto Rico is sovereign.

If they say Puerto Rico is sovereign for double-

jeopardy purposes only, that would be the same thing as saying Congress doesn’t have plenary powers over Puerto Rico.

“If the justices say Puerto Rico isn’t sovereign, I don’t think it follows that they can say the rest [that Puerto Rico could prosecute for the same offense],” Matos said.

The justices, however, have to examine the effects of each ruling because their decisions have an impact on the rest of the states and territories, and not just Puerto Rico.

As the justices said themselves, if they rule that Puerto Rico is sovereign, it will have serious implications, and if they rule Puerto Rico is a territory, it will also have serious implications.

Matos noted that either way, the decision won’t really do anything to resolve the island’s dilemma over its political status. 䡲

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THURSDAY, JANUARY 21, 2016 Sanders and Clinton trade barbs on national stage as primaries loom.

Politics Democratic Presidential Debates Turn Contentious on Eve of First Primary Contests

BY ISMAEL TORRES

With the last stretch of the Democratic Party’s presidential primary set to begin, the overall tone among the main nominees has turned tougher and forecasts in favor or against each candidate grow louder, particularly

the Democratic nomination June 5.

Prats also anticipated that the last scheduled debate among Democratic candidates, scheduled for sometime in March, will air on Univisión, a Spanish-language network, and as a result, the participants will most likely

are showing on the eve of the Iowa caucus and New Hampshire primaries.”

After votes are counted in both nominating contests, he said polls at the state level will become less important, while national polls will increasingly gain importance.

“I see Clinton gaining a

wider margin after Iowa and New Hampshire,” McClintock added.

During the Jan. 17 debate, held in Charleston, S.C., Clinton accused Sanders of intending to “tear up” the Affordable Care Act (ACA) implemented by U.S. President Barack Obama and also known as “Obamacare.”

Hours before the debate, Sanders had unveiled a plan for a Medicare-forall universal healthcare program “We finally have a path to universal healthcare,”

said Clinton during the debate, in reference to ACA. “We have accomplished so much already. I don’t to want see the Republicans repeal it, and I don’t to want see us start over again with a contentious debate. I want us to defend and build on the Affordable Care Act and improve it.”

The ACA, touted as the most significant regulatory overhaul of the U.S. healthcare system since the passage of Medicare and Medicaid in 1965, was enacted to increase the

Former Secretary of State Hillary Clinton

between former Secretary of State Hillary Clinton and U.S. Sen. Bernie Sanders (D-Vt.).

Despite this, the two main leaders of the Democratic Party in Puerto Rico, Roberto Prats and Kenneth McClintock, pegged Clinton as the favorite to win the presidential ticket.

Prats, who is the president of the Democratic Party’s Puerto Rico chapter, said the latest debate, which took place Jan. 17, “was the next to last debate, and we expected it to be the toughest.”

Puerto Rico is slated to hold its own primary for

debate issues related to the Latino community.

“Bernie Sanders will draw good numbers, but everything points to Clinton ending up as the nominee,” Prats noted.

McClintock, a Democratic Party Committeeman since 2000, said Sanders “needed to draw blood from Clinton during the most recent debate, which he did. However, it wasn’t enough for Sanders to win the debate,” he noted.

“For that reason, Clinton will continue her momentum in consolidating support on the national level, despite the virtual tie they

The debate, which aired on the NBC network, took place a mere 14 days before the Iowa caucuses, slated for Feb. 1, which in turn marks the beginning of the primary season.

what we have to deal with is the fact that 29 million people still have no health insurance.”

The debate, which aired on the NBC network, took place a mere 14 days before the Iowa caucuses, slated for Feb. 1, which in turn marks the beginning of the primary season.

The Iowa caucuses have traditionally served as an early indicator of which candidates for president may win the nomination of their political party at each party’s national convention. Both the DemoSen. Bernie Sanders

quality and affordability of health insurance. The law also imposed a health insurance mandate that has proved controversial and has been severely challenged by the Republican opposition.

Sanders responded by calling Clinton’s remarks “nonsense. What a Medicare-for-all program does is finally provide in this country healthcare for every man, woman and child as a right,” he added. “I made the Affordable Care Act, along with Jim Clyburn, a better piece of legislation. I voted for it, but right now,

cratic Party and Republic Party national conventions are scheduled to be held in July.

Meanwhile, according to the latest NBC News/Wall Street Journal poll, Clinton leads Sanders by 25 points on the national stage.

Clinton is the first choice of 59% of Democratic primary voters, while Sanders gets the support of 34%, the poll shows.

The numbers show a widening margin from December, when the same poll showed Clinton with a 19-point national advantage over Sanders, 56% to 37%.

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Politics

Puerto Rico’s fiscal woes could have an impact on payments

Dominion Confident it can Implement Electronic Vote Count in Time for 2016 Primaries, General Elections

BY ISMAEL TORRES

“Dominion is more than just a trusted provider of elections” reads the slogan of Dominion, the company hired by the State Elections Commission (CEE by its Spanish acronym) in August 2015, at a cost of $38.8 million, to work on the electronic tally of votes in Puerto Rico’s primaries and general elections in 2016.

With just a few months to go before the primary elections in June, founding president & CEO of Dominion Voting Systems, John Poulos, is confident that there is enough time to train CEE personnel who will work in the vote count with the new equipment.

“There is time and we are confident that we will make it,” said Poulos when asked if he wasn’t concerned about the little time left before the primaries and general elections to train CEE personnel.

While an exact number remains unclear, around 10,000 people will have to be trained in the new computer system, as there will be at least 1,700 voting colleges islandwide, with each political party assigning at least one official at each voting college, along with CEE staff.

Regarding the fiscal situation in Puerto Rico

and the apparent difficulties in identifying the funds to cover the cost of the electoral cycle—both the primaries and general elections—Poulos said he is also not concerned because his company has worked in states with serious fiscal problems, including bankruptcy.

As early as last December, the CEE faced problems in the process of securing electoral equipment for candidates who will be taking part in the primaries after the Office of Management & Budget couldn’t fulfill its promise to the CEE of providing $10 million for the primary process. By December 1, 2015, when the filing of candidacies began, the CEE had only received $1.2 million of the $10 million it had been promised.

The CEE made the first payment of $8 million— for the total $38.8 million contract—this past December.

