Puerto Rico’s major bondholders and debt insurers sent a letter to the Governor and the Fiscal Oversight Board (FOB) questioning the recently certified Fiscal Plan for the Island. The letter was co-signed by Oppenheimer Funds, Franklin Advisers, Santander Asset Management, Assured Guaranty Corp. and its subsidiary, Assured Guaranty Municipal Corp., Ad Hoc-GOs, as well as a group of COFINA-major bondholders. Together, the group represents $10.125 billion in Puerto Rico’s debt. The creditors are upset with the plan because it cuts ~80% of debt service payments by Puerto Rico over 10 years.
The creditors’ concerns surfaced last week during a U.S. Congressional hearing regarding PREPA’s restructuring agreement and the Governor’s request for more time to review it. Specific concerns include allowing agencies such as the Health System Insurance Administration (ASES in Spanish) to have overdrafts “in perpetuity,” and provisions that they believe violate PROMESA’s provisions regarding order of payments as established in the Commonwealth Constitution. The FOB and the Governor, respectively, called for a mediator to resolve the dispute.
Former Ukrainian Finance Minister to lead FOB
The former Finance Minister of Ukraine, Natalie Jaresko, has been appointed as the new Executive Director of the Fiscal Oversight Board (FOB). Jaresko, an American, will receive an annual salary of $625,000 for a three-year commitment. The amount of her compensation has been criticized by the Governor, the Resident Commissioner in Congress, and members of the pro-Commonwealth opposition Popular Democratic Party (PDP).
Jaresko, a former U.S. diplomat and investment fund executive, has been panned for having personally profited from her position as Ukrainian Finance Minister as well as for the economic decline during her tenure from 2014-2016, when the country entered a deep recession. Early in Jaresko’s term as Ukrainian’s Finance Minister she made an outline agreement for a $40 billion four-year loan from the International Monetary Fund and Western countries and she was instrumental to restructuring Ukraine’s debts, including a partial write-off with a 20% haircut on Ukraine’s $18 billion privately-held government debt.
9-day stoppage starts at UPR, indefinite strike looms
University of Puerto Rico (UPR) students are participating in a 9-day stoppage to protest cuts and revenue increases at the University. The $450 million in cost adjustments, spread over a two-year period, represents almost half of the public university’s budget and was included in the certified Fiscal Plan at the insistence of the FOB. Governor Rosselló has said that the cuts are unlikely to be as deep and that he had already identified $200 million in revenue increases. The UPR has until the end of the month to submit its own fiscal plan to the Board.
The 9-day stoppage will last until April 5, when the National Student Assembly will meet at the Roberto Clemente Coliseum. An indefinite strike is set to begin the following day. Student leaders said that their protest will not end until Puerto Rico’s public debt is audited, members of the Independent Public Debt Auditing Commission are reinstated, and a university reform plan is approved.
Fiscal Board Asserts Authority Over Legislation
The Fiscal Oversight Board (FOB) warned the Governor and Legislative leaders that all laws must be submitted for the Board’s review within 7 days of enactment, along with accompanying fiscal impact statements. If a law is found to be inconsistent with the Fiscal Plan approved earlier this month, the Board will send it back to the Legislature for correction. Under PROMESA, the Board also has the authority to prevent the enactment of laws that are inconsistent with the Fiscal Plan.
The FOB has also requested that the Governor submits to them any laws or public policy initiatives approved before the Fiscal Plan was certified, to ensure that their impact will not alter the plan. The Board warned the Governor that agencies must provide regular expenditure reports, and that the FOB reserves the right to freeze certain expenditures or contracts if it finds inconsistencies or overdrafts and if agencies fail to take corrective action.