Sunday, February 5, 2023

Making Sausages is Never Pretty

By on April 21, 2016

With Puerto Rico’s government moving at breakneck speed toward a debt cliff—a precipitous drop in liquidity with a first payment of $422 million less than two weeks away—all eyes remain focused on the U.S. Congress. The Alejandro García Padilla administration continues to hold out hope against hope that the U.S. House will markup the Puerto Rico Oversight, Management & Economic Stability Act, which continues to look more impossible with the passing of each day. The categorical impediment posed by consensually challenged factions prone to divisiveness—largely Tea partiers in the House and a couple of lobbied U.S. Senators in the upper chamber—are not likely to experience a Rodney King reckoning with a chorus of “can we all just get along?”

In the Mano a Mano point-counterpoint in this edition, two former secretaries of Justice, Luis Sánchez Betances and Pedro Pierluisi, who is currently Puerto Rico’s nonvoting member in Congress, write columns on the pitfalls and merits of congressional legislation that would impose a federally mandated control board for Puerto Rico.

Sánchez Betances believes that a federal oversight board as it was designed in the draft bill submitted by Rep. Sean Duffy (R-Wisc.) would be tantamount to gutting democracy in Puerto Rico—tossing into the dustbin of history the commonwealth that was certified by Congress in 1952 and placing the island in receivership.

Pierluisi sees the federal oversight board as a necessary—but temporary—mechanism that could help untangle Puerto Rico’s fiscal discombobulation (ensalchichonamiento in Spanish). Both former Justice secretaries agree on one front—that fiscal oversight alone will not stop Puerto Rico from its terrible free fall. There must be a credible plan that will lead to economic development for the island.

The most recent jobs report released by the U.S. Bureau of Labor Statistics could not be more devastating in supporting those claims. The total number of people employed in Puerto Rico has dipped below 1 million once again; some 987,000 people are currently employed, a level that takes us back to 1990. All told, the island lost some 33,000 jobs over the past three months. That works out to 44 jobs lost per hour, according to calculations by NCM Noticias, a news wire service that broke the story days ago.

When the governor speaks of a coming humanitarian crisis, the devastation is truly already upon us. That alone should be enough to force us from our “ostrich mentality,” bring our heads out of the sand and ask the tough questions. In 2010, President Barrack Obama amended the White House Report on Puerto Rico Status to include recommendations that would lead to economic development; why hasn’t the executive branch intervened? The time has come for the commonwealth’s advisers to sit down at the table and hammer a deal—bringing 11 credits into one deal is an enormously complex task that has proven nearly impossible.

On the restructuring front, there is one novel idea presented by Latin Media House Chairman Miguel Ferrer in this edition’s Cover Story that could appease all creditors. Ferrer suggests three separate securities—Series I, which would have maturities of seven to 15 years with 70% of the value of the bonds exchanged and a 3% coupon; and Series II, which would have maturities between 15 and 30 years with 85% of the value of bonds exchanged and a 5% coupon payable each year. Series III would contain 30- to 45-year maturities at par value. Ferrer envisions prioritizing maturities, “offering the option of shorter maturities to those bondholders that have the most valuable paper first.”

Economist Gustavo Vélez believes it is an idea worth serious discussion because it also protects local bondholders. Some creditors privately concurred.

Time to sit at the table and figure this mess out. Then the commonwealth can get on to the business of creating desperately needed jobs.

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