There is still another $6 million payment pending, followed by other annual payments for a period of 10 years, which will also cover the 2016, 2020 and 2024 elections.

Dominion’s contract includes 6,075 tally machines, personnel training and equipment storage and software maintenance. To date, about 1,000 of the machines have arrived in Puerto

Rico and the remaining 5,000 or so should be delivered well before the June primaries.

According to Dominion’s website, Dominion Voting Systems sets itself apart from the competition with a commitment to customer-service convenience and a superior use of technology. Dominion’s history spans more than 100 years, all the way back to 1895 and the invention of the first ever Direct Recording lever machines in New York. Over the course of the last century, as expertise and experience in the development and deployment of voting systems has grown, Dominion says it has leveraged this history of innovation through its vast pool of elections specialists.

Partnering with and

From left, Dominion Voting President & CEO, John Poulos, and Project Manager Javier Jiménez

learning from top-level suppliers and employees in the election automation industry, Dominion is taking part in the word’s most challenging and innovative democracy projects, according the company.

For her part, CEE President Liza García Vélez has stressed that the implementation of an electronic vote count system will

Dominion Voting Systems sets itself apart from the competition with a commitment to customer-service convenience and a superior use of technology.

guarantee “the certainty and transparency of the results of electoral processes.”

The electoral commissioner of the New Progressive Party Jorge Dávila has said that under the new electronic system, the electoral process will be transparent because voting will still be carried out on ballots. He added that one of the significant advantages of the electronic count vote is that “once [voting] colleges are closed, the machine won’t accept any other ballot. After the colleges are closed, the counting process and the adjudication will be done by the machine.”

The former electoral commissioner of the Puerto Rican Independence Party (PIP), who is now the party’s secretary general, Juan Dalmau, hailed the integration of technology in the electoral process and maintained “the machines

offer that guarantee of transparency. I speak from experience because in the past election, our Maria de Lourdes [Santiago, current PIP senator), was able to rescue 11,000 votes that weren’t tallied in the colleges, thanks to a recount.

“Those votes aren’t votes from the Senatorat-large for the PIP, they are votes of voters who exercised a right and thus, I think we are taking an important step in acknowledging the value that once a voter exits a voting college, [he or she] knows that the vote will be adjudicated just as it was cast,” Dalmau added.

Meanwhile, Popular Democratic Party Electoral Commissioner Guillermo San Antonio Acha said that with this step, “justice is being done to the thousands of electoral functionaries who today see with great hope the modernization of democratic systems.” 䡲

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Technology

New e-voting machines will be tamper-proof, company executives say

E-Voting Company Confident It Will Win Skeptics Over Dominion Voting Set to Debut New Technology During 2016 Puerto Rico Primaries; Says the System is Foolproof

BY DENNIS COSTA d.costa@cb.pr

Last August, Puerto Rico’s State Elections Commission (CEE by its Spanish acronym) hired Dominion Voting, an electronic voting (e-voting) company based in Toronto and Denver, to overhaul the commonwealth’s election process, beginning with the primaries in June.

The Dominion contract, worth about $38.8 million, arguably represents Puerto Rico’s most significant step in the adoption of e-voting. In this regard, the island follows the example of several other nations and jurisdictions worldwide that have moved beyond traditional paper-based processes in favor of faster, more reliable vote counting, tabulation and scrutiny through electronic means.

Past instances of evoting adoption haven’t been without controversy, though, most notably in the 2000 U.S. presidential election in Florida, with the infamous “hanging chad” controversy. Partly due to such incidents, and despite technological advances carried out since then, e-voting has been met in Puerto Rico with some skepticism and become the subject of much debate in recent years.

However, Dominion Voting execs said the evoting system they sold to the CEE, dubbed Democracy Suite, will provide a transparent, virtually foolproof process during the next elections. “The system has a proven track record, having been used in elections in Canada, the Philippines and Mongolia, as well as U.S. jurisdictions such as New York state,” Dominion President & CEO John Poulos told Caribbean Business.

Different types of evoting systems are available in the market, among them specialized voting machines, but Dominion deals exclusively with optical scan voting technology. These systems use printed ballots that are fed to an optical scanner, which reads each ballot and tallies the results. In this sense, the voter experience shouldn’t differ much from previous instances, Poulos said.

“The same principle of stepping into a booth and placing a mark on a piece of paper applies.”

Even though their design hasn’t been finalized, the new ballots will differ slightly, more closely resembling college entrance exams or lottery play slips. However, voters won’t have to fill circles with a pen or pencil for their votes to be counted, said Javier

Jiménez, project manager for Dominion. “It will work, as in previous occasions, with an X marked on the appropriate space.”

A key difference, from the voters’ point of view, takes place once they step out of the booth. Previously, voters would fold up their ballots and insert it in a cardboard box. This time around, they would have to feed their ballots into special optical scanners. A total of 6,075 such scanners, called ImageCast Precinct tabulators, will be made available.

The machines are tough, according to company documents, being able to withstand high humidity and other harsh climates.

“About 100,000 of these machines have been used worldwide, reading about 60 million ballots,” Poulos said.

When it comes to keeping a vote secret in the event a voter needs

One of around 6,000 ImageCast Precint tabulator machines to be located at poll stations during the 2016 Puerto Rico primaries and general elections.

assistance to insert the ballot in the machine, there will be a special envelope available to ensure the vote won’t be seen before going into the scanner, said Penelope Starr, project lead at Dominion.

Once the ballot is scanned, it goes into a lockbox that can only be opened later on through a court order. The machine carries out a preliminary

counting and tabulation, but it won’t transmit the data to CEE headquarters until the polls close and poll officials carry out a strict sequence of protocols. The machine also has dual removable memory cards for added redundancy in the event of an electoral controversy.

Other features seek to make the process even more tamper-proof,

“The system has a proven track record, having been used in elections in Canada, the Philippines and Mongolia, as well as U.S. jurisdictions such as New York state.”

—Dominion President & CEO John Poulos

among them AuditMark, a technology patented by the company that shows a record of how a particular ballot was interpreted by the tabulator on Election Day. Another feature, called Marginal Mark detection, identifies marginal marks to ensure the voter’s intent can be clearly captured.

