Puerto Rico over­sight board’s suc­cess may hinge on elec­tion

Kuwait Times - - BUSINESS -

A forth­com­ing fi­nan­cial turn­around plan for Puerto Rico, which the ter­ri­tory’s over­sight board wants on its desk in nine days, will prob­a­bly change af­ter the is­land’s Novem­ber elec­tion. For the board, it could be a wel­come sce­nario. The bi-par­ti­san board, cre­ated by the Puerto Rico res­cue law known as PROMESA, set Oct 14 as a dead­line for the ter­ri­tory’s gov­er­nor Ale­jan­dro Gar­cia Padilla to de­liver a draft plan for how to boost is­land rev­enues and tackle its $70 bil­lion debt.

Gar­cia Padilla has un­set­tled Puerto Rico’s cred­i­tors by in­sist­ing on deep debt cuts and de­fault­ing on some pay­ments, but he is not seek­ing a sec­ond term, so it will ul­ti­mately fall to his suc­ces­sor to work with the board to fi­nal­ize the plan. Ricky Ros­sello, the lead­ing can­di­date for his job, is seen as more likely to de­liver a plan com­pat­i­ble with the phi­los­o­phy of the board. Its mem­bers in­clude bank­ruptcy ex­perts and bankers - tech­nocrats ex­pected to push for longterm sta­bil­ity, not just a quick fi­nan­cial fix or a mas­sive debt cut that might be ap­peal­ing to Puerto Ri­can politi­cians.

The 37-year-old Ros­sello, a mem­ber of the op­po­si­tion party, told Reuters in an in­ter­view he wanted to shrink the ter­ri­tory’s govern­ment to avoid fur­ther debt de­faults, and in con­trast to Gar­cia Padilla, op­posed cuts to prin­ci­pal on the is­land’s most se­nior debt. “My view is gen­eral obli­ga­tion debt should not take a hair­cut, but the good news is they have seemed will­ing to rene­go­ti­ate terms - to re­fi­nance or ex­tend,” he said, re­fer­ring to the is­land’s most se­nior debt and its hold­ers.

The board is largely re­viled in Puerto Rico, where lo­cals feel it in­fringes upon the US ter­ri­tory’s self-gov­er­nance. Ros­sello and his main op­po­nent, rul­ing party mem­ber David Bernier, have both taken is­sue with the scope of the board’s pow­ers, but said they would co­op­er­ate with it. Daniel Han­son, a Height Se­cu­ri­ties an­a­lyst who closely fol­lows Puerto Rico, said he ex­pected the board’s re­la­tion­ship with the new gov­er­nor to be “some com­bi­na­tion of strained and prag­matic” re­gard­less of who wins. Han­son added, though, that the board may find more com­mon ground with Ros­sello than Bernier. “I think the board is go­ing to find more in the Ros­sello pol­icy that makes sense to them,” he said.

Abun­dant chal­lenges

Puerto Ri­cans on Nov 8 will choose a new gov­er­nor, both houses of the leg­is­la­ture, may­ors and lo­cal of­fi­cials in what polls sug­gest could be a clean sweep for the op­po­si­tion. An ail­ing econ­omy and a probe into the rul­ing party’s al­leged fundrais­ing fraud have hurt its ap­proval rat­ings and an Au­gust poll by Puerto Rico’s top cir­cu­la­tion news­pa­per, El Nuevo Dia, put Ros­sello 7 points ahead of his ri­val.

There is no short­age of prob­lems a turn­around plan may address: Aside from its debt, Puerto Rico faces a $45 bil­lion hole in its pen­sion sys­tem, a health­care sys­tem near­ing col­lapse and public schools fall­ing short of fed­eral stan­dards. Nearly half of its 3.5 mil­lion res­i­dents live in poverty and the pop­u­la­tion is dwin­dling as lo­cals, who are US ci­ti­zens, flock to the main­land United States.

At its in­au­gu­ral public meet­ing on Sept. 30, the board for­mally asked Gar­cia Padilla to de­liver a draft plan within two weeks, but also ac­knowl­edged it could be re­vised as Puerto Rico’s lead­er­ship changes. “The plan is not static,” Jose Car­rion, the board’s chair­man, told re­porters. The board has wide pow­ers, in­clud­ing ap­prov­ing Puerto Rico’s an­nual bud­gets, re­view­ing the govern­ment’s fi­nan­cial ac­counts and spend­ing habits, and work­ing with that govern­ment on projects to spur eco­nomic growth.

Ros­sello said his fis­cal turn­around plan would re­place a plethora of govern­ment em­ploy­ers with one, so work­ers could be shifted be­tween public agen­cies. It would trans­fer sev­eral govern­ment agen­cies to pri­vate com­pa­nies or non­prof­its, and cut the over­all bud­get by 10 per­cent, he said. The sav­ings, cou­pled with mod­er­ate debt re­struc­tur­ing that would pre­serve prin­ci­pal for se­nior bond­hold­ers, would avoid de­faults with­out govern­ment job cuts, Ros­sello said.

Bernier’s turn­around plan would fo­cus more on cut­ting debt and sal­vaging es­sen­tial ser­vices, specif­i­cally pen­sion pay­ments, said Bernier’s run­ning mate, Hec­tor Fer­rer. Bernier was not made avail­able for an in­ter­view. In both cases, can­di­dates could have a hard time im­pos­ing their vi­sions on debt re­struc­tur­ing, be­cause un­der PROMESA, fa­cil­i­tat­ing re­struc­tur­ing talks is the job of the board, not the gov­er­nor.

Han­son was also skep­ti­cal Ros­sello can ac­com­plish sav­ings with­out shrink­ing govern­ment head­count. “It’s hard to imag­ine how sim­ply con­sol­i­dat­ing agen­cies can re­sult in sig­nif­i­cant bud­getary sav­ings with­out lay­offs,” he said. The gov­er­nor could have more lee­way with is­sues like pri­va­ti­za­tion and con­sol­i­da­tion, both among agen­cies and mu­nic­i­pal­i­ties, Han­son added. —Reuters

SAN JUAN: In this July 29, 2015 file photo, a bronze statue of San Juan Bautista stands in front of Puerto Rico’s capi­tol flanked by US and Puerto Ri­can flags. —AP

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