The Puerto Rican government and the Oversight Board have the duty to embrace the opportunity that history has placed in their hands to build the new Puerto Rico, engaging in a dialogue that will ultimately shape the Fiscal Plan that will heal public finances and allow the return of the island to the capital markets.
Puerto Rico has not routed in a definitive way its fiscal recovery strategy almost 18 months after the appointment of the Board created under the PROMESA Law, which will be two years in office in summer.
At this point, there is no doubt that it is up to the local government to recognize once and for all that budgetary and governmental administrative adjustments cannot be postponed any more, which, based on accurate projections, should lead the island to its desired economic development.
At the same time, it is important to remark the impact of Hurricane Maria on the infrastructure and production activity of Puerto Rico. This unexpected and complex variable explains that the document with the fiscal route submitted by the island government prioritizes the reconstruction and boosting an economy that has been in recession for more than a decade.
Meanwhile, the Board has rightly pointed out that the proposal off the Island’s administration suffers from deficiencies that questions its successful execution. The oversight entity points out the lack of details that support the projected fiscal impact of government reforms, such as tax, labor and government reorganization.
It also states that there is no clarity in many of the plan assumptions and that there is a trend to overestimate federal funds and general fund revenues. These core questions have been made to the previous plans submitted by the central government and public corporations. This repeated lack of accuracy reduces the credibility and strength of the strategies to balance the budget and start capital projects.
But it is posible to solve it
The Board made a series of reasonable demands to adapt the plan to public financial possibilities. It asks for income estimates and expenses based on more realistic premises and specific number sand that the tax reform will not have a negative effect on the Treasury. This is vital to maintain congruence in the message to the federal government about the urgency of the disbursement of funds.
The Board is right to request specific strategies to improve Puerto Rico´s competitiveness in the world ranking. The $ 1,3 billion emergency reserve would provide funds to face judicial and federal government decisions that affect the public coffers.
Likewise, the Board calls to reexamine pension payments as well as benefits to public employees.
Those deficiencies mentioned by the Board are not new: they are the product of decades of old practices and the limited vision that led to the fiscal crisis and indebtedness.
However, the occasion opens the door for the government to assume the role that circumstances have placed in its hands, to overcome unhealthy past patterns and embark on a model public administration.
Providing clarity and accuracy to the foundations on which the fiscal plan is based will generate confidence in the management of Puerto Rico, given the magnitude of the challenges. The proposed adjustments also require maturity from municipal governments, before the cutoff up to eighty percent in the subsidies they receive from the central government.
Before Hurricane Maria,, a massive injection of federal funds to the island did not appear on the horizon. This injection of resources can serve as a balm to public management, but at the same time, it places greater weight on the transparency and certainty of the Fiscal Plan. Corrected and duly executed, this important document would contain the key elements to achieve the desired Puerto Rico.
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