Dominion execs are confident their work in Puerto Rico will also serve as a showcase for the company in the Caribbean region. “We actually took a pay cut when it came to delivering this system to Puerto Rico,” Poulos said. “Despite this, we are aware of this market’s importance in expanding our offerings in the region. We have handled elections in the Caribbean before, but nowhere near this scale.” 䡲

VOICES IN THE WAREHOUSING, TRANSPORTATION & LOGISTICS INDUSTRY SPECIAL FEATURE • JANUARY 21, 2016 • PAGES 35-42

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TOTE Maritime downplays effects of El Faro accident on operations

BY CB STAFF

When it came to Puerto Rico’s shipping sector, the accident of El Faro, a cargo ship that was lost at sea with all hands on October 1 of last year, came to define the industry in 2015.

The cargo ship sunk after departing from Jacksonville, Fla., to Puerto Rico with about $25 million in cargo inside 391 shipping containers. At the time, a weather system dubbed Joaquín was categorized as a tropical storm.

Days later, by the time El Faro was near the Bahamas, Joaquín had grown to hurricane status and intercepted the 40-yearold ship with 140-mile per hour winds and 50-foothigh waves. Shortly thereafter, the ship was reported missing.

Apart from the human tragedy involved in the accident, in which 33 crew members lost their lives when the ship sunk, the incident brought to light various issues in Puerto Rico involving food

security and overdependence on offshore freight.

The accident also renewed public scrutiny on the validity of the Jones Act, which requires that all goods transported by water between U.S. ports, including those of Puerto Rico, be carried on U.S.flag ships.

However, when it comes to the operations of TOTE Maritime, whose subsidiary Sea Star Lines was the owner of El Faro, the incident has had a negligible effect in its daily operations, according to a top executive. “[The El Faro accident] hasn’t had any effect on our operations until now,” Eduardo Pagán, vice president & general manager of TOTE Maritime for Puerto Rico and the Caribbean, told Caribbean Business.

Notwithstanding such remarks, the incident continues to have an impact months later. Shortly after the accident, the president of the Farmers Association of Puerto Rico, Héctor Iván Cordero,

told local media outlets that Puerto Rico imported more than 85% of its food products, and that the El Faro incident, coupled with the exit of Horizon Lines from the Puerto Rico market earlier last year, further exacerbated the island’s vulnerabilities.

He added that Puerto Rico has the land, technology and labor necessary to increase the island’s food output from 15% to 25%.

At the same time, La Fortaleza gave a statement detailing its efforts in this regard, saying that the administration was able to increase gross agricultural revenues to $929 million from $715 million.

After the accident, investigators searched the area of El Faro’s last known whereabouts before finding the wreckage about a month later, three miles underwater in the bottom of the Caribbean Sea. In early January, the National Transportation and Safety Board released photographs and video footage of the ship that

were captured by remotecontrolled underwater vehicles.

Despite having found the wreckage, investigators still haven’t been able to determine the exact reason why El Faro sunk, partly because they still haven’t found the ship’s “black box,” a recording device that would have captured the captain’s final transmissions and would have given valuable clues about the ultimate fate of the ship and its crew. 䡲

Puerto Rico imports more than 85% of its food products, and the El Faro incident, coupled with the exit of Horizon Lines from the Puerto Rico market earlier last year, further exacerbated the island’s vulnerabilities.

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F E A T U R E

Oquendo Logistics delivers on innovative logistics for clients

BY MARIO BELAVAL DÍAZ

Founded more than 40 years ago in Puerto Rico, Oquendo Logistics continues to be a local leader in providing logistics and transportation solutions for its clients, based on an unwavering commitment to service.

square-foot facility at Charlyn Industrial Park on PR-190 in the municipality of Carolina, where it offers warehousing and distribution services. Its roster of clients includes companies and businesses of all sizes and in all the major segments of Puerto Rico’s economy, from leading

our quality services, our willingness to go the extra mile for our clients that we have been able to face the challenging economy,” Oquendo said. “Our constant development in areas such as distribution and consolidation, warehousing, transportation and cartage also have

“The client is always first.”

—José “Joey” Oquendo, president of Oquendo Logistics

“The client is always first,” said José “Joey” Oquendo, president of Oquendo Logistics, who represents the second generation of his family at the helm of the company.

“We always give them value for their money, for example, if a client needs something somewhere at 3 a.m., we will be there at 2:30 a.m.”

Oquendo Logistics operates from a 25,600-

malls and pharmaceutical and medical clients, to even helping cruiseships replenish their supplies.

Oquendo explained that the greatest challenge in the logistics industry is the tough economic climate in Puerto Rico. This has prompted businesses to look for cost efficiency with cheaper rates, but in many cases, sacrificing the quality of services.

“However, it is due to

been essential in this process because they not only respond to our needs as a company, but also to the needs of our clients.”

Another element that gives Oquendo Logistics an edge in the industry is the fact that it is a homegrown, local company.

“Competition can be tough and there are bigger companies, but the fact that we are a local company and have grown along with

Puerto Rico’s economy allows us to have a deep understanding of the realities and entrepreneurial culture of Puerto Rico,” he said. “There is always room for growth. One just has to identify and develop those opportunities and since our beginnings, we have been a very visionary and ambitious company dedicated to bringing the best solutions possible for our clients.”

This dedication has paid off in the company’s success, which is reflected

in Oquendo Logistics inclusion in the Caribbean Business Book of Lists among Puerto Rico’s top trucking companies.

The company, which was founded in 1972 by the late José Luis “Joe” Oquendo Trinidad with just one truck and from the family home in Carolina, now sports a fleet of some 14 vehicles and is able to handle general as well as refrigerated specialty transport and deliveries throughout Puerto Rico, with the perfect balance of

technology, processes and a professional workforce that surpasses clients’ expectations. As a bonded carrier, Oquendo Logistics is one of the few companies that are licensed by U.S. Customs to carry duty-unpaid goods. In this capacity, the company has provided services to top brokers on the island.

“Give us any package or cargo, and we will handle each with the care that they require at every stage of the process,” Oquendo said. 䡲

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DHL sets the standards logistics solutions in Puerto Rico

BY MARIO BELAVAL DÍAZ

Despite the island’s tough economic climate, the local logistics, warehousing and transportation industry is a robust and dynamic one, said Ewar Rivera, managing director of DHL Supply Chain in Puerto Rico, the leading company in logistics and supply chain solutions.

“Due to the fact that we import most of our consumer goods, our supply chain industry is essential to keep the economy moving,” Rivera said. “It is a large industry with opportunities for growth and that is why it’s very satisfying to see that many local universities have logistics-related programs of study.”

