Fiscal control board amends contract with McKinsey & Co.
SAN JUAN — Promesa’s fiscal control board amended earlier this month its contract with advisers McKinsey & Co. to extend its term and increase the fees that will be paid to the firm during the coming months.
According to a document published online this week by the board, McKinsey will now be paid about $1.4 million per month until Sept. 15. Then, the amount is reduced to $875,000 monthly until December of this year.
The New York-based firm was initially retained by the board in late November. Under the original contract, monthly fees were about $945,000 until March and $312,500 through May.
The amended contract establishes new payment terms between the board and McKinsey, including a $1,412,500 payment due last March 15, which would cover the additional work performed by the firm during the first months of the year.
According to the document posted on the board’s website, the “expanded scope of services” now includes “development, recommendations and writing the Territory’s fiscal plan or the amendment to the fiscal plan submitted for approval by the governor of Puerto Rico.” It also mentions work related to “the letters required by Promesa to certify or identify violations” to the fiscal plans submitted for the government and its instrumentalities.
McKinsey advises the board in virtually every aspect of its work, from organizing its operations and project management to the decision-making process as well as short- and long-term action plans to be followed by the governing body.
For instance, the firm will establish the framework to be followed by the board in analyzing and certifying budgets and fiscal plans for the government and its instrumentalities. It is also in charge of monitoring the government’s liquidity management and advising the board on the actions taken to address this matter.
What’s more, McKinsey has also been carrying out many of the functions related to the revitalization coordinator figure established under Promesa. Regarding the latter, it is still unknown when the board will appoint someone to assume the position on a permanent basis. Last year, Aaron Bielenberg—who works for McKinsey—was selected as interim revitalization coordinator, but his long-term role has been unclear, particularly as he is part of McKinsey’s team.
Under the amended contract with McKinsey, the firm will continue to lead efforts to identify critical projects, as defined by Title V of Promesa, until a coordinator is duly appointed. However, McKinsey’s functions in this area would be limited and won’t include decision-making, fiduciary duties, negotiating responsibility, and authority over board or government employees, among other restrictions.
Two-month contract to Krueger report’s economist
The board also awarded a second advisory contract to economist Andrew Wolfe, a former official of the International Monetary Fund. Before his role with the board, he worked on the famous “Krueger Report,” a study commissioned by the administration of former Gov. Alejandro García Padilla that served to lay the foundations for the magnitude of Puerto Rico’s fiscal and economic crisis, which required, among other austerity measures, a restructuring of the island’s public debt.
Initially retained by the board late last year, Wolfe charges about $25,000 a month plus travel expenses and will now work for the board for an additional two months, until April 30, following the new contract. The consultant has been in charge of the revision of macroeconomic models, debt sustainability and other fiscal parameters that have been used by the board in the fiscal plan’s certification process.