New York - Former U.S. Treasury adviser Antonio Weiss said Thursday PROMESA was approved using the legal-political "offensive reality" of Puerto Rico but stressed that the federal statute granted the U.S. territory more benefits to address the fiscal crisis than any other mechanism.
According to Weiss, a key architect of PROMESA, the federal statute was the product of a consensus rarely seen at the congressional level, even though that process resulted in adopting unpleasant measures, such as the creation of the Oversight Board, in exchange for other benefits like protecting pension payments.
"The most important thing was to protect the people of Puerto Rico," Weiss said, referring to the process in the U.S. Treasury between 2014 and 2016 until PROMESA was approved.
Weiss said that in exchange for a very powerful authority to renegotiate, oversight became the difficult part of the negotiation over PROMESA.
Weiss discussed the process and balance of PROMESA during the third edition of the Ravitch Fiscal Reporting Program, an advanced training initiative in state and local fiscal issues for reporters which is part of the City University of New York Graduate School of Journalism.
There, Weiss explained that PROMESA was part of a four-part plan aimed at helping Puerto Rico and that after some nine months of work, PROMESA became the tool to respond to the Treasury's lack of authority to intervene on the island and an attempt to stabilize the island's finances that were "in ruins."
These training sessions were also led by analyst Cate Long of the Puerto Rico Clearinghouse, economists Brad Setser and José Caraballo, and municipal analyst Matt Fabián of MMM Research, among others.
According to Weiss, when Puerto Rico was examined, it was clear that the island's debt levels were not comparable to any state or municipality in the United States, and the island had no authority to negotiate with creditors, no access to the Bankruptcy Code, and no voting power in Congress.
According to Weiss, Puerto Rico's financial situation was so terrible that the idea was to provide the island with a comprehensive mechanism to deal with its debt and with some oversight mechanism given the state of its public finances.
From the very beginning, and unlike the states, PROMESA gave the island the authority to restructure all its public debt, including constitutional and government debt, and also it provided a mechanism to stop any debt collection action or litigation against the state.
Above all, Weiss said, PROMESA allowed Puerto Rico to invoke Title III protections without subjecting the government to the solvency tests required in bankruptcy proceedings and ensured that pensions could be paid.
Under the current constitutional order, debt payment precedes pension payments or government services, "You wouldn't find that anywhere in the Bankruptcy Code. Only in PROMESA," Weiss said.
The former assistant Treasury secretary noted that such benefits are much better than those that could have resulted from some other intervention such as the Brady Plan, which the U.S. Treasury used in the 1980s for some Latin American economies to restructure their respective sovereign debts.
However, Weiss acknowledged that even though the Treasury succeeded in PROMESA, other components of the plan -Medicaid parity and applying the federal earned income credit to the island - were left out of the equation.
Therefore, according to Weiss, PROMESA did very little in the area of economic reactivation, except for the congressional study released two years ago, which has not resulted in concrete efforts.
Weiss was optimistic that this year, the island could have an adjustment plan subject to court´s approval to restructure its obligations, but he stressed that it is still uncertain whether the restructured debt could be paid in the long term.
He added that even if the process provided by PROMESA were successful, the island needs an economic revitalization plan and that there is very little done in that direction.
In that sense, Weiss said that Puerto Rico will need to envision such a plan, keeping in mind that it has been left without allies at the federal level. According to Weis, Congress has reduced all the competitive advantages Puerto Rico had in the past, and nothing suggests that Puerto Rico will be a high priority right now.