Rivera said some of the trends in the industry are influenced by the challenges that clients themselves face in the economy, such as rising costs in terms of materials and fuels, among others.

This leads them, especially clients with manufacturing operations, to look for more operational

efficiency at a competitive cost. Third-party service providers such as DHL are essential in helping these clients work and reach their goals.

With its ability to provide flexible, innovative and integrated services, as well as customized supply-chain solutions that are efficient and cost effective, DHL in Puerto Rico has been an essential partner for its clients in the most significant sectors of the economy, from retail and pharmaceuticals, to life-sciences and aeronautics.

“We are also seeing an opportunity for growth in manufacturing operations

“It’s very satisfying to see that many local universities have logisticsrelated programs of study.”

—Ewar Rivera, managing director of DHL Supply Chain in Puerto Rico

that are looking for a provider to handle inbound manufacturing processes,” Rivera said. “This is where we bring in and warehouse the parts or components they need to manufacture a product and make them available when they need them. This is a very critical service through which we help our clients maintain the production line moving.”

Related to inbound manufacturing solutions, the company also provides kitting services to manufacturing clients.

In logistics, kitting consists of bundling separate components of a product all together in a kit to be delivered to the client.

As for the future, Rivera said that while DHL aims to maintain its leadership in the market in terms of third party logistics in Puerto Rico, one of the initiatives that will be pursued is to integrate and develop even further the island’s role in terms of regional level operations.

“Puerto Rico can truly serve as a bridge between the continental U.S. and

Latin America,” Rivera noted. “We can have a role in the integration of both markets through the development of specific solutions with our expert, bilingual team that is familiar, knowledgeable and able to work and adapt to regional ways of doing business.”

With headquarters in Cataño, DHL has offices throughout Puerto Rico, a fleet of some 90 trucks and some 15 trailer trucks, and is the source of 200 direct jobs. Recently, the company has undergone a change, but in name only. Up until this January, the company used to be known as DHL/Exel.

This was due to the fact that in late 2005, Exel was acquired by Deutsche Post DHL, and then decided to keep the name DHL/Exel in the North American region due to the recognition factor of the name.

“It’s just a natural progression and the only change—and a positive one at that—is that it will strengthen even more our competitive position,” Rivera said. 䡲

• In-Bond and General Transporation • In-Bond and General Warehousing • Rigging •Distribution • Consolidation • Special Equipment Delivery

Telephones: 787-710-9394 / 9395 Fax 787-936-7429

Charlyn Industrial Park #22. RD. 190 Km. 1.7 Carolina, P.R. 00983 www.oquendologistics.com Established in 1972

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P.R. Logistics continues to grow while focusing on client needs

BY B.G. DOYLE

Dedicated to providing innovative, practical and creative logistics services, P.R. Logistics Corp. has been addressing and delivering a full range of ocean and airfreight, warehousing and distribution solutions for more than 15 years.

“We love what we do and our success, even in today’s economy, is the result of always putting our customers first and giving them personalized service,” said Ariel Rodríguez, president & CEO of P.R. Logistics Corp. “When customers call, they are assured someone from top management will be available to take care of things right then and there.”

Serving a wide range of clients, including auto parts companies, food distributors, pharmaceuticals, retail companies and manufacturers, P.R. Logistics specializes in handling all types of products and provides services to and from the U.S., South and Central America, Europe and the Far East. This includes

domestic and international air, as well as ocean and inland transportation for both LTL (less-than truckload) and FCL (fullcontainer load) shipping.

“We always strive to give our clients the opportunity to send any last-minute shipments, and as consolidators, our goal is to keep costs as low as possible while forwarding cargo quickly and efficiently,” said Rodríguez, who added that his company’s working relationship with various agents and carriers around the world allows P.R. Logistics to provide first-class service and the most competitive rates in the market.

He also pointed out that because the company holds an Ocean Transportation Intermediary License, it is duly authorized to provide nonvessel-operation common carrier (NVOCC) services. P.R. Logistics also holds all federal, state and local governmentrequired licenses and permits, as well as the Excise Tax Bond, U.S. Customs Bond and a comprehensive insurance umbrella

“Because our main priority is to get our clients’ goods safely to their worldwide destinations, we are continually looking for new ways to add value to our services and take our commitment to excellence and total quality to new levels.”

—Ariel Rodríguez, president & CEO of P.R. Logistics Corp. (including inventory and inland marine) to protect clients’ assets both in the P.R. Logistics warehouse and while in transit.

“Because our main priority is to get our clients’ goods safely to their worldwide destinations, we are continually looking for new ways to add value to our services and take our commitment to excellence and total quality

to new levels,” Rodríguez said. He noted that environmental considerations are also part of the mix, with the company’s Green Logistics program looking to achieve a more sustainable balance among economic, environmental and social objectives within all areas of the operation.

Looking ahead, Rodríguez said 2015 was a difficult year for the shipping

industry in Puerto Rico for a number of reasons, including the exit of a major carrier company and the sinking of El Faro cargo ship. However, he was also impressed by the island’s resiliency, which is reflected in his own company’s focus on meeting client needs as efficiently and effectively as possible at all times. “Our company has continued

to grow steadily,” he said, adding that this includes moving his operation to a larger San Juan metrobased facility in the next five years.

“Given our dedicated team of experts and firstrate infrastructure, we will continue to exceed our clients’ expectations as we are driven by our loyalty and shared values,” he said. 䡲

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Yobel SCM looks ahead to a year of success

BY MARIO BELAVAL DÍAZ

Having finished 2015 with great numbers, Yobel Supply Chain Management (SCM), a leading provider of top logistics, storage and transport solutions in Puerto Rico,

begins the New Year with ambitious plans to solidify and develop even more its services to current clients and search for prospective clients in the island’s main areas of industry.

In fact, the company has already made headway

and added a new significant client from the medical devices market, which is one of the segments the company has its sights on this year. Edgardo RiveraSueiro, general manager of Yobel SCM, said he is sure this is one of many

that will follow as the company makes its incursion into that and other related industries.

“We surpassed our commitment to finish the year with more than 50% net income and closed with 80% net income,” said Rivera-Sueiro, who has been at the helm of Yobel SCM in Puerto Rico for a year and four months.

