Cleaning up Puerto Rico’s mess
The crisis is past critical and is approaching disaster
Puerto Rico continues to struggle with the consequences of irresponsibly running up debt. It owes debtors about $70 billion, and a default on debt which was due to be fully repaid by last month has made things worse. The Puerto Rico Oversight, Management, and Economic Stability Act, enacted last year after President Obama and House Speaker Paul Ryan applied pressure on Congress, was supposed to prevent things like that. Instead it threatens to accelerate the rate of collapse.
Puerto Rico has gone past critical and is approaching a disaster that will lead, no doubt, to demands that the U.S. government pay the island’s bills. The blame for this goes to the politicians who are still trying to protect public employee pensions above everything else. A pension oversight board deserves blame, too, because it wouldn’t make tough and unpopular decisions to develop a plan to right the ship.
Rather than make tough choices it won’t talk about what it needs to do. The lack of transparency in deliberations further antagonizes the credit markets on which the government depends. It has shut down the opportunity to change Puerto Rico’s Fiscal Plan and refuses to address the criticisms lodged against it, in or out of court. The Puerto Rican government is using revenues designated to pay back debt for ordinary commonwealth expenses.
The cumulative amount of the diverted revenues is close to $1 billion. Given that the total service on the general obligation debt is $800 million or less, about 20 percent of that is being diverted for improper purposes, which is digging the hole so deep it will be hard to get out of it without help from Washington. The board needs a shake-up to put an end to the continuing shakedown by frantic opponents of reform.
Six members of the pension oversight board are appointed by Congress. One, Anthony Gonzales, a New York judge who is supposed to know something about bankruptcy law, is a presidential appointee whom President Trump can and should replace. A new Trump member with an appropriate background in municipal finance would boost the board’s ability to push fiscally sound policies and guarantee competent administration. He or she could be the new deciding vote in pushing back against fiscal attacks, enabling a realistic recovery rate for bondholders, and putting Puerto Rico’s financial house in order.
A fair agreement to Puerto Rico’s financial problems can only be reached through transparent negotiations, higher accountability and a respect for the lawful priorities and liens. A new administration marks a new direction and a new policy, and the president needs proper representation on the oversight board to solve Puerto Rico’s debt crisis once and for all.