Thursday, October 19, 2017

[Editorial] Trump to Puerto Rico: Deal With Your Own Broken Promesa

By on August 17, 2017

When Gov. Ricardo Rosselló Nevares challenged the Financial Oversight & Management Board’s (FOMB) authority in opposing a two-day furlough for government workers, he became the obstructionist of which former Detroit Emergency Manager Kevyn Orr spoke of during an event on Puerto Rico’s debt held in Washington, D.C., last March.

On that occasion, Orr’s advice to the FOMB boiled down to this: “I would find the obstructionist, hold him hostage, make an example of him and drag him into the public square. I would let people know that this is serious and that you mean business.”

The governor’s defiant stance to resist the furlough is propped up on his assertion that the FOMB is going beyond its purview by delving into public policy; Rosselló sees the proposed furlough as a “recommendation” that he is free to reject. The governor is basing his argument on the stipulations in Section 205 of the federal Promesa law, which states the administration will adopt appropriate recommendations submitted by the oversight board.

Rosselló’s assertions are being challenged by the FOMB as disingenuous rhetoric, given the fact that the law clearly states the board has the sole discretion to force corrective action under a certified fiscal plan. The board has made it perfectly clear that a furlough would be triggered if the administration failed to meet the right-sizing targets set in the plan. The FOMB insists the administration is off by some $218 million in its savings benchmark.

Rosselló is grandstanding against the furlough and the 10% cut to pensions come what may—even going to jail says he—while calling the measures both unjustified and unnecessary.

To be certain, the Governor has implemented many right-sizing measures that show his intent to put Puerto Rico on a path to eventual growth, but his stance on the furlough faces long odds in court and there will probably be pain coming down the pike.

Here’s what to expect. In a story that this newspaper ran in 2016, Advantage Business Consulting estimated that a 10% reduction in the workforce hours would result in a 2% contraction of the economy. Rosselló correctly denounced the furlough’s expected devastating harm to Puerto Rico’s moribund economy, although the FOMB says the macroeconomic impact of the furlough is already contemplated in the fiscal plan. Still, Rosselló is unlikely to avert the measure in the end.

Detroit’s Orr, who is very well-acquainted with junteconomics, was brutally honest when he said there is much pain before growth. He punctuated those remarks saying, “there will be a lot of kicking and screaming.” Here we are.

Michigan Gov. Rick Snyder, left, listens as Detroit emergency manager Kevyn Orr addresses the media during a news conference in Detroit, Friday, Nov. 7, 2014. (AP Photo/Carlos Osorio)

The most recent rant came during a televised address, during which Rosselló reaffirmed his stance against the furlough and cuts to pensioners. He has since sent missives to President Donald Trump and House Speaker Paul Ryan. The White House is not likely to open that envelope.

A source on the Hill with ties to the GOP told Caribbean Business that Trump will not invest political capital in anything having to do with Promesa. “Right now, we have issues such as unfulfilled legislative promises, North Korea, China, Russia, Syria and our own $20 trillion debt issue to deal with; Puerto Rico’s Promesa issues are not a priority,” the source said.

Although there was brief talk of dealing with Puerto Rico’s Promesa discord through the White House Task Force—an entity established under the Clinton administration that has undergone several incarnations under three different presidencies—that idea has been abandoned as foolhardy.

Instead, what is likely to happen is that Rosselló’s letter will be sent to the U.S. Department of Justice for a formal opinion by Attorney General Jeff Sessions, who is bound to affirm that Puerto Rico is firmly entrenched under Article 4 of the U.S. Constitution and Promesa is a creature of Congress. In other words, “under the territorial clause of the Constitution, Puerto Rico is under the purview of Congress. Let Congress deal with the Promesa mess.”

Whether Congress will revisit Promesa is also unlikely—there was much political capital vested by many representatives who, not having Puerto Rican constituents, voted to pass Promesa kowtowing to special interests in various creditor camps.

Now that they are witnessing Rosselló’s reluctance to enforce shared pain, they are none too pleased. The governor is betting that the United States will not allow a presidentially appointed board to squash the governor of a territory. It could be a costly bet and, if Orr is right, the pain will be ours to bear.

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  • Juan Moczo

    This editorial obviously attaches very little importance to the economic impact of the furlough on the economy. It seems to spouse the idea that the governor should become a compliant colonial subject, probably along the lines of Miguel Ferrer.

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