The terms of the agreement that the Oversight Board reached with the Lawful Constitutional Debt Coalition (LCDC) and other investors are a sign that in the long term the island´s economic situation is not encouraging, and if that were the case, it will not be possible to pay bondholders either, said economist Daniel Santamaría.
And although Governor Wanda Vázquez Garced and the Legislature said they won't give way to the Plan of Adjustment (POA) promoted by the Board, the fiscal entity told the court that it is willing to have such payment authorized by requesting "interference in the government and legislative branches" of Puerto Rico, said CNE attorney and public policy analyst Sergio Marxuach.
Both issues were discussed Tuesday at the “¿Saliendo de la quiebra?” (Coming out of bankruptcy?) panel coordinated by the departments of Political Science and Economics at the University of Puerto Rico (UPR) in Río Piedras, where economist Eileen Segarra indicated that, in this situation, the only alternative society has is to take advantage of the electoral cycle to actively participate in economic debate and demand real commitments.
"Levels of debt in a country do matter. Each debt situation is different and they are particular stories because there are lives affected," said Santamaría, an economist for the Espacios Abiertos organization.
In his view, if debt restructuring is not a correct process, it will further accentuate the problems Puerto Rico is already experiencing, such as migration and deterioration of public services.
Flawed estimates, unsustainable arrangements
According to Santamaría, the Board projected the economy would grow more than it has since the 2017 hurricane season. The fiscal entity has also included federal recovery funds that have not reached Puerto Rico and, above all, it has minimized the impact of budget cuts required from the government.
"Austerity has not worked anywhere, the evidence is overwhelming," Santamaría said.
According to a debt sustainability analysis conducted by sovereign debt experts, including Argentina's current Economy Minister Martín Guzmán, while Board estimates indicate that for every dollar cut, the local economy would lose $1.34, experiences in other fiscal adjustment processes suggest that the adverse impact of these measures is much more severe, about $3.54.
The sustainability analysis commissioned by EA proposes a cut between 80 and 90 percent to Puerto Rico's public debt. The agreement reached by the Board cuts the constitutional debt by about 27 percent.
In contrast, and as a result of flawed assumptions, the economist added, the Board committed to pay bondholders money that, in the long run, the territorial government will not have.
"The problem is that when you reach agreements, like the one in Cofina based on optimistic projections it affects the rest of the restructuring process," Santamaría said.
For economist Segarra, the legal and financial picture described by Santamaría and Marxuach calls citizens to take an active role, particularly in the upcoming elections.