“The growth we experienced is the result of elements such as investment

Rivera-Sueiro explained that major companies in manufacturing, such as those in the medical devices and pharma fields, have come knocking at Yobel SMC’s door because while they may be good at what they do, which is manufacturing a product, they have recognized the value of a third party to manage the logistics, warehousing and distribution of their products.

“They are very good at

companies and businesses to search for cost-effective options, and one of these is looking for a third party to handle aspects of their supply chain.

“It isn’t as much that the crisis has benefited us because clients are looking for cost-effective solutions, such as in the areas of warehousing and transportation, but that we can offer these businesses the opportunity to remain competitive and

SERVICES: •Air Freight •Trucking •Distribution •Warehousing •Cross Dock-Pick and Pack •Ocean Freight LTL and FCL from the United States “Because we understand the importance of getting your goods on time from your suppliers and to your Customers” NEW SERVICE NOW FROM SAN JUAN AND THE DOMINICAN REPUBLIC TO CARIBBEAN ISLANDS. ST. THOMAS, ST. CROIX & ST. MAARTEN WEEKLY SERVICE SAILING MONDAYS AND WEDNESDAY 1 DAY TRANSIT AND FROM THE DOMINICAN REPUBLIC 2 DAYS TRANSIT

quotes@prlogistics.com La Ceramica Industrial Park Lot 5B-1 Carolina, P.R. 00983 Office: 787-999-0088 Fax: 787-999-0077 www.prlogistics.com

Edgardo Rivera-Sueiro, general manager of Yobel SCM

that reflects our belief in the potential for growth in Puerto Rico, investment that includes fine tuning and developing our services and solutions, to new marketing strategies.”

One of these strategies paid off in June 2015 when Yobel SCM received the ISO 9001 Quality Management System certification.

Established by the International Organization for Standardization, the certification helps ensure organizations meet the needs of customers and stakeholders, and that organizations also comply with regulatory requirements.

manufacturing first-rate products, but in Yobel SCM, they find a partner that is knowledgeable and able to provide solutions that respond to the specific needs of their businesses,” Rivera-Sueiro said. “Our services help our clients save, in some cases, anywhere from 12% to 20%. This is a result of dedication and a commitment based on our vision that our growth as a company has to be the result of our clients’ success.”

As for the effect of Puerto Rico’s tough economic climate, RiveraSueiro said this has led

contribute to the island’s economy,” Rivera-Sueiro noted.

Founded in Puerto Rico in 2004, Yobel SCM’s headquarters are in Cataño’s Royal Industrial Park and includes more than 75,000 square feet of warehouse space and about 70 employees. Yobel SCM was originally founded in 1965 in Lima, Peru. The company has a huge Latin American presence in 11 countries, offering a wide range of logistics and services to multinational, pharmaceutical and retail companies, as well as small and midsize businesses. 䡲

THURSDAY, JANUARY 21, 2016

S P E C I A L

41

F E A T U R E

CCC International: Superior storage for a wide range of goods

BY B.G. DOYLE

With the recent sinking of El Faro container vessel, booking containers for refrigerated and frozen merchandise has become a nightmare for many importers. “With this in mind, we have some manufacturers and exporters who aren’t willing to risk sales by being out of stock, so they keep merchandise with us at all times so their distributors always have products on hand,” said Ramón Martínez,

president of CCC International Logistics Cold & Dry Storage. In addition to serving global companies, he added, CCC International provides cold-storage services for local companies that have run out of warehouse space.

Located at the Port of San Juan, the company complies with all local and federal regulations, including U.S. Food & Drug Administration (FDA) food-safety requirements.

“Our temperature-controlled warehouse meets

Ramón Martínez, president of CCC International Logistics Cold & Dry Storage

a wide variety of needs for the perishable consumable industry, with four temperature-controlled rooms that give us the ability to handle a broad range of merchandise,” Martínez said.

“We also have sophisticated technology in place that allows us to monitor our freezers, coolers and reefers 24/7 via satellite.

If there’s a change of more than four degrees, the system sends a signal to our staff, and our certified technicians take action

right away,” he said.

Other features include closed-circuit TV inside the freezers and coolers, as well as electric generators that can provide power to the entire operation for a full week. In addition, customers receive digital photos of any damaged merchandise via email, so they can immediately file a claim. “We also supply weekly inventory reports to our customers that include expiration dates,” he said. “And because many of our customers sell

to food manufacturers, we have everything in place to comply with those manufacturers’ quality-control departments, which really keeps us on our toes.”

Plans, he added, include a modern FDA meatinspection facility, as well as a repacking plant to expand services for the island’s meat importers.

“Our goal is to provide customers a full range of quality services, so clients knows their merchandise is safe with us,” he said.

S P E C I A L

F E A T U R E

THURSDAY, JANUARY 21, 2016

42

®

As Ranked by

PUERTO RICO’S LARGEST TRUCKING COMPANIES (Listed According to 2014 Gross Revenue)

Current/ Previous Ranking

Company Name Telephone/Fax Internet/Email Address

Physical Address

2014 Gross Revenue $

1/1

García Trucking Service Inc. (787) 762-5353 / (787) 762-5648 www.garciatrucking.com

Sabana Abajo Ind. Park B St., Lot 24 Carolina 00983

14,900,000

2/2

Camioneros, Cooperativa de Transporte de Carga (787) 798-6430 / (787) 740-2630 www.camioneroscooppr.com

Luchetti Ind. Park Rd. 28, Km. 2.1 Bayamón 00960

3/3

Compañia Ponceña de Transporte Inc. (787) 842-1381 / (787) 843-8949 www.lunatruckingpr.com

4/4

No. of Full-Time Employees

Year Established in P.R.

