The Role of PR in the Quest to Save Puerto Rico from Debt

For the past ten years, Puerto Rico has struggled to climb out of a deep depression. So now Congress wants to create a safe route out for this American territory. Many investors in Puerto Rico are fighting the bill offering protection from creditors, bringing in lobbyists, and PR firms including SKD Knickerbocker, DCI, Mercury Public Affairs and Dukas PR.

puerto rico debt public relations crisis

Attracting Investments

Billions of dollars made it to the hands of Puerto Rico’s government to keep the country afloat. Interest and zero taxes on returns appealed to many investors in the country’s bonds. Puerto Rico’s Constitution  ensured repayment and the island’s laws don’t provide for bankruptcy.

For three years, Puerto Rico launched a PR campaign increasing public awareness. What did Puerto Rico want to wealthy Americans to understand? Tax exemptions and low taxes on businesses allowing investors to keep more profits, than they could in the U.S.

Puerto Rico’s Economic Crisis

Unfortunately, despite efforts by Puerto Rico’s government to attract outside business to the island for the last several years, Governor Alejandro Garcia Padilla recently broke the news the Puerto Rican government is unable to repay its debts.

While many Americans moved to Puerto Rico, even more Puerto Ricans fled the country. The Wall Street Journal estimates “nearly 100,000 Puerto Ricans left the island last year.”  adding,, “Government debt has increased by two thirds since 2006…and exceeds 100% of gross national product.”

According to The Wall Street Journal, Puerto Rico “can no longer keep its lights on… The island’s $72 billion overhang… is distributed among 18 public debt issuers,… This week the Puerto Rico Electric Power Authority agreed with creditors to restructure some $9 billion in debt, which is [at least] a step forward.”

The Option of Bankruptcy

As conditions worsened in Puerto Rico, “the island’s nonvoting member of the House of Representatives, Pedro R. Pierluisi” proposed the option of bankruptcy. This move received support from both the Democratic and Republican parties. And offering Puerto Rico Chapter 9 bankruptcy protection would not affect taxpayers’ pockets.

The PR Tug-of-War Surrounding the Bankruptcy Provision

Not surprisingly, opposition was quickly established against Puerto Rico filing bankruptcy. PR firms were then hired to support their dissent. In response, supporters of the bill also brought in PR firms lobbying their cause.

This tug-of-war between major public relations firms on either side makes for an uncertain future. Even so, Governor Padilla hired two PR firms to tip the scales in his favor – namely SKDKnickerbocker and the Podesta Group. Governor Padilla has worked with both firms for a few years.

The Washington Post wrote, “Lobbying records show the Puerto Rican government has paid [Podesta Group] $1.15 million since 2013.” And in 2014, Governor Padilla hired SKD to successfully handle a crisis involving the treatment of a local bank, bringing bad publicity to the Puerto Rican government.

Podesta also offers Tony Podesta, a lobbyist for the Democratic Party, and an influential campaign donor. His network and influence ensures Governor Padilla connects with the right people to push his agenda. SKDKnickerbocker’s leader, Anita Dunn, enjoys strong ties with the White House as the former communications director for the Obama Administration.

Other allies Governor Padilla gathered include the Puerto Rico Statehood Council in DC. This lobbying firm later hired Navigators Global pushing the bill. Phil Anderson, a lobbyist at the firm, stated, “Bankruptcy has been around since the Constitution, we think it’s a sensible, conservative way to handle its debt…”

The Washington Post further stated, “Anderson…created the Puerto Rico Fiscal Stability Coalition to push for the bill. The coalition is led by former Puerto Rico Governor Luis Fortuño and Senate President Eduardo Bhatia and includes 32 financial institutions that collectively hold $4.2 billion in Puerto Rico municipal debt.”

On the opposition side is DCI, a Republican PR firm, specializing in political and public campaigns “designed to look like grass-roots efforts.” The firm represents BlueMountain Capital hedge fund and one of the strongest opponents to adding bankruptcy provisions or any federal involvement in Puerto Rico’s affairs.

BlueMountain also hired Dukas Linden Public Relations.  It is believed that Mercury Public Affairs is also working for some of the hedge funds – Fox Business News reports BlueMountain holds an estimated $400 million in Puerto Rican bonds.

Other opponents include other hedge fund companies like D.E. Shaw Group, Marathon, and Angelo Gordon, as well as, mutual fund groups like Franklin Templeton and Oppenheimer Funds.

Which Way the Wind Blows

In March, the House of Representatives expects to make a decision on Puerto Rico’s fiscal future. As companies, countries, and the PR firms continue to weigh in on the issue, the future remains uncertain. What is certain is Puerto Rico faces a $1.4 billion debt due January 1, 2016.

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