Natalie Jaresko, the executive director of the Financial Oversight Management Board (FOMB) in Puerto Rico, and David Skeel, the Board’s chairman, defended the Puerto Rico debt restructuring process in a recent opinion piece in the Wall Street Journal.
Puerto Rico has been laboring under a debt load that a previous governor described as “unpayable” for five years. The FOMB, established under the Puerto Rico Oversight Management and Economic Stability Act (PROMESA), was able to restructure the debt, reducing the total obligation to $7 billion.
Judge Laura Taylor Swain approved the Plan of Adjustment in January. The FOMB has been working with the Puerto Rican government and creditors to craft a plan that could satisfy stakeholders within the legal requirements.
Hostility toward FOMB agreement
Jaresko and Skeel acknowledge that the settlement has had its critics.
“Why this hostility to such a successful restructuring?” they ask in their opinion piece. “One reason is that critics view the Oversight Board, which was created by Congress and led the restructuring, as a colonialist intrusion on Puerto Rico. These concerns are accurate in one respect. The Territories Clause in Article IV of the U.S. Constitution gives Congress sweeping authority over Puerto Rico. Congress could not have imposed an oversight board on a state.”
“Other critics believe Puerto Rico should have wiped out the debt altogether,” the article continues. Many critics have claimed that the debt should have been canceled or subjected to a thorough audit in light of questions about the legal validity of some of the claims. “But creditors’ legal entitlements under American law make it impossible simply to erase valid obligations.”
Political status implications
“The critics should consider the restructuring from a different perspective,” the authors claim. “Puerto Rico’s status has been debated since the island became part of the U.S. in 1898. Some Puerto Ricans favor statehood, some prefer commonwealth status, and some call for independence, but everyone agrees that there is an urgent need to address the territory’s finances. Congress is unlikely to step in to make a determination on status until PR gets its financial house back in order, and the debt load was one of the biggest such obstacles; that obstacle has now been removed.”
The claim that “some Puerto Ricans favor statehood, some prefer commonwealth status, and some call for independence” implies that there is widespread disagreement on the subject. In fact, 53% of voters chose statehood in the 2020 referendum, confirming statehood votes in 2012 and 2017.
In recent years, some members of Congress have resisted resolving Puerto Rico’s status until the debt question was settled. If the Island’s unresolved debt was an obstacle to congressional decision making, the new agreement may represent a step forward.