When Promesa was signed into federal law in mid-2016, it was touted as a groundbreaking, bipartisan piece of legislation designed to take Puerto Rico out of its decade-long fiscal crisis. However, close to three years after Promesa established a Fiscal Oversight and Management Board (FOMB) to help restructure the island’s $70-billion debt load, both mechanisms have been called into question, in part because they lack enough teeth to exert authority over state officials in the U.S. territory’s fiscal bottom line.
David Skeel, a professor at the University of Pennsylvania Law School and one of the members of the FOMB, said at a panel held earlier today that the situation began to take a turn for the worse when hurricane Maria hit Puerto Rico on October 2017.
“We had put together a fiscal plan with the governor, and (local officials) made really hard decisions that we were really proud of… and then hurricane Maria hit,” said Skeel to the people in attendance at the Condado Vanderbilt Hotel, as part of a conference that the Wharton School of the University of Pennsylvania held Friday and Saturday in San Juan.
The influx of federal money to aid in recovery efforts after the disaster further complicated matters. “It has significantly reduced the government’s willingness to make change. They see this money coming in, so it’s much harder to get politically elected officials to make harder decisions.” Skeel acknowledged during the panel, titled “Fiscal Management and Capital Markets” and moderated by El Nuevo Día business journalist Joanisabel González. “I think there are promising developments, but it’s been an up-and-down process.”
When González asked Skeel if the FOMB has been lenient with the local government, Skeel highlighted the judicial setbacks that the board has gone through every time it has attempted certain measures, such as appointing a compliance official at the island’s embattled electric utility.
Citing similar instances in which fiscal boards have been appointed to oversee the finances of debt-ridden cities and jurisdictions, Skeel added, “the boards in Detroit and Washignton D.C. were called a ‘control board,’ because they had more authority. (Because we’re an oversight board, instead), this has constrained us a little bit, we cannot do as much as we’d like. On the upside, it reduces concerns about democratic accountability.”
The Promesa law itself was the subject of scrutiny during the panel, but it found a defender of sorts in Stephen Spencer, managing director at investment banking firm Houlihan Lokey.
"It’s problematic if you focus in a legislative solution," he said. “Fixating at this point on changes to Promesa would be misplaced, especially since a lot of work has been done on things like critical infrastructure.”
Puerto Rico’s dependence on federal funding was also discussed. “I am concerned that we continue to go to Washington D.C. to solve our problems,” said Joaquín Villamil, an economist and president of the San Juan-based research firm Estudios Técnicos. “We obviously need federal funds for rebuilding our infrastructure, but we have to find our own solutions.”
Villamil also cast doubts on the long-term economic benefits that the influx of federal funds -reported to be at least $16 billion- would have on the island, especially since the disbursement of said funds has slowed down significantly.
“If you look at real GNP (gross national product) growth, there’s money coming in, but if you look at the productive side, it’s a very different story,” Villamil said. “What’s become clear is that FEMA funds are going to private entities, and that has jacked up consumption, but as soon as that money begins to run out, the economic indicators will go downwards again, and it’s a dangerous situation.”
Rafael Rojo, a spokesperson for a group that represents mostly local bondholders, then took Skeel to task for recent FOMB actions that, according to Rojo, have favored offshore bondholders over local ones when it comes to repayment claims.
In response, Skeel argued that the claims that Rojo referred to were on shaky ground, constitutionally speaking. “The board has a fiduciary obligation to challenge claims that are problematic,” he stated. “People are going to be hurt, but we’re doing the best we can. It’s a multi-dimensional chess game.”
Lastly, when Gonzalez asked Skeel whether he would become part of a new version of the FOMB -a task that U.S. president Donald Trump has said he would take an active role in appointing- Skeel said he was up for it, although he would find the confirmation process “scary” under the current political climate.