Board: Puerto Rico to see 65 per cent surplus drop amid debt crisis

SAN JUAN, Puerto Rico (AP) – A federal control board that oversees Puerto Rico’s finances voted yesterday on a revised fiscal plan as it warned the island’s surplus could plunge by 65 per cent and that the government is unable to pay current debt obligations.

The plan will serve as a blueprint for a United States (US) territory crippled by hurricanes, earthquakes and the coronavirus pandemic as it continues to restructure a portion of its more than USD70 billion public debt load.

Natalie Jaresko, the board’s executive director, told reporters during a conference call on Tuesday that the island’s economy will shrink over the next five years and that the anticipated surplus in upcoming years will drop from USD23 billion to USD8 billion from fiscal years 2020 to 2032. She declined to say how this drop would affect the repayment of Puerto Rico’s debt, saying only that the island cannot afford existing contractual obligations.

“The road ahead is much more uncertain,” she said, referring in part to the consequences of the pandemic, noting that the revised economic projections are similar to those issued after Hurricane Maria hit in September 2017.

Jaresko said there will be no cuts made to Puerto Rico’s government for now so it can focus on improving its operations, adding that the roughly USD9.4 billion general fund will remain the same size as the current fiscal year’s. She also said Puerto Rico’s government has failed to make significant reforms, including in the labour sector, that would have increased the island’s prosperity.

A Puerto Rican flag flies on an empty beach at Ocean Park, in San Juan, Puerto Rico. PHOTO: AP

The modified fiscal plan comes less than a week after Rep Raúl Grijalva submitted amendments to a law that in part created the board as part of a financial package for Puerto Rico.

The bill in part calls for an audit of Puerto Rico’s debt and declares public health, education, safety and pensions as essential public services, which could protect them from funding cuts. In addition, the bill would guarantee funding for the University of Puerto Rico and allow the local government to shed certain debt. The bill was submitted amid criticism that the board is not protecting Puerto Ricans and has not done enough to improve the island’s situation.

“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-focussed approach,” Grijalva said in a statement late last week.

Hurricanes Irma and Maria, coupled with recent strong earthquakes, have caused a total of billions of dollars in damage amid an extended economic crisis. Then the pandemic hit, with experts warning the island of 3.2 million people with a more than 40 per cent poverty rate — the highest compared with any US state — could also see a 40 per cent unemployment rate. Some economists estimate that the COVID-19 crisis will cause economic losses ranging from USD6 billion to USD12 billion. Echoing some of the priorities outlined in the federal bill, Jaresko said the board wants to see an improvement in government services and called for things including implementing a back-to-school plan, developing a telehealth system and moving police officers from administrative positions to the field.

“We need to work twice as hard because the people of Puerto Rico have twice the need right now,” she said.

Shortly after Jaresko spoke, New York-based Ambac Financial Group, a large insurer of Puerto Rico debt, announced that it filed a lawsuit against the board alleging the law that created the board and allowed the island to restructure its debt is unconstitutional and unenforceable.

The board said in a statement to The Associated Press that it is reviewing the lawsuit and will respond in upcoming weeks.