Puerto Rico Financial Oversight and Management Board members and New Progressive Party (PNP) leaders elected last month to take over the reins of the territorial government early next month made clear earlier this week their intent to, first, adopt a more fiscal adjustment plan focusing more on local reforms than that submitted by Governor Alejandro Garcia Padilla (Popular Democratic Party/PPD) and, then, negotiate debt restructuring in “good faith” under Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) Title VI (Creditor Collective Action) rather than immediately seek to force debt reductions on creditors under PROMESA Title III (Adjustment of Debts), as advocated by Garcia Padilla and U.S. Treasury Secretary Jacob Lew.
Governor-Elect Ricardo Rossello also stated that an extension of the PROMESA stay on litigation to force Puerto Rican government debt payments would be needed. The law imposed a stay through February 15th and empowered the Board to extend that 75 days. Rossello said the Board will have no other option than to extend the stay and that he may seek an amendment to PROMESA to extend it even further “because when you go to Title III . . . you have to prove that there was a good faith effort to negotiate.”
Flanked by territorial Senate President-Elect Thomas Rivera-Schatz and House of Representatives Speaker Elect Carlos “Johnny” Mendez, Rossello explained that his administration’s fiscal plan will be completed on January 15th — 13 days after he takes office — which would be 16 days before the Board has written that it will adopt a final fiscal plan and, then, Puerto Rico representatives would have to “renegotiate in good faith with 19 credits.” He pointed out that this would be “practically impossible” before February 15th.
Recognizing that the Government will not be able to meet all obligations February 1st when its law providing for moratoria on debt payments expires, Board Member Ana Matosantos said that the panel has not decided between the options of extending the moratorium law or the stay.
Matosantos spoke in another news conference along with Board Chairman Jose Carrion and Member Jose Ramon Gonzalez. In that session, Carrion asserted that, “We will do what is right with the community of creditors that lent their money to Puerto Rico.” The Board will seek to renegotiate territorial government debt “in good faith,” he emphasized.
He also stressed that, “The law requires that fiscal reform is addressed first . . . we have to certify a plan prior to restructuring the debt,” although he added that debt relief “will be essential.”
Matosantos said that the debt reductions will be “significant” but the Board still does not know the amounts. Gonzalez added that cutting spending alone would mean “an enormously severe economic impact.”
Carrion went on to say that the Government’s $67.5 billion over 10 years gap between revenue and expenses identified by the Board in its letter yesterday to Garcia and Rossello “has to be validated.” Later, Rossello’s Transition Chairman and designee to sit in the governor of Puerto Rico’s ex-officio seat on the Board, Elias Sanchez-Sifonte, asserted that the information obtained from the Garcia Padilla Administration on the extent of the Government’s deficit has to be “thrown in the trash” because the deficit is worse than had been presented during Transition hearings.
Carrion also said that the Board letter’s prescription of fiscal adjustment measures for the Government were “suggestions and options.” A PNP supporter, he added that, “The fiscal plan will be the governor’s,” referring to Rossello rather than Garcia.
For his part, Rossello contended that many of the Board’s proposals were already “in our program,” identifying several. Among these were a smaller government, pension systems reforms, and contracting with businesses and non-profits to provide many government services. Also on the immediate agenda were incentives for professionals to stay in the territory, market promotion and external investment incentives, and “equal pay for equal work.”
Standing with Rivera Schatz and Mendez, he announced that, “We have been able to coordinate those bills with the Senate and House leaders, so the people can see quick results.” He disclosed that the three had discussed the importance of action on reforms during their first 114 days in office.
Rivera Schatz added that, the Senate would be “ready to approve bills the first day” of the legislative session, which begins January 9th. Mendez also said that the House would start to legislate that day when legislators are sworn into office, additionally promising that, “The House will implement the necessary reforms.” The PNP will have two-thirds majorities in both houses of the Legislative Assembly.
Gov. Garcia Padilla reacted angrily to the approach to fiscal adjustment stated by Carrion and Rossello. “The fiscal supervision board said today that they aspire to ‘do the right thing’ with the creditor community by voluntarily renegotiating debt under Title VI of PROMESA,” he wrote. “This claim is incompatible with the expressions of the Board as recently as today because . . . its estimate of a deficit of $67 billion . . . shows that a comprehensive restructuring under Title III is inevitable.”
“If Puerto Rico does not seek Title III protection,” before February 15th, he went on, “essential services will be severely affected . . . If Puerto Rico runs out of money, it will be because it will not have entered into a comprehensive process of debt restructuring. On the other hand, if we welcome Title III, it will be possible to continue to provide services to citizens while undertaking governmental and structural reforms.”
Despite Rossello’s statements to the contrary, the lame-duck Governor asserted that he was “confident that the new government will oppose any effort under Title VI and will support our fiscal plan,” adding that, “I will remain firm . . . until the last day of my term.”
For his part, Rossello was sharply critical of the Garcia Padilla Administration’s approach to the territory’s fiscal problems. “The present administration made the wrong choices,” he contended, “they were irresponsible.”
