After Oversight Board approves fiscal plan, stage for legal battle set
Staples of the Puerto Rican economy throughout the past decade include high unemployment (over 10%), poverty (60% of children), and insurmountable debts (the government owes $74 billion to bondholders). The inability of the Puerto Rican government to correctly forecast costs and revenues has led to budgets that are inefficient and progress the problems even further.
Congress passed the Puerto Rico Oversight, Management, and Economic Stability Act in 2016, which prioritized more accurate forecasts for budgeting and a new structure for debt repayment. This law also goes by the acronym PROMESA, which coincidentally turns out to mean “promise” in Spanish.
PROMESA was designed to give Puerto Ricans hope of a better future by providing more economic stability. Under PROMESA, the Financial and Oversight Management Board was created and given authority to approve or reject the budgets proposed by the Puerto Rican government. As hurricanes, poverty, power outages, and unemployment take a devastating toll on the archipelago—the people of Puerto Rico need assistance from the United States, which claims it as a territory. So far, the appointed board seems more concerned with prioritizing cost-cutting measures to achieve a budget surplus that can be used to repay creditors, than it is with helping those that need it the most in Puerto Rico.
The irony in all this is dark but apparent. A law with the alias PROMESA conveys a sense of commitment from the American government to the Puerto Rican people. However, the recent fiscal plan that was approved by the Financial and Oversight Management Board by a vote of six to one, includes some cuts and budget restructures that add more burden to demographics of the Puerto Rican population who are already struggling (the poverty-stricken youth and income-restricted elderly).
In the newly approved fiscal plan there is a measure to reduce the benefits paid out to retirees by 10% on average. The Puerto Rican education system will have to make money stretch even further because of a line item in the plan that decreases fund distribution to public schools and the University of Puerto Rico. Labor reforms include a five-year perpetuation of a pay freeze for government employees and a 50% decrease in their paid leave allotment. The executive director of the board, Natalie Jaresko, argues that the cuts are necessary because there are almost no funds to meet current obligations. If programs and pensions are to remain sustainable over time, Jaresko claims that the decreases are necessary to hedge against the possibility of defaulting on payments for future obligations.
These cuts, however, are not merely designed to achieve a balanced budget and guarantee the availability of funds for present and future obligations. There is another important factor to consider as well: bondholders expect a stake in the allocation of Puerto Rican funds too. The reality is that the board is implementing budgetary cuts for multiple purposes, one of which is to momentarily fend off creditors by shrinking cost and forecasting a future budget surplus of $6.7 billion that can be used the repayment of debt. And so, the Puerto Rican people who are struggling mightily, and who are already reeling from the austerity of budget constraints, are expected to squeeze their belts even more and make due with less.
Governor Ricardo Rosselló is not pleased with the new fiscal plan approved by the board. He has made it clear that any measures which call for pension payment changes or labor reform will be opposed by his administration. Governor Rosselló states that the board does not possess the necessary powers required to implement the proposed cuts and calls the decrease in benefit payouts immoral.
Jose Carrión, the chairman of the board, has responded to Governor Rosselló by insinuating that resistance by Rosselló’s administration to adhere to the measures in the newly approved fiscal plan may result in possible litigation. It appears that any window of compromise and teamwork between the two sides has closed abruptly. With myriad bankruptcy and debt proceedings currently taking place, a battle in court over the fiscal plan would put even more stress on the Puerto Rican government.
It turns out that the acronym PROMESA may not be just a coincidence after all. Government can play an important role in maintaining the health and stability of an economy for the benefits of both the people and itself. However, when there is a plethora of mouths to feed, and only a small pie to go around, some promises will be starved from fruition.