[Editorial] Banana republic split
Editor’s note: This editorial first appeared in the April 26, 2018, issue of Caribbean Business.
By the time you read this, the Financial Oversight & Management Board (FOMB) created by an act of U.S. Congress will have commenced mapping its next moves after certifying its own draft fiscal plans, which according to the Puerto Rico Oversight, Management & Economic Stability Act (Promesa) are implicitly “deemed approved by Gov. Ricardo Rosselló.”
The governor begs to differ. If the opening salvos fired by the Rosselló administration are an indication of the coming drama, continued bickering between the control board and the administration over the FOMB’s role will color the tone of public rhetoric.
That top banana republic split will soon have a cherry on top if draft legislation to put Prepa privatization under the purview of the U.S. Treasury Department passes in U.S. Congress. The bill includes language that also brings the Federal Energy Regulatory Commission (FERC) and Department of Energy into the regulatory fold. In the bill, titled “The Puerto Rico Electricity Modernization & Reform Act of 2018,” its current form would empower the secretary of the Treasury—in consultation with the governor and fiscal control board—to initiate a program to modernize and privatize the electricity system in Puerto Rico.
Rosselló is telling all who will listen that the board is overstepping its purview in 35 of the 48 amendments it sought because these were items—from the slashing of government payroll to the cutting of pension benefits—that had more to do with public policy than fiscal affairs. In comments made weeks ago, Rosselló’s public discourse continues to be confrontational at the very least—his assault on Promesa kicked off with a shot across the bow in a scathing letter to U.S. House Natural Resources Committee Chairman Rob Bishop and continued with potshots at the FOMB throughout this week. It seems the governor is sticking to his guns.
There are aides in Chairman Bishop’s office who were hoping the control board would have done the same. In a recent interview with this newspaper, a committee aide told Caribbean Business that the fiscal control board must enforce the available measures according to the federal law. The comments were a veiled reference to the control board’s waffling on the issue of the furlough the Rosselló administration refused to include in the first go-around with Fiscal Plan Mania I. The fisticuffs in that first round saw the board file for injunctive relief to force the Rosselló administration to include a two-day furlough of government employees as a cost-cutting measure.
Two weeks later, Hurricane Maria ran roughshod over the island and the board withdrew the legal remedy it had filed, leaving the Rosselló administration emboldened in its actions challenging the board’s role under the federal law. Now, Bishop’s restructuring brigades are pressing the control board to force the issue and test the boundaries of the law.
At this writing, there seemed to be little appetite to revisit Promesa in the short term; instead congressional leadership in the GOP insists the fiscal control board must test the boundaries of the law during what is left of their tenure. Then, in 17 months, U.S. Congress will go back to the drawing board with nominees named by congressional leadership that is bound to change after the midterm elections.
For now, some members of Congress remain skeptical that Promesa will be utilized as they intended. The draft legislation to bring U.S. Treasury into the Prepa fray is a perfect example of jitters on the Hill.
Some members of Congress are focusing on the utility’s privatization because they believe it is pivotal to Puerto Rico’s transformation. One source with ties to the Trump administration told Caribbean Business that the handling of the bankrupt utility’s privatization is one of the issues on which representatives on both sides of the aisle coincide, in that Puerto Rico needs sustainable, replicable and dependable electricity.
The doublespeak in the Puerto Rico Legislature over the importance of a robust regulatory body to oversee the transaction has some representatives on the Hill showing jitters. “The issue is that Promesa doesn’t really tell you to privatize Prepa or how to go about that. And as I understand it, Prepa is not under FERC oversight,” the Trump administration source said. So, they are insisting on federalizing the oversight of this sale, “in consultation with the governor and the board.” The question that begs asking: By throwing the federales into the mix with U.S. Treasury and FERC oversight—will they ever get the transaction right when so many disaster capitalists are hovering above?