Other Services Offered

Top Executive Title

145

130

1978

Packing, moving, shipping, crating, rigging, warehousing

José A. García Muñíz Vice President

12,844,048

79

50

1965

3019 San Cristobal Ave. Coto Laurel 00780

5,100,000

80

65

1947

Equipment rental

Zaida Echevarría President

Terrasa Trucking Inc. (787) 793-4674 / (787) 783-3590 mtd@mtdpr.com

Port Zone C St., Lot 2 San Juan 00920

3,500,000

35

43

1970

Warehousing, bonded carrier, diesel sales

Mateo Terrasa President

5/6

Fraticelli Trucking Co. Inc. (787) 836-1610 / (787) 836-2887 www.fraticellitrucking.com

Rd. 385, Km. 2.9 Peñuelas 00624

3,290,888

40

32

1960

Container & cargo tanks rental, handed cargo, general cargo, explosives

Eduardo Fraticelli CEO

6/7

American Caribbean Trucking Inc. (787) 775-6165 / (787) 775-6195 www.amcatrucking.com

Zona Portuaria C St., Lot G San Juan 00920

3,280,000

38

45

1998

Warehousing

José C. Baranda President

7/10

Transporte Santiago & JSV Logistics Inc. (787) 283-4567 / (787) 760-0306 www.transportesantiago.com

Rd. 848, Km. 1.9 Trujillo Alto 00976

3,000,000

30

24

1996

Refrigerated trailers, cross docking logistics, container storage, van trailer rental

Juan C. Santiago President

8/8

Carreras Trucking Co. Inc. (787) 788-5312 / (787) 788-5300 www.carrerastrucking.com

Palmas Ind. Park Rd. 869, Km. 1.5 Cataño 00962

2,600,000*

26

30

1938

Trailer rental

Luis A. Carreras President

9/5

JJC Industrial Services Inc. (787) 883-5260 / (787) 883-4802 www.jjcindustrial.com

3C Las Violetas St. Vega Alta 00692

2,300,000

6

31

1975

Industrial services

Jorge Castro Rodríguez President

10/9

Cooperativa de Transporte de Mayagüez (787) 834-9100 / (787) 833-5715 www.cooperativatransportemayaguez.com

Bo. Maní Rd. 64, Km. 0.1 Mayagüez 00682

1,800,000

17

4

1976

-

11/12

Mafico Transport Corp.

(787) 640-9540 / www.maficotransport.com

Villa Caparra Urb. A2 Nápoles St. Guaynabo 00966

1,000,000

13

10

1997

Trailer & equipment rental, bonded carrier

Luis R. Figueroa General Manager

12/13

Oquendo Logistics Inc. (787) 710-9394 / (787) 936-7429 www.oquendologistics.com

Charlyn Ind. Park Rd. 190, Km. 1.7 Carolina 00983

11

11

1972

In-bond transportation, crating, consolidation, special delivery, regular & in-bond warehousing

José L. Oquendo President

925,000*

No. of Trucks

-

Norberto Rivera General Manager

Ángel Izquierdo Chairman

* CARIBBEAN BUSINESS estimate Number of full-time employees includes part-time employees where applicable (every two part-time employees = one full-time employee).

Unless otherwise noted, all information was provided by the companies.

Research by Francis E. López Copyright © 2016 CARIBBEAN BUSINESS

ALL YOUR LOGISTICS SERVICES UNDER ONE ROOF • Delivery services • Security OTHERS: We feature a P.R. Agriculture Department Inspection room for eggs, poultry, sugar and other agricultural products.

• Cross-Docking Service • Loose Cargo Service • Customs Entries • FDA Food Stability Program • Dry & Refrigerated Storage 787-781-3308 ext. 100 • email: cccintlogistics@gmail.com We look forward to serving you soon.

• Conveniently located • Ample loading and unloading area • Racks/Bulk system • Inventory management • MIS • Logistics • Outbounds

THURSDAY, JANUARY 21, 2016

43

Autos

2015 was the second-worst year for P.R.’s auto industry

New-Auto Sales in 2015 end Down 7.8% With 81,353 Units Sold GUIA is Forecasting 77,000 New Vehicles Sold in 2016, Similar to 2009

BY JOSÉ L. CARMONA j.carmona@cb.pr

A 4.9% increase in fleet sales last year wasn’t enough to lift total newauto sales above the 88,200 units sold in 2014, making 2015 the third consecutive year of negative sales and the secondworst for the local auto industry.

Meanwhile, the downward sales trend amid low consumer confidence could force some local auto dealerships to close their doors in the coming months.

The island’s auto distributors reported 81,353

new-units sold in 2015, down 7.8% from the previous year, the United Automobile Importers Group (GUIA by its Spanish acronym) announced Tuesday during its annual press conference.

“December 2015 marks the 20th month out of the last 21 that the local auto industry has reported a decrease in new-auto sales in Puerto Rico, and for 2016 we are forecasting a continuation of that trend,” GUIA President Ricardo García commented.

For 2016, GUIA is forecasting the sale of 77,000 new units, a number similar to 2009, the local

industry’s worst year on record, when only 76,477 new-auto units were sold on the island.

According to the latest GUIA monthly sales report, some 9,285 newunits were sold in Puerto Rico last month, down by 248 units, or 2.6%, from the 9,533 units reported in December 2014.

Non-fleet (retail) sales were down 2.5% to 6,400 units in December and down 9.4% to 70,819 units for the year. Meanwhile, fleet sales were down 2.9% to 2,885 units in December, but up 4.9% to 10,354 units for 2015 in Puerto Rico.

Ricardo García, president of the United Automobile Importers Group

LOW CONSUMER CONFIDENCE A shrinking population, increase sales of used vehicles and uncertainty over the island’s economic and fiscal woes is certainly affecting new-auto sales, García noted.

In García’s view, the shift from a sales & use tax to a value-added tax (VAT) slated to begin on April 1, will be a complete change to what consumers and merchants have been used to, which could create more uncertainty.

The government’s fiscal situation has affected consumers’ pockets and confidence, and as a result, there has been an increase in the sale of pre-owned, or used, vehicles on the island in recent years.

Population loss through

migration has also compounded the situation, as there are fewer viable buyers of new vehicles in the local market, Rivera pointed out.

In addition, consumers have moved to entry-level B- and C-segment vehicles, which are less costly, but provide thinner profit margins to dealers.

In fact, industry sources told Caribbean Business that some well-known name-brand auto dealerships could be closing their doors in the coming months, especially once the VAT and the 10.5% business-to-business tax goes into effect April 1.

The sources claim high operational costs along with low sales are making the dealers’ businesses unsustainable.

44

THURSDAY, JANUARY 21, 2016

Buick Avista Concept

Detroit 3 defend their home turf at NAIAS GM, Ford and Chrysler, stand out showcasing new products, concepts

BY JOSÉ L. CARMONA j.carmona@cb.pr

From a segment-reinventing minivan, a luxury flagship sedan to a large 2+2 coupe concept, the three U.S. domestic automakers—General Motors (GM), Ford and Chrysler—showcased their sharpest cutting-edge designs and technologies, newest products and concepts, as well as brand-building strategies at their home turf in the Motor City during this year’s North American International Auto Show (NAIAS).

