This past summer, Congress passed the Puerto Rico Oversight, Management and Economic Stability Act or PROMESA to help resolve the island’s financial crisis. The legislation created two groups: A Congressional task force on economic growth and an oversight board to review fiscal plans and move debt restructuring forward.
In 2016’s final days, both groups encouraged further action.
A balanced budget and economic growth in Puerto Rico depend on quick action from Congress on the recent bipartisan recommendations from the Congressional Task Force on Economic Growth in Puerto Rico. Congress should ensure that the same healthcare funding and child tax benefits that U.S. citizens receive who live in the 50 states is extended to U.S. citizens living on the island.
The Financial Oversight and Management Board of Puerto Rico also announced debt restructuring negotiations are moving forward. The board plans to review an updated fiscal plan from Puerto Rico’s new governor. As the oversight board continues its work, it must listen to the varied civil sectors in Puerto Rico, including those who experience some of the worst aspects of the crisis.
As debt restructuring occurs and fiscal plans authorized, all stakeholders should consider several issues.
- Revenue collection must be seriously reviewed. Puerto Rico fails to collect adequate tax revenue. We are in agreement with several creditors that this is a problem and greater revenue streams exist. The first fiscal plan focused more on streamlining agencies rather than improving tax collection. A 2012 GAO report found that additional revenue is achievable with targeted enforcement.
- Plans and budgets must invest in renewable energy sources. Puerto Rico is rich in sun and wind, and though investment has been promised it has not been realized. Implications for every sector in Puerto Rican society are significant. This is one of the most important areas for long-term, sustainable economic growth.
- While we need to address leakage and areas of duplication in Puerto Rico’s government, we need to protect public sector jobs as an essential job sector.
- Around public budget transparency and accountability issues, the role of the U.S. Treasury Office of Technical Assistance is critical in Puerto Rico. We believe its role is essential in auditing, budget transparency and revenue collection. Since Congress established the office’s authority on the island, I’m encouraged by its progress. All stakeholders need to learn from and support the multi-sector represented debt audit committee. Puerto Rico’s Government and Legislature must proactively pass better public budget transparency laws.
- Fiscal plans need good performance measures and benchmarks. The Governor, Board and Legislature can take a look at a system the State of Maryland instituted under Governor O’Malley. It’s called State Stat.
- Any possible consolidations of hospitals require careful consideration as they affect access for vulnerable populations. Full repayment of the public pension fund is a legal and moral obligation. While PROMESA requires pension study, the legislation mandates pension payment protections.
- Puerto Rico’s government should produce the required debt sustainability analysis. Based on the limited data available, the debt should be reduced in some range between 50 and 60 percent.
- While robust debt cuts are necessary, debt restructurings must take into account that Puerto Rico is incredibly vulnerable to external shocks. Shocks include hurricanes, earthquakes and global and regional financial crisis. In the recent debt restructuring in Grenada, we saw a 50% haircut of private sector debt. While amounts of debt in Grenada are considerably less, the debt restructuring was no less complex. An innovation to deal with external shocks in the Grenada debt restructuring is the “Hurricane Clause.” When certain external shocks impact Grenada, the clause creates a debt payment moratorium.
- While some overall debt restructuring is necessary and some level of parity is needed among creditors, the impact of haircuts on Puerto Rican civil entities should be reviewed. In the Greece restructuring, some protections were put in place in order to not deter economic growth.
- Stakeholders should look at GDP-linked bonds to restructure debt. This pegs greater return to investors if we see greater economic growth. This deters the type of predatory behavior that Congress was concerned about when it voted for the PROMESA legislation. A successful Puerto Rico means success for everyone – success for creditors, for Puerto Rico’s people and for Puerto Rico’s children. Puerto Rico could be an ideal candidate for this type of instrument.
Finally we must act very quickly to restructure Puerto Rico’s debt as debt lawsuit protections expire in February. If voluntary restructurings fail to achieve a deep debt haircut by February, the oversight board must authorize the court-facilitated bankruptcy process.
Last month, when I testified to the oversight board, I read a statement from Monsignor Roberto González Nieves, Archbishop of San Juan de Puerto Rico and Reverend Heriberto Martínez, Bible Society General Secretary. I believe their words illustrate how important it is for us to resolve this crisis responsibly:
“Our people are suffering. Nearly 60% of kids on our island live in poverty. In your important work in addressing the island’s financial and evolving humanitarian crisis, we pray you will weigh any decision that you make in light of how it impacts our children and the children of future generations. This crisis was not of their making, yet they are inheriting this crisis.
“We pray that in the years to come, this crisis will be solved in ways that protect the vulnerable and that lift our children.”
Eric LeCompte is the executive director of the religious development coalition Jubilee USA. He testified to Congress and Puerto Rico’s Financial Oversight and Management Board on solutions to the US territory’s financial crisis. He serves on United Nations expert working groups on debt and finance.
The views expressed by authors are their own and not the views of The Hill.