In the middle of political campaign season, we see a clash between two opposite interests: the correct one, which is to end Puerto Rico’s bankruptcy, and the selfish, represented by the government’s short-term political interests.
The possibility of exiting bankruptcy seemingly turns to dust in the wind now with the constitutional governor Wanda Vázquez’s denial when presented with a new agreement to restructure the central government’s debt obligations (GO). This agreement was announced last weekend by the Financial Oversight and Management Board’s (FOMB) executive director Natalie Jaresko.
This agreement would lead to a decrease in the debt from $35 billion to $11 billion and would reduce annual debt servicing from $4.2 billion to $1.5 billion.
With this agreement, in two decades, our children and grandchildren would be free from our government’s debt obligations. All of this is possible thanks to PROMESA and the FOMB created by Congress in 2016.
Even with this tremendous opportunity presented not just to the government, but to the people and future generations, the governor has rejected it and has put forward unsustainable excuses. You don’t have to have a PHD in political science to understand that once again political games are being played both with the FOMB and the island’s bankruptcy process.
Constant defiance towards PROMESA
From the very beginning of PROMESA, political parties on the island have waged war on the FOMB that was created to bring order to the mishandling of public funds and the administrative disorder that came alongside bankruptcy. They have very skillfully made the people believe that the Board is guilty and responsible for all the social and economic ills that we are currently experiencing.
In peak election season, Wanda Vazquez as the candidate for the current ruling party has decided to come out against the agreement that would lead to significantly reduced debt payments and would bring an end to bankruptcy.
From 2016 on, we have had to live with the hopelessness and misery of the government’s bankruptcy, natural disasters, as well as the mediocrity and incompetence of the local political class (both parties). This last one has been devastating, seeing as how Puerto Rico lacks adequate governance that would be able to implement the necessary structural reforms both to end bankruptcy and give way to the island’s economic recovery.
PROMESA’s 4th Anniversary
Heading now into 4 years of PROMESA, it’s clear that this current partial receivership is not producing results. The FOMB as currently structured and its corresponding law’s federal mandate, do not give the supervisory entity all the powers it needs in order to implement reforms and take the difficult decisions that are necessary. The current government and legislature have managed to defy the law and create new obstacles for the process of structural reform and fiscal cleanup.
Contrary to other occasions, such as New York city (1975), Washington DC (1994), and Detroit (2013), where receivership was absolute, PROMESA left some powers to the territorial government. The premise was that the government would execute the federal mandate under the supervision of the FOMB.
Nonetheless, this legal and financial experiment is failing, thanks mostly to the government’s and political actors’ constant defiance of PROMESA without much in the way of consequences.
The result has been that 4 years on, progress has been limited, barely 2 credits have been restructured, the Puerto Rico Industrial Development Company’s (PRIDCO), and COFINA’s.
Few structural reforms have been implemented and there is no sign of there being any sort of fiscal discipline. The constant handing out of contracts and rampant corruption remain intact despite bankruptcy.
Given the current situation, it’s a good moment for Congress and the White House to review the 2016 statue, and to evaluate the possibility of a complete receivership for Puerto Rico’s government.
This option is consistent with admiral Peter Brown’s assignment as federal coordinator for recovery efforts.
For all intents and purposes, we are near an absolute receivership. All that’s missing is a declaration of public policy from Washington, that they formalize and make viable the adequate management and good governing that our political class denies the people. Puerto Rico does not deserve less.