In her recent decision, federal Judge Laura Taylor Swain upheld the Oversight Board’s authority to approve and enforce fiscal plans and budgets for the Commonwealth and its instrumentalities. For the benefit of Puerto Rico, we urge everyone to put aside expensive legal battles and instead work together to implement fully the certified Fiscal Plans and budgets.
Economic growth in Puerto Rico stuttered in 2006 and has continued to decline. In 2015, the Government announced the debt load of some $70 billion was “not payable.” A year later, Congress enacted PROMESA to facilitate the restructuring of Puerto Rico’s debt and the return to fiscal stability. A stay on debt repayment has given the Government a temporary breathing space to put its fiscal house in order.
Since its inception, the Board has worked to define and ensure the implementation of the necessary measures to fulfill PROMESA’s mandate of fiscal recovery for Puerto Rico. Hurricanes Irma and María affected the road to recovery, but it has now been re-charted to reflect the Island’s post-hurricane realities, while we continue to address the root causes of the crisis. The Commonwealth and its covered instrumentalities all now have post-María certified fiscal plans and approved 2019 budgets.
The federal funds Puerto Rico will receive for its recovery will generate some short term economic growth, but those funds will not, by themselves, enable that recovery to be sustainable. For that reason, we need to implement the structural reforms that will improve the competitiveness of Puerto Rico’s economy while the short-term economic growth provides a cushion.
The certified Fiscal Plan requires the Government to get its finances in order, and restructure its debt, so it can recover the credibility it has lost due to decades of financial mismanagement and, thus, may attract investment, create valuable jobs, achieve long-term economic growth and return prosperity to Puerto Rico.
The best way to achieve this is through (1) a reasonable and sustainable reduction of the debt, since the court-imposed moratorium on the debt will not last forever; and (2) rapid and efficient implementation of the various fiscal and structural reforms contained in the certified fiscal plan and reflected in the budget. For too long, Puerto Rico has failed to make the changes necessary to ensure long-term growth. We cannot and should not wait any longer to implement those reforms that will ensure economic growth, improve efficiency and transparency in the public sector and make Puerto Rico more competitive and attractive for businesses and investors.
The implementation of those measures—such as rightsizing government, improving ease of doing business, human capital investments, welfare-to-work policies, and the creation of an earned income tax credit (EITC) program to increase labor force participation—has just barely begun. And any delay in their implementation will impact the certified budget and cause deficiencies in the various agencies during this fiscal year.
We will continue working to verify progress in the implementation of reforms. That implementation takes planning, willpower, resources, and champions to lead the change efforts.
We also need to make significant progress on PREPA’s transformation and debt restructuring process. The preliminary agreement with PREPA’s bondholders, on terms that are significantly better than the previous agreement, is good news for PREPA, its creditors, the Government and the people of Puerto Rico, since a resolution to PREPA’s debt problems is a necessary step to attracting private capital to transform the utility, eliminate the uncertainty of the Title III process and pave the way for new investors to regain confidence in Puerto Rico. Again, PREPA will ultimately succeed only if we implement fully its Fiscal Plan, to rebuild with resiliency, greater operational efficiency in its transmission and distribution systems, and a more cost-effective energy generation mix which can together deliver less costly and more resilient electricity to the residents and businesses of Puerto Rico.
Finally, the final deal reached with all COFINA bondholders is a significant milestone in resolving Puerto Rico’s debt crisis. It provides for more than a 32% reduction in COFINA debt service, which represents over $17 billion in savings for Puerto Rico. It also helps avoid costly and time-consuming litigation, enables local bondholders in Puerto Rico to receive a significant recovery, and provides flexibility to the Commonwealth in managing future debt refinancing. The goal is to have an approved Plan of Adjustment for COFINA by the end of this year.
This progress in the restructuring of the PREPA and COFINA debt—with together with that of the Government Development Bank represent more than 40% of the total debt to be restructured—prove that it is possible to reach consensual agreements with creditors, which will help the Government recover lost credibility and concentrate efforts on improving Puerto Rico’s economy for the long term.
The Oversight Board remains committed to promoting progress on both the reform agenda towards fiscal responsibility and balance and on debt restructuring to achieve PROMESA’s objectives and work itself out of a job. We will work hard to do everything within our abilities and authority. The Government must urgently implement structural reforms to achieve the results that the people need. Puerto Rico’s success depends on that.
(This article was first published in Spanish at El Nuevo Día on Wednesday, September 5, 2018.)