In the process of agreeing on the budget for next fiscal year, the leadership in charge of the Puerto Rican finances faces the challenge of achieving fiscal solutions that strengthen the island’s credibility.
The two recommended budgets show a difference of $ 524 million between them, it is now time for the local government and the Oversight Board to negotiate agreements that would bring public finances closer to the ultimate goal of straightening them out. This process requires allocations based on accurate fund projections and structural reforms that cannot be postponed.
The budget document should outline the island's priority agenda for the next fiscal year. It must also be a stepping stone to achieving and sustaining the island’s financial health on a lasting basis. There is a reason why the Constitution provides for it to be balanced and documented with reliable data. Repeatedly failing to comply with that provision led to fiscal precariousness and contributed to the economic crisis that Puerto Rico has been dragging for more than a decade.
Therefore, the government and the Board are called to a dialogue process aiming at bringing the budget closer to the ultimate goal of correcting the structural fiscal deficit and providing permanently balanced budgets.
Along the way, both parties already agree, at least, on strengthen priority areas such as education and public safety. And, although they both also recognize the importance of straightening retirement systems, the proposals are still limited to the degree of pension adjustments necessary.
Restructuring retirement systems is a critical priority on which the rest of the fiscal system depends. For the same reason, a budgetary dialogue between the government and the Board should lay the foundations so that they can then go deeper into proposals that bring stability and sustainability to these systems. Beyond the immediate adjustments under negotiation, retirement systems have to guarantee future pensions.
Puerto Rico needs to overcome lethargy and precariousness. It is time to engage in a constructive dialogue to achieve financial balance while reasonably addressing the island’s essential needs. The Board and the central government share the responsibility for producing solutions that prove the federal government and capital markets that they can trust the island again.
Through dialogue, organizations representing public employees and retirees are negotiating agreements leading to fair and sensitive achievements. Likewise, negotiations between the government and the Board should produce results that are beneficial for the island in the immediate and long term.
The Board and the government have already proved their willingness to collaborate and reach joint agreements, such as the one that would reduce the Electric Power Authority’s debts by more than 30 percent or $ 3 billion.
There are two proposals for the third government budget since PROMESA, which provides the structure to balance the island’s finances and the debt restructuring process. The final version to be agreed upon must clearly present the guidelines to permanent budget balance, as well as the steps and deadlines required to achieve it. Without these elements, the crisis will demand significant fiscal constraints.
Puerto Rico needs to show its ability to find fiscal solutions that will restore its credibility here and abroad. This will pave the way for the flow of federal funds already approved and are yet to be released. And along with that, confidence in the island’s fiscal stability will lead to reach agreements on the debt and reopen the doors to the borrowing market and to investment in long-term development.