The fragility of the Puerto Rican economy, reflected in the poor financial situation of thousands of families who have lost their income due to the disruption caused by the COVID-19 pandemic, should motivate a new, honest and productive dialogue on the circumstances in which Puerto Rico can address its debt.
We know that the island has a responsibility to respond to its creditors. However, the government´s new proposal to reconsider how and when obligations should be met deserves serious consideration.
The government submitted to the Board a plan to postpone the cuts and reform program for two years. The proposal, which includes measures to address pensions as well as protection arguments for essential public workers, must be addressed objectively, in light of the complex crisis scenario the island faces.
It is no secret that the series of natural disasters, coupled with the pandemic, worsened the already precarious island's economy, to the point that in the short term nearly $800 billion of Puerto Rico's budget has been allocated to mitigate some of the negative effects that reach the entire population and business sectors.
Federal budget allocations to mitigate the economic damage also reflect the pandemic's hard impact on productivity in Puerto Rico and the United States. At a local level, these funds include $2.2 billion, the distribution guidelines have just been issued by the U.S. Treasury Department.
This critical moment calls for an urgent new dialogue on debt restructuring. The conversation must include a discussion on a possible extension to comply with and implement agreements. The aim is to avoid a greater collapse of the economy, which has already been hit by debt, a more than a decade-long recession, natural phenomena, and health emergencies.
The government projected that, given the lockout and social distancing as measures to fight the COVID-19, estimated surplus to pay bondholders will no longer be available and expressed the need to postpone budget cuts and other fiscal adjustments.
In the face of uncertainty, local and federal authorities, with the participation of the private sector, must also be open to discussing economic initiatives that will lead the island´s recovery. This effort must address the implementation of hurricanes and earthquakes recovery projects. These initiatives cannot remain on hold.
Faced with these challenges, it will be critical to prove the federal government the vital importance of funds, necessary to address emergencies documented since 2017. The release of different packages funds and their proper use will contribute to economic recovery and should lead to better conditions to address the debt.
It is important to use this investment to help reverse the dramatic paralysis that until April 18 led to more than 200,000 workers to file unemployment claims while thousands of employees saw their income reduced.
Economists stress that it will be vital that the talks between the government and the Board soon lead to consensual decisions that consider the unforeseen conditions in the economic projections reached before March.
The government, meanwhile, has to ensure -now more than ever- transparent management, especially that related to federal assistance funds. It also has to promptly address reconstruction projects that have been on hold.
Constructive dialogue regarding obligations is a vital piece on the map of opportunities for Puerto Rico, as is the flow of reconstruction resources. Both factors pave the way for new investments to create jobs and productivity, in other words, solid foundations to rebuild Puerto Rico.