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Thursday, September 28, 2017

Lemonade (Limonada)

Puerto Rico just had its entire electrical infrastructure decimated by hurricane Maria. It is estimated that the entire island could be without power for up to six months. This being a conservative estimate, means realistically we're talking twelve to eighteen months. But, as the adage goes, 'When life gives you lemons, you make lemonade'. Or in this case limonada. Puerto Rico's electrical infrastructure needed improving and modernizing, but those types of projects to a backseat to the debt issues the US territory was entangled in with private institutional investors.

In the wake of the destruction inflicted by hurricane Maria across the island, the International Monetary Fund (IMF) can step in to help the people of Puerto Rico rebuild after this humanitarian disaster. The IMF will of course insist on some measure of fiscal austerity in exchange for the loan, which in all honesty the timing would be ideal {I'll explain later}. Puerto Rico would be able to build a completely modern electrical infrastructure system. A system with built-in safeguards against natural disasters, especially hurricanes as the strength of the storms positively correlate to the temperature of the oceans where they form. Whether it's from natural oscillations in ocean temperatures over the long-term, or human activity exaggerating natural oscillations in ocean temperature over the medium-term, ocean temperatures are trending higher.

As for the ideal timing of IMF imposed austerity measures, the best time to raise taxes while cutting government spending is when (almost) everyone has a job. On a slightly smaller, much more efficient model of how the Federal Emergency Management Agency (FEMA) allocates funds and reimburses businesses and local governments, Puerto Rico can tap large swathes of its labor pool. Puerto Ricans can be put to work modernizing Puerto Rico's electrical and information infrastructure. From manual labor, to administrative, to finance, to legal, there will be hundreds of thousands of roles that will need to be filled to make a project of this magnitude a success. The net effect on the national economy should be a jump-start in personal consumption from the fiscal stimulus being dampened by higher tax rates.

Hurricane Maria has presented Puerto Rico with an opportunity to make it-self more competitive in the long-term, more attractive to businesses that depend on frontier level information and logistic infrastructure to develop and commercialize new technologies and processes. Simultaneous investments in the education system will need to be made, or Puerto Rico risks having a local workforce not equipped to compete globally for local jobs.