A group of 5,068 registered journalists from 60 countries gathered at Cobo Center in downtown Detroit Jan. 11-12 during the media-only preview to witness 51 worldwide production and concept reveals at the NAIAS, out of the more than 700 vehicles on display at Cobo Center, show officials said.

As the most anticipated annual automotive event in the U.S.—and one of the

top-five auto shows in the world—more than 800,000 paying attendees are expected to visit NAIAS through Jan. 24. The auto show opened its doors to the public Jan. 15.

Boasting a completely new floor layout this year, more than 70% of the displays were newly designed—representing an investment of more than $200 million by exhibiting automakers, suppliers and partners.

Buick Avista concept Unveiled prior to the opening of NAIAS to media, the Avista concept from GM’s Buick division is a 2+2 coupe that pushes the brand’s contemporary design philosophy and rekindles its historic performance roots.

The Buick Avista concept received the EyesOn Design Award for Design Excellence—Concept Car, at this year’s NAIAS. A sleek, sweeping proportion is the

foundation for this vision of a contemporary grand tourer, with a 400-horsepower twin-turbocharged V-6 driving the rear wheels and a driver-focused cockpit offering a comfortable, connected control center.

“The Avista embodies Buick’s dynamic soul,” said Duncan Aldred, vice president of Global Buick Sales, Service & Marketing. “It is a modern expression of the brand’s heritage of sophisticated performance, which is communicated through its beautiful elegance.”

The Avista’s uninterrupted bodylines stretch front to rear, suggesting motion—resembling Buick’s design language introduced on the Avenir concept and carried into production on the 2017 LaCrosse.

The absence of conventional B-pillars between the doors and rear-side windows enhances the concept’s flowing profile.

Like the exterior, the Avista’s 2+2 interior is defined by flowing, uninterrupted

lines conveying elegance through simplicity—with intense technical and surfaces details, in everything from 3Dprinted door and seat trim to a futuristic vision of Buick’s IntelliLink, with touchscreen controls on a widescreen instrument-panel display.

The center console also incorporates touchscreen controls and extends to the rear seating area. Open side-storage compartments built into the front of the console are enabled by the new Electronic Precision Shift, which is similar to the 2017 LaCrosse.

Buick designers enhanced passengers’ sensory experiences with next-generation QuietTuning and air-quality control, which includes advanced noise-cancellation technology, ionic air purifiers and aromatherapy.

The Avista also advances Buick’s legacy of turbocharged performance, which Continues on page 45

THURSDAY, JANUARY 21, 2016

45

2017 Chrysler Pacifica minivan

2017 Lincoln Continental

Continues from page 44

carries forward in the 2016 Regal GS and other models.

Similar to the 2017 LaCrosse, the concept twin-turbocharged 3.0-liter V-6 engine features fuel-saving Active Fuel Management cylinder deactivation and Stop/Start technology to complement its power with efficiency.

The engine is backed by an eight-speed automatic transmission while the Magnetic Ride Control delivers more precise body motion control.

2017 Chrysler Pacifica After practically creating the minivan in 1984 with the Dodge Caravan, the Chrysler division at Fiat Chrysler Automobiles LLC (FCA) hopes to reinvent the segment with the all-new 2017 Pacifica.

“The all-new 2017 Chrysler Pacifica is truly a no-compromises minivan, giving customers everything they need or want,” Timothy Kuniskis, head of Passenger Car Brands at FCA-North America, said during the vehicle’s unveiling.

Replacing the Town & Country in Chrysler’s vehicle lineup, the 2017 Pacifica will feature two powertrain choices— the segment’s first hybrid vehicle, or the next-generation of the automaker’s Pentastar V-6 gasoline engine, mated to a segment-exclusive TorqueFlite ninespeed automatic transmission.

The Pacifica Hybrid, the industry’s first electrified minivan, will deliver an estimated range of 30 miles solely on zero-emissions electric power from a 16-kilowatt lithium-ion (Li-ion) battery. In city driving, it is expected to achieve an efficiency rating of 80 MPGe based on U.S. Environmental Protection Agency standards.

The pivotal technology behind the allnew Chrysler Pacifica Hybrid is an electrically variable transmission (EVT). Patented by FCA U.S., the device features two

electric motors, which are both capable of driving the vehicle’s front wheels.

Boasting the new face of the Chrysler brand, first unveiled in the 2015 Chrysler 200 sedan, the company says the Pacifica was re-engineered from the ground up on an all-new platform to deliver classleading ride and handling, and reduced noise, vibration and harshness.

Chrysler claims the Pacifica boasts the largest interior volume in the segment, with clever storage, available eightpassenger seating, and—a requirement with all generations of FCA U.S. minivans—the ability to fit an 8-foot x 4-foot sheet of plywood within the vehicle’s cargo area.

FCA says the Pacifica offers more than 100 standard and available safety and security features, including 360-degree Surround View camera, ParkSense Parallel/Perpendicular Park Assist, Adaptive Cruise Control with Stop and Hold, and Forward Collision Warning-Plus.

Built in Windsor, Ontario, the 2017 Chrysler Pacifica will be available in six models and the Pacifica Hybrid in two models when they arrive at dealer’s showrooms in spring 2016 and the second half of 2016, respectively.

2017 Lincoln Continental Ford’s Lincoln division heralds the return of its flagship—the all-new Continental—as an elegant, effortlessly powerful, serene full-size sedan that delivers quiet luxury to discerning customers.

First shown as a concept at last year’s NAIAS, with raving reviews from media and the public, Lincoln says the 2017 Continental offers first-class travel that brings warm, human touches and a contemporary design.

The Continental will arrive at Lincoln dealerships in the U.S. mainland and China this fall—its top-two fastestgrowing markets.

The automaker claims the full-size sedan is designed to appeal to culturally progressive clients who define luxury on their own terms—craving superior quality, craftsmanship and safety.

“The Continental name has long been associated with the ultimate in Lincoln beauty and luxury.”

Kumar Galhotra, president of Lincoln, said during the vehicle’s reveal. “With the all-new model, we are focusing on creating more human, personally tailored experiences for our clients—providing what we call quiet luxury.”

Featuring Lincoln’s new signature grille and an athletic profile that is dynamic and progressive, the Continental welcomes drivers with a brand-exclusive lighting sequence.

