The adjustment plan for the largest municipal bankruptcy in the United States, which would be essential to restore Puerto Rico's fiscal discipline, rests on economy still stalled that condemns children to poverty. (GFR Media)

The Oversight Board would file today before U.S. District Judge Laura Taylor Swain, the central government's debt adjustment plan, a proposal to modify over $38 billion in obligations to put an end to the budget crisis Puerto Rico has been experiencing for almost two decades.Among other issues and according to reports by this newspaper, the plan proposes to reduce the amount the government now commits to paying bondholders to almost a third, including the debt of the Sales Tax Financing Corporation (Cofina) and the Retirement Systems Administration (ASR, Spanish acronym). The cut in state debt is based on the agreement between the Board and the Lawful Constitutional Debt Coalition (LCDC), which establishes a recovery -in the aggregate - of 64 percent for General Obligations (GOs) bondholders and the Public Buildings Authority (PBA).

It is expected that the plan - which will be discussed today during the Board’s seventeenth public meeting - will also include the agreement reached  two months ago with the Official Committee of Retired Employees (COR, Spanish acronym) that would cut by 8.5 percent those pensions higher than $1,200 a month. The agreement with the United Public Servants Union (SPUPR, Spanish acronyn) revealed last June would also be incorporated into the plan. The agreement - which in July was supported  by 92 percent of the public employees who voted - would recover some $1.3 billion in savings that public employees contributed to their retirement under the so-called System 2000.

However, the adjustment plan for the largest municipal bankruptcy in the United States, which would be essential to restore Puerto Rico's fiscal discipline, rests on economy still stalled that condemns children to poverty, undermines the will of the most experienced businessmen and all  this while federal funds for post-María recovery are trapped in the federal government's bureaucracy.

This is the current situation despite two and a half years of reforms, agency consolidations and new laws implemented by the administration of former Governor Ricardo Rosselló Nevares to improve the business climate and promote investment in Puerto Rico.

"Does this permit system work?" Board President Jose B. Carrión asked and then received a "no" from several businessmen who were part of the audience at the third economic development hearing held by the fiscal agency since its creation three years ago.

"It's going in the right direction, but it can better," said Emilio Zavala, president of the Builders Association (AC, Spanish acronym), one of a dozen executives and economists who participated in the hearing at the Puerto Rico Convention Center.

Carrión asked the businessmen about the new permit system adopted by the government and implemented from a new platform led by the Department of Economic Development and Commerce (DDEC).

"We are pleased with the release of the Tax Expenditure Report (IGT, Spanish acronym), but that report has been a learning experience for me. As a tax professor, I learned about incentives I didn't know existed. By that I mean that it can be very good for the practice (accounting), but if it's good for us, I don't think it's good for the country," said Kenneth Rivera Robles, public accountant and treasurer of the Industrial Association (AIPR) establishing that it is urgent to review tax benefits granted by Puerto Rico.

According to Rivera Robles, while Puerto Rico grants some 302 special treatments, the U.S. government, through the U.S. Internal Revenue Service, grants some 198.

Yesterday, during the conversation between Board members, government officials, and businessmen, they agreed that tax incentives granted by Puerto Rico must be reviewed and that in fiscal year 2017 they cost the Treasury some $20.614 billion.

Tax incentives granted by the government are not really useful when you have to wait a year and a half for a health license and you are forced to age your cheese production, as happened to Wanda Otero, president of Vaca Negra, the cheese and yogurt company, which with her model has begun to export milk to the Dominican Republic.

"It is unacceptable," Otero said, suggesting that business management in Puerto Rico is hostage to changes of government every four years that have resulted in a disarticulation of the permit process and, therefore, in the delay of investment and job creation.

The Government's version

The expressions of Zavala, Rivera Robles, and Otero, who each had barely seven minutes to express their positions on what it means to do business in Puerto Rico, came after a two-hour government speech. During these two hours, DDEC Secretary Manuel Laboy told a different story regarding the difficulties experienced by businessmen and that have caused Puerto Rico to have such bad results in the World Bank’s Doing Business report.

Improving Puerto Rico's indicators in that index is one of the structural reforms promoted by the Board in the certified fiscal plan.

Although Laboy acknowledged that there‘ still a lot to do, he assured to the Board’s members that the consolidation of agencies under the DDEC, the Tourism Company, the Planning Board, the Industrial Development Company, the Permit Management Office and others will serve to make businessmen the core of government services.

In the list of successes, they highlighted the creation of the Destination Market Organization (DMO), Discover Puerto Rico, and Invest Puerto Rico.

Agency consolidation

The process of consolidating some nine agencies under the DDEC would be completed this year.

However, after his presentation, Laboy did not stay to listen to Fahad Ghaffar, executive of Paulson & Co., who made it clear that merging the Tourism Company with the DDEC was the worst mistake that could be made. Nor was Laboy there when he indicated that tourism tax revenues will finance other government activities and not strengthen a sector that could be key to economic activity when $6 million go to cruise ships incentives and only $3 million to aviation incentives. This, although it has been demonstrated that visitors who stay the night on the island spend more money than those who come on a brief visit by boat.

"We need real laws," Ghaffar said, pointing out that developing hotel projects on the island is an uphill battle both because of the lack of funding and because of a decades-old building code.

According to economist María Enchautegui, no economy thrives if it doesn't get children out of poverty, a reality that also affects Puerto Rico's low indicators when it comes to health and safety.

Enchautegui urged the Board to look for alternatives that promote the economic condition of working families and to change the welfare mentality that governs the functioning of the Family Affairs Department.

Property Registry 

However, problems in agencies that should focus on the promotion of economic activity are not only related to the lack of administrative continuity due to partisan politics.

Yesterday, the director of the Property Registry, Joaquin del Río, told the Board that in the past two years, the agency has lost about 100 employees as a result of budget cuts in an agency that brings to the Treasury twice its budget.

"Those employees have not received a salary increase in 15 years," said Del Río, whose expressions caused surprise and even anger among Board directors.

According to the official, it would take the agency 15 years to catch up with the backlog of some 400,000 documents.

"That is unacceptable," replied director José R. González, who urged Del Río to request additional resources.

However, the Registry's budgetary deficiencies seem to be the result of the cuts policy that the government and the Board promoted.

This is because, according to the budget of the Department of Justice certified by the Board, between 2017 and the current fiscal year, the budget of that Registry was reduced by 12 percent.


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