U.S.
Ramon Zayas / GFR Media
Government officials from Puerto Rico assured its creditors on Monday that the island was formulating a long-term, comprehensive plan to get its fiscal house in order in the midst of a crippling debt crisis, while warning investors that they, too, would have to make sacrifices.
The meeting, held in the Manhattan offices of Citigroup, which the government of Puerto Rico has retained to act as a broker, was the first between the parties since Governor Alejandro Garcia Padilla made the admission at the end of June that the commonwealth could not continue to meet deadlines for payments on its $72 billion debt load.
Melba Acosta, head of Puerto Rico’s Government Development Bank, reiterated that creditors holding Puerto Rico’s debt — mostly in the form of municipal bonds that the government sold frequently over the last decade to stay afloat — would have to accept adjusted terms of repayment, although she could not provide exact details of what those terms would look like.
“We have made many tough decisions up to this point, but our recovery depends on participation from everyone who is invested either personally or financially in the success of Puerto Rico,” she said. “The fiscal adjustment necessary is simply too large for any single group of stakeholders to bear without having a negative effect on what we are all trying to achieve: a turnaround of the economic fortunes of Puerto Rico so that it can thrive economically again for the benefit of its citizens and our investors.”
Acosta said more details of what was in store for Puerto Rican investors and citizens would be available after September 1. A working group commissioned by Padilla is scheduled to complete by that date a draft plan to restore Puerto Rico's financial stability.
She said the citizens of Puerto Rico would continue to feel the pain of the debt crisis as the government undertakes a series of reforms to raise revenue and cut expenditures.
Anne Krueger, a former World Bank chief economist commissioned to advise the Puerto Rican government on its turnaround efforts, outlined what some of those reforms may look like. Krueger, presenting the findings of a report she authored with two other economists, suggested reducing the minimum wage on the island, trimming welfare benefits, making the regulatory environment more friendly to business, and cutting education and Medicaid spending.
Krueger acknowledged that getting the balance right between austerity measures to cut the debt and jump-starting economic growth would be extremely challenging. “The failed partial solutions of the past make it even more urgent that a comprehensive solution takes hold,” she said, referring to the efforts of previous governments in Puerto Rico to trim budgets or launch stimulus spending. “What needs to be done is politically difficult.”
Puerto Rican government officials have also asked Congress to extend the commonwealth bankruptcy protections, so it can proceed on negotiations with its creditors in an orderly fashion under the supervision of U.S. courts — a move Krueger endorsed. But it’s unclear if lawmakers in Washington are ready to make that happen. Some members of Congress equate such a move to a “bailout” that rewards years of financial mismanagement.
“That’s actually one way that Congress can help Puerto Rico,” Acosta said. “And we understand that it is not a bailout.”
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