Wednesday, November 20, 2019

Fiscal Oversight Board Grants Fiscal Plan, Promesa Stay Extensions

By on January 28, 2017

FAJARDO, Puerto Rico – During its fourth public meeting Saturday in Fajardo, Promesa’s fiscal control board approved an extension to both the delivery date of the Puerto Rico government’s fiscal plan as well as well as the stay on litigations provided under the federal statute.

Gov. Ricardo Rosselló’s administration must now hand over a draft fiscal plan on or before Feb. 28, awaiting certification by the board of this document before March 31. The board also established delivery dates for six public entities that must present their fiscal plans individually.

For Rosselló, the board’s determination was “a show of trust” in his administration’s management to date.

At the El Conquistador Resort meeting, where once again strong security measures were put in place, several government officials presented to the board the various fiscal control measures the new administration has already taken.

However, to questions from the press after the meeting ended, the board said it did not have an official position on the recently approved labor reform, nor on the legislation to replace former Gov. Alejandro García Padilla’s debt-moratorium law.

Government officials, alongside their external advisers, Conway MacKenzie, explained that with the extension of the stay on litigation through the beginning of May, there will be sufficient liquidity to keep the government running during the next few months without a need for external financing. However, once the stay expires in May, and absent consensual agreements with its creditors, Puerto Rico could again be facing a $1.3 billion cash shortfall and a possible government shutdown.

It was also revealed that Conway MacKenzie will continue under contract with the government even though it had been hired by the last administration.

Meanwhile, about $470 million is reserved for contingencies, taking into account the several risks the government faces such as the condition of the retirement systems, the depletion of federal healthcare funds under Obamacare, and a looming payment of nearly $400 million to three public funds that lent the government money early in the fiscal year.

On its recommendations made to the Rosselló administration via a Jan. 18 letter, the board reiterated during the meeting the need for debt restructuring along with substantial cuts in government spending, including in healthcare and pensions. However, the board indicated that it was receptive to alternatives pitched by the government if these represent a solution that puts an end to the problem once and for all. The board stressed once again that the government may not seek short-term financing.

During the meeting, the election of former Triple-S Chief Executive Officer Ramón Ruiz Comas as interim executive director of the board was announced, while the search for who will assume the role permanently continues. The board also announced the hiring of Citigroup, which also worked for the past administration, as financial advisers.

In addition, a series of amendments were made to the board’s bylaws–a process in which the attorney who worked on the so-called “ley de quiebra criolla,” or local bankruptcy law, Martin Bienenstock, of the Proskauer Rose law firm was in charge of. These include the incorporation of a code of ethics and the faculty of taking action between meetings with the unanimous consent of its members.

Chairman José Carrión III said he would be presenting the governor, within the next two months, a new list of candidates for revitalization coordinator to choose from. Before exiting La Fortaleza, García Padilla appointed Aaron Bielenberg to that position after having received a list of three candidates from the board.

Essential Services Yet to Be Defined

During the government’s presentation to the board, Government Development Bank President Christian Sobrino said that the legislation substituting the moratorium law provides the legal framework for defining essential government services while assuring payment of the debt.

However, to questions regarding what constitute essential services, the governor’s representative before the board, Elías Sánchez, emphasized that defining these is not an easy process. He also blasted the García Padilla administration for “having spent $400 million on advisers” to supposedly define essential services and had failed in doing so.

The official added that essential services will be defined between members of the Financial Advisory & Fiscal Agency Authority, the local Treasury Department and Office of Management & Budget along with personnel from each of the government’s agencies. Generally, these include the areas of healthcare, security, education and critical infrastructure, Sánchez said.

“Payments for essential services would be current, [payments for] non-essential services would be deferred,” Treasury Secretary Raúl Maldonado added on the matter during the meeting. Some of the board members, including Ana Matosantos, expressed concern over the effect this would have in the accounts payables of suppliers that have delivered services that the administration considers to be non-essential.

GDB President Christian Sobrino and Treasury Secretary Raúl Maldonado (Juan J. Rodríguez/CB)

GDB President Christian Sobrino and Treasury Secretary Raúl Maldonado
(Juan J. Rodríguez/CB)

During the press conference, board members were asked to give their definition of essential services, but they referred the question to government officials.

“We are not the government elected by the people of Puerto Rico, which defines what the essential services are…. The board dictates the number we need to reach to balance the budget,” Carrión said. To this, board member José R. González added that the government must differentiate between “what is aspirational and what is affordable.”

–CB reporter Cindy Burgos Alvarado contributed to this article.

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