Fiscal Board Says Fiscal Measures Must Go Before Debt Restructuring
Despite the serious fiscal crisis facing the current government, the Financial Oversight & Management Board said Promesa prevents it from restructuring Puerto Rico’s $69 billion debt first without making fiscal adjustments in the operations of the government.
La Fortaleza, however, called for an immediate restructuring on the debt.
The board sent letters to Gov. Alejandro García Padilla and to Gov. elect Ricardo Rosselló containing a list of suggestions and objectives the government’s fiscal plan, which must be completed by the end of January, after contending that new projections indicate that the government will face a deficit of $67.5 billion over the next 10 years under current law without relying on additional federal funding and unless the local government adopts measures to reduce expenses, increase revenues, enact structural reforms and restructure its long-term obligations.
During a press conference after making the letters public, Board Chairman José Carrión said the suggestions were merely options. “We are are making certain recommendations to the incoming administration that we think should be included in the fiscal plan. The fiscal plan will be the governor’s. We are providing suggestions and options,” he said.
While the board did not say how much of the $69-billion debt will be restructured because an analysis has yet to be done, Carrión said the baseline number of $67.5 billion will be validated to start good faith negotiations with the goal to restructure the debt through Title 6 of Promesa that calls for voluntary restructuring. The board in a statement urged creditors to contact the board.
“The baseline is a starting point,” said José Ramón González, a board member who also said the number was theoretical. “It is a baseline to give us a guide; to give the incoming government a vision on the on the severity of the situation,” he said.
Asked why the baseline number did not take into account additional federal funds, González said there is no indication in Washington that Congress may allocate more funds.
“We can not assume what is not in law. We can all wish for additional federal funding but the political environment in Washington does not make it likely. We can all have a wish list,” González said.
Regarding reports to the effect that the Commonwealth Retirement Systems may run out of money in April to pay retirees, Carrión said it was something that was going to be worked with the incoming governor and that the Board could not comment on the matter.
Regarding cuts to the University of Puerto Rico, which already lost money in its budget formula, Carrión said the Board suggested to the incoming government to do a “needs based tuition” in which students will pay based on their income. Carrión also declined to say whether the Board will recommend layoffs of public workers or a reduction in the working week.
The board has suggested the privatization of public entities to deal with the fiscal crisis. Carrión proposed the privatization of the State Insurance Fund and the Ports Authority. The Board, however, could not say which entities should be operated on a private-public partnership model.
La Fortaleza issued a statement asking the Board to begin a debt restructuring process as soon as possible. García Padilla said the process undertaken by his administration to obtain federal legislation and work on a fiscal plan was with the objective of going to a broad debt restructuring before February, maintaining the stay on lawsuits and thus be able to provide the basic services And essential of the people.
“If Puerto Rico runs out of money, it is because it will not enter into a comprehensive process of debt restructuring. On the contrary, if we welcome Title 3 of Promesa, it will be possible to continue providing services to citizens, while undertaking governmental and structural reforms,” he said.
La Fortaleza said the main factors that modified government projections of $57 billion in deficit over the next 10 years were the migration of the Retirement Systems to a ‘pay-go’ method and the segregation of the contributions of the current employees, among other items.
“The numbers prepared together with the Financial Oversight Board validate once again our position on the precariousness of public finances and the magnitude of the crisis we inherited. To put this in context, a cut of $9 billion over 10 years equals nearly 13% of annual GNP and 3/4 of the state’s annual revenues. An adjustment of that magnitude – as the projections confirm – would cause a deep economic depression. Both the Fiscal Plan and the revised projections establish an inescapable fact: it is necessary to execute a comprehensive restructuring of the debt. Likewise, solving the fiscal and economic crisis in Puerto Rico will require Congress to correct inequities in the treatment of the health system and provide us with tools for economic development, “said García Padilla.