[Editorial] In this Old Colony
Editor’s note: The following editorial was originally published in the April 5-11 print edition of Caribbean Business.
If you grew up in Puerto Rico back in the late 1960s, there is little doubt you recall a soft drink called Old Colony. Canned on the island, it was hugely popular; uvita or grape was my favorite flavor—a classic you could purchase with a bag of Doritos for a mere quarter. Ironically, the soft drink was a mainstay of local youth diets in times when Puerto Rico had seemingly rid itself of colonial vestiges to become a model of industrialization studied the world over during the heyday of Operation Bootstrap—the name Old Colony as pertained to Puerto Rico failed to rankle feathers because things were going swimmingly with the island’s economy.
Today, it is a different story—there is no economic development in sight as Puerto Rico’s government is coming to grips with its territorial status under the rule of the Financial Oversight & Management Board (FOMB) enabled by the Puerto Rico Oversight, Management & Economic Stability Act (Promesa).
And, there’s nothing like interviewing the recent past to help understand the current standoff between Gov. Ricardo Rosselló’s administration and the FOMB. In fact, it seems like only yesterday that Rosselló, then a spry gubernatorial candidate for the pro-statehood New Progressive Party, spoke to an audience during an investor conclave sponsored by the Association of Financial Guaranty Institutions held in New York City in October 2016. Rosselló piped in live via Skype to wax philosophical on the importance of producing audited financial statements and paying Puerto Rico’s debt as a priority to chart the island’s return to the capital markets.
The bigwigs from the investment community—monoline bond insurer CEOs, bondholders and investment bankers—were touting Rosselló as the second coming of Argentine President Mauricio Macri; they hoped mightily that he would ride into La Fortaleza on the heels of a general election win. Today, the investment community is expressing profound buyers’ remorse.
How times have changed. At this critical juncture in the Promesa Sweepstakes, the governor is having his hand held to the fire by a control board that insists he include austerity measures—a 10 percent cut to government payroll, a reduction to underfunded pension plans as high as 17 percent for some government agencies, which the governor has said goes beyond the purview of the FOMB.
The Rosselló-FOMB showdown is making its way back to U.S. Congress where House Natural Resources Committee Chairman Rob Bishop is publicly voicing his displeasure over the Board’s failure to bring the enfant terrible into line. The head-butting between the oversight board and the governor is not what Bishop envisioned when he invested considerable capital in passing Promesa to appease various creditor constituencies.
In a scathing missive dated April 2, 2018, Gov. Rosselló chides Rep. Bishop for demanding that the Board usurp the function of Puerto Rico’s elected government…showing a complete disregard for Puerto Rico’s Constitution, its laws and the will of the 3.4 million [U.S.] American Citizens [who] live here.”
The governor goes on to state that he will not permit [Bishop] to elevate concerns of the bondholders on the [U.S.] mainland above the concern for the well-being of my constituents.” Newsflash: As many as 60,000 of those bondholders holding more than $15 billion in Puerto Rico paper live on the island—many are retirees who cannot rub two nickels together without some return on their investments.
Yes, there are many half-truths in this group encounter—nobody is free of fault.
When Bishop smarts at the lukewarm actions of the Board, under the powers vested in Promesa, he has himself partially to blame—for one, the language in the law, as Rosselló points out, did not call the FOMB a control board.
The lukewarm language traces to very deliberate drafting, not to use the word “control” because of the colonial implications and to insist on the word “territorial” because U.S. Congress wanted to make certain distressed municipalities did not come calling for their own version of Promesa. The last thing congressional leadership wanted was a conga line of bankrupt Munis calling for protection under Promesa.
So, the governor is right that Puerto Rico is not the District of Columbia—the provisions in the law are also rather limited as pertains to creditor liens on debt. Promesa is, however, rather clear of the powers vested in the board as evidenced by rulings of Federal Judge Laura Taylor Swain, who is overseeing hearings in the Federal District Court for the District of Puerto Rico. She cites Section 305, which states “a district court may not, by any stay, order or decree interfere with any of the property or revenue of the debtors,” in stressing her limited purview. Fasten seatbelts we are in for a bumpy ride.
Conspicuously absent in this entire process are mechanisms for economic development in Promesa—drafters of the measure admitted the Economic Development Task Force created by the law was inserted to appease the private sector. It is a damning Red Herring underscoring the hypocrisy in a process that puts economic development so far afield.