(Peter Roff) – The controversial PROMESA legislation intended to help the Commonwealth of Puerto Rico stave off pending economic collapse failed to live up to its promise. In May, the island’s new governor, Ricky Rossello, declared a kind of qualified bankruptcy – really more of a default – because the burden of the $18 billion in public debt backed by the Constitution had become too much to bear.
The Puerto Rico Oversight, Management, and Economic Stability Act was to have prevented all that from coming to pass by establishing a financial oversight board to make all the tough decisions. Instead of bringing a much-needed dose of financial discipline to things, it delayed getting to work while the politicians who made the mess, knowing the borrowing window was about to close, spread as much money around as possible while the opportunity still existed to do so.
The congressionally chartered oversight board is supposed to be immune to political pressure. Oh sweet irony now that Utah Rep. Rob Bishop (R), chairman of the House Natural Resources Committee, is trying to use his influence to get a greenlight for a deal for one particular class of creditors: the Puerto Rico Electric Power Authority or, as it’s more commonly known, PREPA.
The oversight board recently approved a fiscal plan that includes an implied 77 percent “haircut” on $52 billion in debt that doesn’t include the money owed by PREPA which is not a direct obligation of the commonwealth. PREPA has $9 billion worth of debt outstanding, but it’s just one of more than 17 instrumentalities within the commonwealth which, together, have a total of $74 billion in debt outstanding. Whether Bishop is doing the bidding of one class of creditors (to the detriment of others) or just poorly informed about what he’s doing makes it tough to find a comprehensive solution to the total debt crisis.
A two-year-old old PREPA Restructuring Support Agreement proposed just a 15 percent haircut – which kind of indicates it’s been overtaken by financial events now materially different from what they were when the deal was originally cut.
Postponing PREPA restructuring and instead including it in a more ambitious, wide-reaching debt restructuring instrument accompanied by the kinds of fiscal and structural reforms the control board was constituted to impose would be beneficial to just about everyone. Puerto Rico could save billions of dollars by negotiating greater concessions from PREPA’s creditors while securing lower energy costs for individual consumer and businesses. It would be good for the overall economy and potentially benefit some of the other Puerto Rico credits in financial distress.
Given that a better way exists, it’s somewhat appalling that Bishop appears to have taken the side of PREPA creditors to keep the existing agreement in force. He’s already held one hearing on the status of the restructuring, and in June sent a letter to the control board accusing it of violating PROMESA over the issue of PREPA. It’s costly and confusing, and congressional meddling is only going to make it worse. Real congressional oversight would involve encouraging the control board to support a forward-looking, realistic fiscal plan that keeps Puerto Rico’s access to the credit markets open.
No one should be rushing to finalize a deal with PREPA’s creditor – not the government of the commonwealth, not the oversight board and not, through attempts to influence the decision-making process, the U.S. Congress, given the current financial outlook in the recently certified fiscal plan. Prudence requires careful consideration of the implications for electricity rates and the impact on creditors in the context of restructuring negotiations across the all the debt owed by Puerto Rico and the government-regulated entities that do business there.
Everyone who has anything at stake would be best served by a holistic review of all commonwealth instrumentalities and their operations and their current and optimized debt profiles. The goal should be to develop a comprehensive debt restructuring and repayment plan for all debt rather than do it piecemeal. It’s the only way to make sure it’s done inclusively, fairly and equitable for all parties concerned.
Peter Roff is a former senior political writer for United Press International who can be seen regularly offering commentary and analysis on the One America News network. This column was originally published by the Morning Consult on June 27, 2017