Last week, Governor Ricardo Rosselló issued eight executive orders indicating his commitment to right the fiscal and economic trajectory of Puerto Rico. This weekend he issued an additional order for all government agencies to cut 5% of their procurement spending, for a total of 9 executive orders since formally becoming governor at midnight on January 2nd. In some of the other orders that have been made public, the governor:
- Declared a fiscal emergency (as has been done by the last three administrations)
- Reduced political appointees by 20%
- Cut government’s operational costs by 10%
- Reduced professional services contracts by 10%
- Declared an infrastructure emergency, allowing government to bypass environmental and other permitting processes for major infrastructure projects
- Reduced agencies’ utility consumption by 5%
Bondholder groups support Rosselló’s push to delay fiscal plan, stay deadlines
General Obligations (GOs) and COFINA bondholders’ groups wrote public letters to the Fiscal Oversight Board (FOB) in support of Governor Rosselló’s request to extend the deadline for the stay on litigation on debt payment (expiring February 15th), as well as the submission of the 5-year fiscal plan (which is set for January 15th). Rosselló argued that it is unrealistic for his team to have a 5-year fiscal plan ready in such a short time frame.
The fiscal plan required by PROMESA, must be approved by the FOB, and is a pre-requisite for any debt restructuring plan to take place. Rosselló—who campaigned to restore the Island’s credibility with bondholders and took the position that the Island’s $70 billion public debt should be paid as is—has recently toned down his rhetoric and hinted that debt restructuring, including haircuts on principal, must be a part of the solution. However, Roselló continues to emphasize his desire for a voluntary and negotiated debt restructuring agreement.
Short-term financing could be necessary to avoid government shutdown
The Governor’s representative on the FOB, attorney Elías Sánchez, suggested that bondholder groups had made overtures that could result in short-term financing to maintain government liquidity. Some estimate that the government will run out of money and be unable to make payroll on February 1st. When asked, Rosselló said that some type of financing would probably be necessary, but that no official request for a short-term loan had been made.
During the transition, then Governor-elect Rosselló said that a $700-$900 million loan would be necessary to keep essential public services intact, but the FOB rejected that suggestion. Though Puerto Rico is currently shut-out of the markets, some bondholder groups have expressed a willingness to extend “bridge” financing in order to avoid the Commonwealth’s collapse. Senate President, Thomas Rivera Schatz, has said he would support a short-term loan to keep government operations running.
UN specialist seeks investigation in Puerto Rico
A debt specialist has requested that the United Nations High Commissioner on Hunan Rights carry out an investigation in Puerto Rico. Juan Pablo Bohoslavsky, a UN expert for external debt, has asked the United States to allow an official trip to Puerto Rico to inspect the fiscal crisis, which they warned should be resolved with a significant reduction in the public debt burden and without austerity measures that limit human rights. The proposal has the support of UN rapporteurs on fair housing, persons with disabilities, physical and mental health, and nutritional rights.
Bohoslavsky first raised his concerns in September 2016; the U.S. responded to his concerns in October, but the response has not been made public. Bohoslavsky has denounced that Puerto Rico’s residents receive an average of $74 per month in assistance from the federal government, while U.S. mainland residents receive $540.
New Senate President Challenges Board
Senate President Thomas Rivera Schatz, on the opening day of the Senate, had stern words for the Fiscal Oversight Board (FOB), and said that he would not allow interference by the FOB in legislative affairs, and that he would challenge the board in court, if necessary, to defend Puerto Rico’s most vulnerable sectors.