[Editorial] Harsh Truth in ‘Junteconomics’
The harsh rhetoric by the Puerto Rico Oversight, Management & Economic Stability Act’s Junta last week, seeking the insertion of extreme measures in what they categorized as a deficient fiscal plan, was the preamble for consensus drafted during a marathon weekend of meetings between counsel—both legal and financial. One thing is certain: the billable hours for the financial and legal advisers for both sides will not suffer cuts. No, instead, Gov. Ricardo Rosselló bought some time to prove that his fiscal plan’s assumptions can help erase a $200 million gap that would lead to a government shutdown at the end of fiscal year 2017.
Elias Sánchez, who is Rosselló’s nonvoting representative on the oversight board, vows to chart a course to austerity. He is no longer singing Bob Marley—the “get up, stand up, stand up for your rights” chorus—as he is well-aware that the Rosselló administration is bound by law to follow the roadmap charted by the board. The fire and brimstone coming with the measures should not please anyone. During the New York conclave, the board stressed that the pain will be shared; everyone will have hell to pay. Call it “Junteconomics.”
In the spirit of clemency, the board certified the fiscal plan submitted by the Rosselló administration because the scorched-earth alternative—to torch the financial assumptions—would likely have secured a death spiral of Puerto Rico’s economy, as the administration claimed. So, the board tailored its exigencies to grant the Rosselló administration a chance to prove that it can avoid a furlough if revenue-generating measures can raise the $200 million that will prevent the government’s collapse.
The Rosselló administration must prove, “through its budget by April 30 and through implementation of its right-sizing measures that it will generate an additional $200 million,” to avert the furlough July 1. The junta could postpone or downsize the furlough in direct correlation to the success of the Rosselló’s liquidity measures. We commend the Rosselló administration for buying time and the Junta for the patience and space to seek alternatives in a process that is as complex as cell mitosis.
What this newspaper cannot condone is the self-deception underpinning the certification of a plan that presents an economic contraction negotiated from the Junta’s original 17% estimate down to 2.8% in 2018 with the caveat in the financials: includes revenues before measures. Yes, before measures—because the truth is hidden somewhere in the Appendix.
If the oversight board approved the estimates with revenues prior to measures as the condition to certify, it should have presented that disclaimer front and center. Explain that consensus on a plan, however flawed, was essential; that the board wanted to give the Rosselló administration a shot at proving their numbers wrong—as if to say ‘if only the board’s apocalyptic projections were wrong.’ But devastating facts should not be ignored.
The board’s request for a 20% cut to public payroll through furloughs of government employees—alone—will lead to severe economic contraction. According to economist Vicente “Chenti” Feliciano’s estimates, which were published in this newspaper months ago, a 20% cut in hours in the workweek for public employees would lead the economy to contract by some 2%. Throw in the other measures and you could have a meltdown of apocalyptic proportion.
The governor’s press conference—broadcast live in Technicolor from La Fortaleza’s garden—stressed that there was much work to be done in the very little extra time bought by his administration. If Gov. Rosselló’s restructuring brigades fail to close the $200 million gap being demanded by the junteconomistas—foreclosures, job losses and shuttered storefronts could come down like dominoes with thunderous force.
Fiscal Agency & Financial Advisory Authority Director Gerardo Portela put it best when he said that the most serious challenges will be in generating economic development. He is right; the next crusade should be job creation.