The Fiscal Oversight Board (FOB) and Puerto Rico Governor Ricardo Rosselló are at a crossroads on how to begin the process of repairing the Island’s economy. Roselló has requested a stay on creditor payment litigation past February 15th, and an extension to submit his fiscal plan. In order to accommodate these requests, the Board has said that Puerto Rico would need to achieve a balanced budget in two years (instead of five). The Board is seeking spending cuts and increased revenue of $4.5 billion. The Governor responded immediately that he will not sacrifice the health care, education or pension benefits of Puerto Ricans and that he will not fire public employees to achieve savings. Instead, he will seek to cut spending by implementing the “single employer” concept, consolidating agencies, and increasing tuition at the University of Puerto Rico.
Board to hold public meeting on Saturday in the Island
The FOB will hold a public meeting on Saturday in Puerto Rico where they will announce next steps on the fiscal front, as well as the selection of the FOB’s Executive Director and General Counsel. The meeting will take place at El Conquistador Hotel in Fajardo, where they held their last public meeting. On the agenda will be voting on the extension of the stay and which parameters they will approve for the fiscal plan. This will be a public meeting but individuals interested in attending in person will have to register at http://www.juntadesupervisionpr.gov. Rosselló has not yet confirmed whether he will be in attendance.
Labor Reform enacted by Legislature
This week, the legislature passed the “Labor Transformation and Flexibility Act,” which seeks to increase economic activity by lowering benefits for workers in the private sector. Major provisions include reducing paid vacation and sick leave, increasing the number of work hours required to qualify for leave, and creating a probationary period before a hire is considered permanent; these provisions would not apply to current employees. Critics argue that the bill will create two classes of workers, and that reducing benefits would negatively impact economic activity. Proponents argue that labor laws in Puerto Rico are too expensive and that this bill, coupled with other reforms, would make the business climate more competitive.
Creditors offer short-term financing
Several creditors are offering short-term financing deals to the Governor, despite warnings from the Fiscal Oversight Board that they will not approve such deals. The creditors, some of whom have met with FOB members, range from institutional bondholders, such as Oppenheimer and Franklin, to hedge funds. Many hold COFINA bonds, which are pegged to sales tax revenues and are among the few that have continued to receive debt payments.
The deals offered range from $400-800 million in short-term debt, in exchange for better terms during future debt restructuring negotiations.