Sunday, January 29, 2023

The Puerto Rico Debt Monster Takes Center Stage

By on December 17, 2015


It is customary in publications across the globe to close the year with a Special Report on the Person of the Year. Under the new ownership of Latin Media House, Caribbean Business has decided to break with a pattern long established in this newspaper of naming a Person of the Year, one for the public sector and another for the private sector.

Yes, Government Development Bank President & Chairwoman Melba Acosta has taken on a thankless job—the anvil of debt restructuring weighing heavily around her neck. However, the biggest story taking on a personality all its own has been Puerto Rico’s monstrous debt. Puerto Rico’s debt crisis is therefore our Person of the Year. Such is the magnitude of that towering $70 billion debt (tied to bonds with regular debt-service payments) that this year, the stateside and international press has dedicated more column inches to the subject than any other story coming out of Puerto Rico.

National publications serving the financial community—Bloomberg, Bond Buyer, Debtwire—have contingents of reporters dedicated solely to covering Puerto Rico’s debt.

The massive coverage of Puerto Rico’s debt crisis traces in large part to a confluence of events—largely the commonwealth’s admission of its incapacity to meet an onerous debt-service payment schedule that will reach more than $5 billion in fiscal 2016—that have made many creditors jittery.

It took a report “Puerto Rico—A Way Forward” painstakingly put together by former International Monetary Fund (IMF) Managing Director Anne Krueger and colleagues Ranjit Teja and Andrew Wolfe to open Gov. Alejandro García Padilla’s eyes to the magnitude of the debt crisis. Without the prospect of job growth on the level that is necessary to achieve sustainable economic development and a paper-thin tax base, Puerto Rico has been hard-pressed to meet a very steep debt-service payment schedule without orderly restructuring.

Krueger’s report was intended to put the “Good Housekeeping” seal of approval on the commonwealth’s negotiations with creditors, many of which have seen the governor handing over his constitutional charge to what largely amounts to bankruptcy advisers. That is a shame.

To add insult to injury, the García Padilla administration is in the unenviable position of hoping against hope that Congress will take up a measure filed in the U.S. Senate by Sens. Orrin Hatch (R-Utah), Lisa Murkowski(R-Alaska) and Charles Grassley (R-Iowa). The bill essentially assigns a financial control board—they call it an authority— to wield control over all financial decision-making in Puerto Rico in exchange for what amounts to a brief respite of some $3 billion.

As this newspaper was hitting newsstands, the Puerto Rico Electric Power Authority (Prepa) was facing yet another deadline on a Restructuring Support Agreement (RSA) that the García Padilla administration’s restructuring brigades were hoping could become a blueprint for moving forward. Without that deal, Puerto Rico faces a harrowing 2016 that kicks off with a debt-service payment of $957 million on Jan. 1 alone. Default would send Puerto Rico down a road to litigation that some creditors are claiming could cost the commonwealth $500 million in legal fees a year.

There is no bigger story than this horrendous debt crisis. Waiting for bailouts or hoping the U.S. Supreme Court will deem the Puerto Rico Debt Compliance & Recovery Act enforceable during hearings in March 2016 won’t solve the underlying issues that got us in this terrible jam in the first place.

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