Junteconómico Provides Insight Into La Fortaleza Candidates’ Economic Platforms
Election Day is eight days away and Puerto Rico will soon have a new governor who will have the unenviable challenge of lifting the island from its fiscal and economic crisis. With that in mind, Caribbean Business en Español and ABC5 recently held a two-hour televised forum dubbed “Junteconómico,” in which Puerto Rico’s six gubernatorial candidates offered varied views on food sustainability, debt restructuring, government restructuring and economic development.
On the subject of restructuring Puerto Rico’s $70 billion debt, the six candidates agreed on the need for Congress to give Puerto Rico an extension on the stay on all liability claims, as it will take time to renegotiate the debt with the island’s creditor groups. The stay provided under the Puerto Rico Oversight, Management & Economic Stability Act (Promesa) expires in mid-February 2017.
Independent candidate Alexandra Lúgaro said debt restructuring is controlled by the federal fiscal-control board that was enacted under Promesa, but the newly elected governor—whoever that may be—must make budget cuts to advance the process and avoid legal processes that could be costly.
Manuel Cidre, who is also an independent candidate, said a government report shows that the commonwealth can comply with restructuring its estimated $18 billion general-obligation bonds by paying interest and putting a stop in the payment of the debt’s principal. The Puerto Electric Power Authority, P.R. Aqueduct & Sewer Authority, Highways & Transportation Authority, Government Development Bank and Sales Tax Financing Corp. have the lion’s share of the remaining central government debt and these entities can renegotiate their debts because they have their own sources of income, he said.
“This is not going to happen in February. We are going to have to extend the stay to May, which is the second extension provided by Promesa,” Cidre said.
For his part, New Progressive Party gubernatorial candidate Ricardo Rosselló said he was confident that if elected, he could reach terms of agreement with creditors during his first 50 days as governor. He said he has already been meeting with creditors and he will continue to meet with them after elected to reach those terms of agreements to renegotiate the debt. According to Rosselló, with a deferred payment on just two of the 19 groups of creditors, Puerto Rico could obtain $800 million to operate the government and restore its credibility.
Working People’s Party gubernatorial candidate Rafael Bernabe recalled that in 2014, his party was the first one to stress the need to renegotiate the debt and suspend payments to creditors, for which they were called irresponsible. He said Congress—not the board—should extend the stay on liability claims. Before engaging in debt restructuring, Puerto Rico needs to audit all its debt to determine which may be illegal and nullify it, he said. “We need the people of Puerto Rico, not these seven guardians, to renegotiate the debt on our terms.”
Meanwhile, Popular Democratic Party gubernatorial candidate David Bernier stressed the need to restructure the debt instead of engaging in austere measures because budget cuts could increase poverty and hurt businesses and retirees. Like Bernabe, he said the debt has to be audited first.
Puerto Rican Independence Party gubernatorial candidate María de Lourdes Santiago said the island cannot restructure the debt under conventional terms or those of Promesa because of the diversity of creditors. She said hedge funds that purchased the debt at 25¢ on the dollar would do well in a restructuring if they receive 30¢ on the dollar back, but the island’s credit unions that invested millions in a transaction during the Luis Fortuño administration, could collapse. “If credit unions disappear because their payments are not honored, then a source of funding for the poor also disappears,” she said.
Cidre said that according to the government’s fiscal plan, only 10% of creditors are local bondholders—not 40% as originally believed. “Local investors should be separated from the speculative investors,” he said.
In response to a question, Bernier reiterated his “entry point” concept in which creditors collect according to the time they purchased their bonds. “In the process of restructuring, we need to differentiate between local bondholders and those who purchased just to speculate,” he said.
Santiago told Bernier that under Promesa, bondholders with the same type of debt or obligation cannot be treated differently from each other. “This is why we insist that restructuring must be done in nonconventional terms, in our hands, and not under the board. We believe confronting the board will create an unsustainable event for the United States…. The reason why the board is acting in a dictatorial way and why Congress appointed a board was because of the complicity of the political parties…,” she said.
