According to economist Daniel Santamaría Ots, Senior Policy Analyst at Espacios Abiertos, COFINA's restructuring was approved at a time when the current fiscal plan - the fifth approved by the Oversight Board - overestimated the economic benefits of Puert

The Espacios Abiertos organization stressed that COFINA's debt restructuring deal is far from reaching the savings in government spending announced a year ago when this agreement with creditors came into effect.

The organization fears the same could happen with the Electric PowerAuthority's (PREPA) debt restructuring deal currently under consideration before Judge Laura Taylor Swain, who presides over the Puerto Rican government's bankruptcy proceedings.

According to economist Daniel Santamaría Ots, Senior Policy Analyst at Espacios Abiertos, COFINA's restructuring was approved at a time when the current fiscal plan - the fifth approved by the Oversight Board - overestimated the economic benefits of Puerto Rico's reforms and reconstruction as well as the impact of austerity measures on the island´s economy.

He explained, for example, that the analysis of the entity, created by Congress to oversee the island's finances, estimates that every dollar the government saves with result austerity measures, has a negative impact of $ 1.34 in the economy. According to independent estimates, this reverse multiplier effect can actually be around $3.

As a result, economic expectations regarding the restructuring agreement did not materialize and this debt repayment is not sustainable, the economist said.

Instead, he argued, the government is overpaying for these bonds, which reached about 20 percent of their initial value on Wall Street and that through the restructuring agreement, the government ended up paying, in the worst case, about 50 percent of their original value.

During a round table with reporters, Santamaria Ots said that if debt payment is not sustainable, then, “you will not have the money necessary to invest in those public policies that would generate the economy and income to make those payments. This has been terrible for Puerto Rico and beneficial for some hedge funds."

For the economist, the worst thing is that the COFINA agreement serves as a reference for the rest of the agreements between the government and its creditors. "Now, the discussion is not whether it is sustainable, because what bondholders want is to receive something similar” to COFINA, he added.

Currently, the Board and the Puerto Rican government are holding conversations with PREPA creditors seeking to reach a restructuring agreement that has been widely criticized because it implies an increase in the electric rate, which could further affect the battered Puerto Rican economy.

Unsustainability

According to the economist, after the COFINA deal was approved, those socio-economic projections that justified the details of the agreement have been falling apart. For example, by the end of 2018, the Board estimated that the Puerto Rican population would be around 2,992,000 by 2023. A review made in May anticipated an even more marked decrease, with 89,000 fewer people than initially expected, which would be equivalent to the entire populations of the municipalities of Hatillo and Humacao.

Similarly, the last version of the fiscal plan, May 2019, projects $8 billion less in savings than anticipated in the previous version of the document, and a decrease in collections of some $45 million. The same happened with economic growth estimates, which dropped by almost four percent in the last fiscal plan version.

Santamaria Ots indicated that according to independent sustainability analysis, the Puerto Rican debt had to be cut between 80 percent and 90 percent.

"Here, (in the public debt restructuring process), you can be irresponsible in two different ways. One is to say that you are not going to pay any of the debt and the other is to agree to pay more than you can," he said.


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