As the driver approaches the car with the key, LED signature lighting within the lower front fascia and tail lamps subtly engage, while signature lighting in the headlamps awaken in a fluid motion.

Lincoln’s mat lights then brighten the pavement around the front doors, helping reveal any hazards, while select interior lights warmly illuminate the cabin.

Continental’s door handles are designed to offer elegant and effortless entry with its new E-latch door release. The release is discreetly integrated within the beltline, leaving the body side clean.

Lincoln’s new flagship sedan is powered by the brand’s exclusive, all-new 3.0-liter V-6 engine with twin turbochargers that produce a projected 400 horsepower and 400 pound-feet of torque that is designed for smooth and responsive quiet power.

The Lincoln Drive Control provides the driver three setting choices—comfort, normal and sport—as well as adapting steering and suspension settings to tailor the ride and handling.

Available adaptive steering helps optimize steering response, which enables the vehicle to react more smoothly and precisely to driver input. 䡲

2016 North American Car & Truck of the Year Awards On the first of the two media-only preview days last week, a jury of 53 veteran automotive journalists from the U.S. and Canada voted the new Honda Civic as the 2016 North American Car of the Year over two other finalists—the Chevrolet Malibu and the Mazda MX-5 Miata.

The new Volvo XC90 sport utility vehicle (SUV) took home the North American Truck/ Utility of the Year award, after facing the Honda Pilot and the Nissan Titan XD pickup truck.

North American Car of the Year and Truck/Utility of the Year awards recognize vehicles based on factors that include innovation, design, safety, handling, driver satisfaction and value.

The vehicles must be all-new or substantially changed from the previous model to qualify for the coveted awards.

These awards are unique and significant in the U.S. because they aren’t given by a single media outlet; instead they are awarded by an independent group of automotive journalists who represent magazines, television, radio, newspapers and websites from the U.S. and Canada. 䡲

46

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JANUARY 28 SME’S 65TH ANNIVERSARY & TOP MANAGEMENT AWARDS Find out who are the executives being honored in 2016 by the Sales & Marketing Executives Association (SME) for their professional success, moral character and the prestige they lend to their industry through their impeccable work. This supplement will also highlight the association’s achievements throughout its 65-year history.

CLOSING DATE: JANUARY 22

THURSDAY, JANUARY 21, 2016

Advertising

Empathy a buzzword for 2016

JWT’s Report Presents Top Consumer and Market Trends for 2016

BY MARIO BELAVAL DÍAZ m.belaval@cb.pr

From neuromarketing and the decline of email, to the development of an ageless society and the possible boom of Cuba and Chicago as this year’s “in” destinations to visit—these are among the top trends and changes among consumers for 2016, according to Innovation Group’s “Future 100: Trends & Change to Watch in 2016” report. Innovation Group is J. Walter Thompson’s trends forecasting unit. The report covers 10

stimuli. In other words, it brings together the science of the brain and technologies such as magnetic resonance imaging (MRI) with marketing and advertising research. Meanwhile, brands will increasingly adopt or strengthen their social commitment, mostly due to consumers themselves, who demand that brands take on a concrete and sustainable social commitment.

The report also stressed the future of branded content that calls for more creative ways of reaching potential clients, taking into

consideration content over form, especially with the improvements in mobile technology such as phones that allow for ad blocking. The report suggests that after feverish growth, emails could be on the decline as consumers prefer more integral and informal interaction through apps and chats, among others. In a related matter, the report also predicts a boom of the Instagram app. Instagram users reached 400 million in September 2015, and it is expected that 48.8% of companies with more than 100 employees in the U.S. will soon use Instagram as a marketing tool.

The report calls attention to the fact that brands will have to keep in mind that the world’s progressively aging population is reflected in an increase in consumers 50+ years of age, and the perception of this age period as the beginning of

CB GUIDE & BIG BUSINESS PROFILE: MEDICAL TOURISM This is the ultimate guide to Puerto Rico’s growing medical tourism industry, filled with information on why our island is fast becoming a preferred destination for an increasing number of medical procedures and treatments. In addition, we will include company profiles and in-depth stories on the many opportunities available in this important segment. Don’t miss out—advertise your company, product or service here!

CLOSING DATE: JANUARY 22

PEOPLE TO WATCH IN 2016 Read about some of Puerto Rico’s distinguished executives whose business affiliations, actions as industry trendsetters and all-around professionalism make them our potential newsmakers to watch in the year ahead. An ad in this supplement is a salute to professional excellence.

CLOSING DATE: JANUARY 22

FEBRUARY 4 MEETINGS & EVENTS PLANNING Companies hold conferences, seminars, workshops, lectures and similar events year-round—which means that meetings and events planning has become a growing service segment in Puerto Rico. Caribbean Business looks into this niche market and comments on the latest offerings by its suppliers. If your product or service can help companies have a more successful event, an ad in this supplement is a must.

CLOSING DATE: FEBRUARY 29

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areas including brands and marketing, culture, technology and innovation and lifestyle.

“During 2015, we noticed that consumers are connecting the dots in multiple aspects of their lifestyles, approaching brands and consuming in a holistic manner, and we expect this tendency to intensify in 2016,” said Lucie Greene, worldwide director for Innovation Group. “Diet, beauty and well-being, which used to be judged based on convenience and products, are now considered based on their value system, their innovation or if they promise to change the world.”

When it comes to brands and marketing trends, it seems neuromarketing will be the buzzword in the industry. In a nutshell, neuromarketing aims to study consumers’ cognitive and emotional reactions to advertising or marketing

“Diet, beauty and well-being, which used to be judged based on convenience and products, are now considered based on their value system, their innovation or if they promise to change the world.”

—Lucie Greene, global director of Innovation Group

a new stage in life.

In tune with consumers’ demand that brands show solid commitment to social well-being, the report also states that empathy will be the word for 2016, to the point that technology designers will try to add a more human touch and feel in everything from social networks to videogames.

As for areas such as travel, the recent thaw in relations between Cuba and the U.S. is expected to attract visitors to that Caribbean island country, ranging from tourists who want to finally be able to visit and experience Cuba, to people who are exploring business opportunities. Further north, a recent wave of inaugurations and remodeling, which includes hotels, entertainment and cultural venues, is poised to make Chicago one of the most preferred destinations this year.

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