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Fiscal Plan to Pave Way for Creditor Talks

By on January 25, 2017

For Fiscal Agency & Financial Advisory Authority (FAFAA) Director Gerardo Portela, the Ricardo Rosselló administration must first advance the development of its fiscal plan before negotiating boldly with Puerto Rico’s creditors.

“Once the fiscal plan is developed and possibly certified by the fiscal oversight board, we will be able to negotiate boldly and not in a vacuum,” said Puerto Rico’s new fiscal czar during a recent interview with Caribbean Business.

For Portela, the government first needs to know its numbers to be able to negotiate such aspects as economic terms of a possible debt-restructuring agreement. According to the official, the administration intends to establish first how much money Puerto Rico will have available each year to pay its debt.

Fiscal Agency & Financial Advisory Authority (FAFAA) Director Gerardo Portela (CB/Juan J. Rodríguez)

Fiscal Agency & Financial Advisory Authority (FAFAA) Director Gerardo Portela (CB/Juan J. Rodríguez)

“After evaluating, developing and implementing the fiscal plan, we will have a better idea of the revenues we have in order to establish a sustainable debt service,” the FAFAA chief noted. However, he stressed that not having a certified fiscal plan would not impede the government from talking to its creditors, while pointing at the meetings recently held on the island.

“Hand in hand with the board,” Portela assured, the administration is working against the clock on the development of a fiscal plan that complies with the Puerto Rico Oversight, Management & Economic Stability Act (Promesa) and the requirements already stated by the board.

Moreover, the FAFAA director admitted that as of late last week, the U.S. Treasury had not held talks with the island’s fiscal agent.

Working on the plan’s baseline numbers

Portela explained that the baseline scenario already established by the board is the starting point for the administration’s fiscal plan. However, he warned: “We have our assumptions, [the board] has theirs, but right now we are in that dialogue.” While—unlike the past administration—Treasury has yet to assist the new FAFAA team in preparing the plan, those who are working on the document include the board’s consultants, McKinsey & Co., as well as the Puerto Rico government’s advisers—global law firm Dentons and consulting firm Rothschild.

“We are working diligently on our plan. It involves many calculations and financial models,” said Portela about the plan that the Rosselló administration would now have until Feb. 28 to deliver, unless the government fails to meet certain conditions levied by the board.

Among its most recent requirements, the governing body established by Promesa is calling for additional cuts in annual government spending totaling about $3 billion, while it estimates at $800 million the amount of money available each year for debt service. In response, the governor stated such recommendations are unbearable and that his administration remains open to continue working with the board on a fiscal plan that meets Promesa’s requirements.

Getting to know the creditors

On the Rosselló administration’s strategy in negotiating with Puerto Rico’s creditors, Portela said they are focused on “getting to know the creditor groups” and “evaluating the different alternatives.”

When asked about conflicts among creditors, Portela said: “At this time the government of Puerto Rico has no position regarding which credit is more senior than the other” and recalled how each group defended its respective credits during the meetings recently held on the island.

“What I can say is that we are going to develop the fiscal plan, we want it to be certified by the board and we are going to hold ‘good faith’ meetings and consensual negotiations. That is our plan,” the FAFAA chief added.


After Gov. Rosselló signed last week a new charter law for FAFAA, the island’s fiscal agent now has broader powers aimed at allowing it to make sure that every government entity complies with Promesa and the board’s requirements.

“FAFAA is a mechanism created to expedite and make possible compliance with Promesa’s requirements, and be able to implement and develop a fiscal plan. It is going to do us well, to be able to look for efficiencies or synergy in the government to lower operational costs,” the official explained.

Initially created in mid-2016 under the local moratorium legislation, FAFAA has since carried out the fiscal agency and financial advisory powers previously exercised by the Government Development Bank.

Portela also left the door open to requesting a larger budget for his entity for the next fiscal year, which begins July 1. He explained that this would depend on the tasks that it must undertake, taking into consideration the bigger role that the authority will play in the immediate future.

FAFAA currently has about 30 employees with expertise in investment, traditional banking, legal and strategic consulting, among other areas.

As for the new organizational structure, Portela explained that the Public Finances director will handle debt matters, while compliance with Promesa and the fiscal plan will be tasked to the Federal Affairs director. This official will also be the disclosing agent in charge of providing information to the markets. Meanwhile, the COO will be responsible for the relationship with the local Treasury Department and the Office of Management & Budget. The latter will comprise a committee led by FAFAA that would be in charge of managing the government’s cash flow.

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