The federally-appointed fiscal board overseeing Puerto Rico's finances said that the island's bankrupt government cannot afford to pay current debt obligations, anticipating that the U.S. territory will likely experience a deficit earlier than expected due to the economic impact of the coronavirus pandemic.
Puerto Rico expects to see its surplus plunge by 65 percent in the next few years, according to the board.
Natalie Jaresko, the board’s executive director, said during a virtual public meeting on Wednesday morning that Puerto Rico’s economy will essentially see no growth over the next six years, adding that the island's anticipated surplus will drop from $23 billion to $8 billion between fiscal years 2020 and 2032.
Against this backdrop, the board certified a new fiscal plan expected to serve as a framework for the island to continue restructuring part of its roughly $72 billion public debt.
The recent actions are set against the economic reality of an island that never fully recovered from the Great Recession before it was hit by devastating hurricanes, a political scandal that triggered mass protests and resulted in the previous governor's ouster, a series of earthquakes and the coronavirus pandemic.
Hurricanes Irma and Maria and recent strong earthquakes have caused billions of dollars in damages amid a decade long economic crisis, on an island of 3.2 million people where the poverty rate stands at 40 percent, the highest compared with any U.S. state.
The recent pandemic forcing countless industries and businesses to cease operations for at least two months. Some economists estimate that the coronavirus crisis will cause economic losses ranging from $6 billion to $12 billion.
No specifics on debt payments
During the meeting, Jaresko refused to comment "at this time" on how the surplus drop will affect Puerto Rico's ability to repay creditors who are owed billions in bond and pension obligations, an ongoing matter since the Puerto Rican government filed for the biggest U.S. municipal bankruptcy in history in 2017.
Jaresko only limited her comments to say that the island cannot afford existing contractual obligations. For this reason, the board decided to postpone certain budget cuts for at least a year and recommended a revision of the island's debt adjustment plan filed with the court.
The delay on budget cuts should give the Puerto Rican government some time to improve its operations and make overdue reforms to its labor sector in order to increase the island’s prosperity, according to the board.
The newly modified fiscal plan will now be submitted to Gov. Wanda Vázquez and the Puerto Rico legislature for review. The board hopes that a final version of the plan is set to go into effect on June 30.
The board's certification of the most recent fiscal plan comes less than a week after Rep. Raúl Grijalva, D-Ariz., submitted a bill to amend PROMESA, the law that helped create the federally-appointed fiscal board under the administration of president Barack Obama to allow Puerto Rico to restructure its debt.
The bill calls for an audit of Puerto Rico’s debt and the declaration of public health, education, safety and pensions as essential public services, a move that could help protect them from future funding cuts.
Grijalva's bill, which was introduced amid criticism that the board is not protecting Puerto Ricans and hasn't done enough to improve the island’s situation, would also guarantee funding for the University of Puerto Rico and allow the local government to shed some of its debt.
“The crushing fiscal austerity imposed by the original...law has failed to improve economic development or fix chronic poverty in Puerto Rico, so it’s time for a more people-focused approach,” Grijalva said in a statement last week.
Echoing some parts of the bill, the board's president, José Carrión, said he hopes the new fiscal plan serves as a "wake up call" to Puerto Rican officials, adding that the board as well as the people of Puerto Rico wants to see improvements in government services such as education, health care, electricity and water access, among others.
Before the board certified the most recent fiscal plan, New York-based Ambac Financial Group, a large insurer of Puerto Rico debt, said it filed a lawsuit against the board, alleging that the PROMESA law is unconstitutional and unenforceable.
The board told The Associated Press that it is reviewing the lawsuit and will respond in upcoming weeks.