Proposed measures to reignite the economy
The six candidates also spoke at length on their ideas to jumpstart the economy and increase the labor-force participation rate, which has been stuck at 40% for years. Santiago said that unless Puerto Rico obtains controls of its borders and diversity in maritime transportation, the island will not be able to jumpstart the economy.
Lúgaro proposed training students to work in high demand jobs, strengthening agriculture, refocusing the tourism industry and modernizing manufacturing. Rosselló proposed implementing the Welfare to Work program so that those who want to work do not lose benefits they need to subsist.
Bernabe called upon the need to tax controlled foreign corporations (CFCs) and invest these tax revenues in the private sector to create jobs. The CFCs yield $30 billion a year that leave the country, he noted. “We want part of those earnings to be invested in Puerto Rico.”
He proposed an agro-ecological project for Puerto Rico that calls for the creation of some 24,000 farms on 60,000 acres.
Cidre proposed several ideas that included promoting the production of the 25 goods and items that Puerto Rico imports the most, reducing dependency on welfare and seeking an exemption from the Jones Act to bring raw materials in for production. He said Promesa allows for Jones Act exemptions under an economic emergency provision.
Bernier said tax incentives for companies and tax reform should be overhauled to support local businesses.
In response to a question, Santiago said she would create the 25,000 to 50,000 jobs promoted in her platform by giving more incentives to farming. She noted that companies like Monsanto and others do not grow food in Puerto Rico and sell outside of Puerto Rico seeds that cannot be reproduced. These companies have received $519 million in incentives in a decade, while the government “gives” these companies 238 million gallons of water. “We should want to turn the Land Authority to a Sovereign Food Authority so all that farmland can be distributed to local farmers,” she said.
Santiago, Bernabe and Bernier supported the public financing of political campaigns. Bernier called for shorter political campaigns and total transparency in hiring government workers, especially those in positions of trust, to avoid any quid pro quos. Bernabe noted that the U.S. Supreme Court ruling in Citizens United does not prevent Puerto Rico from banning private donations to political parties.
Rosselló said prevention and education are fundamental in fighting government corruption. He said he would establish an Elected Official Code and create the job of the Inspector General.
Lúgaro did not say if she would support the public financing of campaigns, but stressed the use of technology to keep up with government expenditures and new hires.
Bernabe, Cidre and Lúgaro said it is possible to restructure government without laying off workers because the real problems in government are wasteful spending and duplicity. Bernabe and Cidre coincided on the idea of extending retirement benefits to private-sector workers and allowing them to contribute money into the systems to increase their revenues.
While her platform calls for a zero-based budget, Lúgaro said to carry out her plan, she would need reliable government economic data, but as of today, data varies widely depending on the agency.
Cidre said that in 2004, there were around 300,000 jobs in the public sector and a $7 billion government budget. Nowadays, the budget has grown to around $9 billion, but there are 195,000 workers, representing a decrease of 105,000 jobs. “The problem is not payroll or cutting payroll. A good administrator is the one who cuts the true fat…,” he said. He proposed using a portion of the excess revenue from cuts in government to capitalize the retirement systems and merge the three retirement systems into one.
Rosselló said he wants to create an entirely “new government” to deal with excess costs. He said he would implement the “sole employer idea,” which he claims could save $30 million in its first year and $70 million in its second. He said he would bring in new money to the retirement system through participatory “private-public alliances” so that part of their profits go to finance the systems, and by creating a Trust of Government Properties whose funds can go into the retirement systems.
Santiago said Gov. Alejandro García Padilla’s proposal to eliminate some 12,000 jobs during 10 years is doomed to fail because when Fortuño laid off thousands of workers in 2009 through Law 7, the private sector was unable to provide jobs to displaced workers.
She proposed increasing the 4% tax currently set on the profits of CFCs to help fund the retirement systems.
