Fiscal board director talks Puerto Rico debt with Associated General Contractors
Stresses consensual restructuring needed to regain access to markets
RÍO GRANDE, Puerto Rico — The executive director of Puerto Rico’s Financial Oversight and Management Board, Natalie Jaresko, insisted on the importance of reaching agreements with bondholders outside the courts so the island can regain access to capital markets, economic development can resume and her panel’s presence is no longer needed.
Jaresko made her remarks Friday afternoon as part of a discussion the board director held with members of the Associated General Contractors of America, Puerto Rico Chapter, at the Wyndham Grand Rio Mar resort in this northern coastal town.
“We have to overcome the bankruptcy as soon as possible. We have been working hard to solve this challenge and I can literally tell you that we are weeks away from reaching it,” Jaresko predicted.
The fiscal oversight board is preparing to present a $35 billion debt-adjustment plan and a plan to restructure some $50 billion in unfunded pension liabilities
“This is a milestone, a plan that achieves an agreement beyond what we have today, which once approved by the federal court, will pull Puerto Rico out from bankruptcy. We signed agreements with retirees, with active civil citizens and with a key group of bondholders who are willing to do what is necessary to close this chapter in the history of Puerto Rico,”Jaresko said.
“The retirees have been mistreated for decades since the retirement fund needed to finance their benefits was underfunded and eventually went bankrupt. Our agreement ensures that this does not happen again because it establishes an independent pension reserve trust to ensure that PayGo benefits can be paid regardless of the future economic or political situation,” she added.
Jaresko specified that the Official Committee of Retirees in Puerto Rico’s bankruptcy-like process agreed to a moderate cut that will apply only to those with a pension of more than $1,200 a month, representing 40% of the pensioners.
Meanwhile, a group of bondholders accepted a combined haircut that represents more than 60% of the government’s liabilities, which will result in a reduction of the $35 billion in outstanding commonwealth-related bonds to $12 billion. Debt service, including principal and interest, over the next 30 years would be cut by about half, to $21 billion from $43 billion.
“The agreement guarantees that Puerto Rico’s debt will be sustainable in the future and that payments, including Cofina [Spanish acronym for Sales Tax Financing Corp.] never exceeds $15 billion per year, or 9% of the state’s income.
“These agreements are the result of years of tough negotiations, litigation, an audit of the debt that seeks to invalidate part of the GO [general obligation] debt and great consideration to what is best for the people of Puerto Rico. I firmly believe it is a good plan, the best plan given the difficult situation in Puerto Rico,” she said.
Labor an issue
During her presentation, which lasted a little more than half an hour, Jaresko touched on the issue of the labor reform promoted by former Gov. Ricardo Rosselló and said that although changes were achieved, “the private labor market continues to be over-regulated, confusing and expensive.”
“The legislature has not agreed to apply the same employment rules that exist in 49 of the 50 states, and it is a shame since the best time to implement this type of labor reform is when employment opportunities grow, rather than later when the economy slows down after the stimulus from federal disaster funds [for recovery from Hurricane Maria in 2017],” she said.
Utilities, infrastructure are critical
Jaresko also spoke of the importance of a restructuring agreement reached for the Puerto Rico Electric Power Authority (Prepa), which cut the debt by 30%.
However, for Jaresko, the federal funds to rebuild Prepa’s transmission and distribution system remain a challenge. Regarding critical projects, Jaresko suggested that contractors submit proposals to the board for the repair of roads, aqueducts, low-cost housing and other infrastructure.
The director announced she was also attending Friday the inauguration of a board-approved $5.3 million project to expand the Fajardo landfill, which serves the northeastern part of the island. The expansion will allow the generation of 4 megawatts by converting gas to energy.
“The engineers estimated that the window to dispose of the garbage was only available for three more years and this expansion represents an additional 20 years of operational capacity for this critical infrastructure,” she said while suggesting that the generation of energy must be diversified to be able to the solid-waste management crisis on the island.
“The fiscal oversight board is not the economic development board of Puerto Rico, but I, like the board members, are deeply committed to helping find the right path in favor of Puerto Rico. We cannot be effective without your help. I want that dialogue and it seems to me that Puerto Rico needs that dialogue because we need to work to achieve economic development,” Jaresko concluded.
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