This week marks 10 years since President Barack Obama signed the Puerto Rico Oversight, Management, and Economic Stability Act, known as PROMESA. It is impossible to forget the ruinous circumstances that triggered its enactment. Backed by a special bankruptcy law for the territories, that approval, on June 30, 2016, laid bare an urgent and dramatic reality: the island had accumulated approximately $74 billion in debt—the largest municipal bond market bankruptcy in United States history—after 16 consecutive years of deceptively “balanced” budgets.
To bring order to that disaster, compounded by a $55 billion actuarial debt tied to public employees’ pensions, Congress created the Financial Oversight and Management Board (FOMB). Since then, five governors have exercised power under its oversight. However, since the mid-1970s, the abandonment of strict fiscal discipline had increased a heavy extra-constitutional debt that is seldom mentioned when summarizing the country’s dire situation. After 10 long years of FOMB operations, the essential question remains: Have we learned the lesson?
The answer depends on the criterion used. If evaluated by the task assigned to it by Congress—restoring fiscal discipline and restructuring an unsustainable debt—the record appears mostly positive, beginning with the suspension of creditor collections and the restructuring of the central government’s debt. If evaluated by its impact on economic growth and quality of life, the results are significantly more ambiguous, according to prominent economists consulted by El Nuevo Día.
Without a doubt, there has been progress. Puerto Rico significantly reduced its financial obligations, insolvent pension systems were saved, and the government remains required to prepare balanced budgets in accordance with the prevailing standard in the United States. That objective is called into question because the most recent audited budgetary statement corresponds to 2022. It is not merely a matter of proclaiming that agency appropriations allow for an adjusted calculation that implies a balanced budget. Sound governance requires proper audited validation. The PROMESA Act establishes this repeated exercise as a condition for the government to regain full control over its finances.
That objective should also enable Puerto Rico to return to the investment markets in a robust manner, with acceptable bond ratings that facilitate attracting investment and thereby strengthening once again the pillars of sustainable development and full recovery.
The challenges are enormous because the country continues to face population decline, low labor force participation, persistent poverty, and fragile infrastructure. Recent aggravating factors are dramatic. The metropolitan area is currently enduring a burdensome interruption in its potable water supply due to breakdowns in the Superaqueduct. Meanwhile, the Department of Economic Development and Commerce has experienced weeks of institutional leaderlessness. As we have reported in these pages, everything is linked to the poor results of decades of neglect, bureaucracy, and disregard for the common good of Puerto Ricans. And, in addition, the inexcusable normalization of an ominous reality: squandered public funds.
While the FOMB repeatedly advocates fiscal discipline, there appears to be little political will for changes that would, for example, advance a responsible and viable tax reform for the country, as well as initiatives that would allow us to reduce our marked dependence on federal funds, which have served as a lifeline following Hurricanes Irma and Maria, the earthquakes, and the COVID-19 pandemic. These are nonrecurring allocations that, regrettably, have not been used diligently to advance the renewal of critical infrastructure.
FOMB Executive Director Robert Mujica recently pointed to the unacceptable “accounting tricks” carried out by governments that led us into bankruptcy. Those practices included, for years, leaving bills unpaid to create the appearance of liquidity and shifting obligations into future years. The Board continues to push for fiscal discipline, but government corruption, fueled by rampant political patronage and other practices that disregard the principles of sound public administration, hinders that core objective for Puerto Rico.
As a condition for ending the Board’s operations, the PROMESA Act requires consecutive balanced budgets prepared under the modified accrual accounting standard, which obligates the government to recognize its debts when they become due, rather than when it chooses to pay them. The adoption of that model, which would begin to apply to the fiscal year 2027 budget, will represent real progress. Meanwhile, the restructuring of the Puerto Rico Electric Power Authority’s debt remains pending, involving intense judicial deliberations in a maze of structural contradictions, while a group of bondholders seeks payment of $8.5 billion. The vital reconstruction and modernization of the country’s electric system depends in part on reaching an agreement in this litigation.
In the short term, as this challenging decade comes to a close, the new budget under discussion must demonstrate that Puerto Rico is beginning to internalize the lessons of responsible financial planning, transparency in the management of public funds, and the commitment of political leadership that understands governing with rigor is not an option—it is the only way to avoid repeating the mistakes that left us in a calamitous state and brought the country to this ongoing and economically unresolved chapter. Federal oversight has been necessary. Hopefully, it will not be forever.