Bernier proposed redirecting funds from other agencies and using the retirement portfolio to yield new revenues for the retirement systems, which are insolvent and need over $1.1 billion in immediate funding.
Working People’s Party gubernatorial candidate Rafael Bernabe stated that in 2014—his party was the first one to stress the need to renegotiate the debt and suspend payments, for which they were called “irresponsible.”
True. Bernabe made the remarks that the debt could not be paid in a newspaper column in January 2014.
New Progressive Party gubernatorial candidate Ricardo Rosselló said he was confident he could reach terms of agreement with creditors during the first 50 days of his term as governor—if elected—because creditors want to do so. He said he has been meeting with creditors and will meet with them after elected to reach those terms of agreements to renegotiate the debt.
Time will tell: Rosselló told Caribbean Business that he had the blueprint for two terms of agreements with creditors.
In response to a question, Popular Democratic Party gubernatorial candidate David Bernier reiterated his “entry point” concept in which creditors collect according to the time they purchased their bonds. “In the process of restructuring, we need to differentiate between local bondholders and those who purchased just to speculate,” he said. Santiago told Bernier that under Promesa, bondholders with the same type of debt or obligation cannot be treated differently from each other.
True: Promesa states in Section 601(g) that the existing rights of bondholders cannot be altered.
Cidre said that according to the government’s fiscal plan, only 10% of creditors are local bondholders and not 40% as originally believed.
More like 18%. Bonistas del Patio, a group of local bondholders, says they hold over $15 billion of the island’s estimated $70 billion debt.
Independent gubernatorial candidate Manuel Cidre said that Promesa allows for Jones Act waivers under an economic emergency provision.
Not quite: Promesa does not specifically mention the Jones Act, but the law itself provides for waivers in cases of national emergencies or if it advances a national interest.
Puerto Rican Independence Party gubernatorial candidate María de Lourdes Santiago noted that companies like Monsanto and others do not grow food in Puerto Rico and sell outside of Puerto Rico seeds that cannot be reproduced. These companies have received $519 million in incentives in a decade, while the government “gives” the companies 238 million gallons of water.
Seems so: The information is contained in a Center for Investigative Journalism report that analyzed certain government reports on the seed companies.
Bernabe said that controlled foreign corporations (CFCs) generate around $30 billion a year in revenues that leave the country. CFCs must pay a 4% tax on revenues, as established by Act 154 of 2010.
Add 10 billion. The government’s fiscal plan says they are slated to pay $1.9 billion in taxes, which indicates their revenues are more than $40 billion a year.
Government restructuring and Puerto Rico before Congress
Santiago said Gov. Alejandro Garcia Padilla proposal to eliminate some 12,000 jobs during 10 years will fail because when former Gov. Luis Fortuño laid off thousands of workers in 2009 under Law 7, jobs were not replaced by the private sector.
True: For years, the private sector has been economically stagnant and been hampered by added costs and, therefore, has not grown as many would have hoped.
Cidre said that in 2004, there were around 300,000 public-sector jobs and the government had a $7 billion budget. Today, the budget has grown to around $9 billion and yet the number of government workers has decreased to 195,000. He said the problem is not payroll but management.
Más o menos. For fiscal year 2004-2005, the approved general fund budget was $8.8 billion. The number of public-sector workers was 222,985, according to government figures. For fiscal year 2016-2017, the approved budget totaled $8.9 billion. The number of government workers numbers some 158,574.
Bernier said the retirement systems, which are insolvent, need more than $1.1 billion in immediate funding.
Not quite: The retirement systems need over $300 million to maintain its $1 billion reserves.
Bernabe said the U.S. Supreme Court ruling in Citizens United does not prevent Puerto Rico from banning private donations to political parties.
True: The decision in Citizens United was that political spending is a form of protected speech under the First Amendment and the government may not keep corporations or unions from spending money to support or denounce individual candidates in elections.