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The Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) is a US federal law enacted in 2016 that established a financial oversight board, a process for restructuring debt, and expedited procedures for approving critical infrastructure projects in order to combat the Puerto Rican government-debt crisis.[1][2][3][4] Through PROMESA, the US Congress established an appointed Fiscal Control Board (FCB) to oversee the debt restructuring.[2][3][4] With this protection the then-governor of Puerto Rico, Alejandro García Padilla, suspended payments due on July 1, 2016.[4] The FCB's approved fiscal austerity plan for 2017-2026 cut deeply into Puerto Rico's public service budget, including cuts to health care, pensions, and education, in order to repay creditors.[5] By May 2017, with $123 billion in debt owed by the Puerto Rican government and its corporations, the FCB requested the "immediate" appointment of a federal judge to resolve the "largest bankruptcy case in the history of the American public bond market."[6]

Puerto Rico Oversight, Management, and Economic Stability Act
Great Seal of the United States
Other short titlesPROMESA
Long titleTo establish an Oversight Board to assist the Government of Puerto Rico, including instrumentalities, in managing its public finances, and for other purposes.
Enacted bythe 114th United States Congress
Citations
Public law114-187
Legislative history

BackgroundEdit

Puerto Rico was ceded by Spain to the U.S. at the end of the Spanish-American War in accordance of the Treaty of Paris of 1898.[7] The Foraker Act of 1900 made Puerto Rico subject to applicable U.S. Federal laws with the exception of the Internal Revenue codes and established a civil government with the governor and executive council appointed by the U.S. President. The law also established a judicial system and a bicameral legislature with a house of representatives elected by the citizens of Puerto Rico. This act prohibited the public indebtedness of both the civil and various municipal governments in excess of seven percent of their aggregate tax value. The currency of Puerto Rico was also converted to the U.S. Dollar.

OverviewEdit

PROMESA enables the island's government to enter a bankruptcy-like restructuring process and halt litigation in case of default. Specifically, the establishment of the Financial Oversight and Management Board of Puerto Rico[8] known colloquially as "La Junta" (a short form of "La Junta de Control Fiscal"), operates as an automatic stay of creditor actions to enforce claims against the government of Puerto Rico.[9] The oversight board is to facilitate negotiations, or, if these fail, bring about a court-supervised process akin to a bankruptcy. The board is also responsible for overseeing and monitoring sustainable budgets.[4] The President appointed all seven members of the board, six of whom were chosen from a list of individuals recommended by Congressional leaders and had previous ties to profitable industries in Puerto Rico.[10] The Governor of Puerto Rico (or a designee) serves ex officio as an eighth member without voting rights.[2] PROMESA authorizes the oversight board to designate a territory or territorial instrumentality as a "covered entity."[11] Once designated, the covered entity is subject to the terms of PROMESA.[11] On September 30, 2016, the oversight board designated the Commonwealth of Puerto Rico and certain other territorial instrumentalities as covered entities under PROMESA.[12] As a covered entity, Puerto Rico is required to submit a fiscal plan.[13] A fiscal plan must provide a method to achieve fiscal responsibility and access to the capital markets, and:

  • provide for estimates of revenues and expenditures in conformance with agreed accounting standards and be based on--
  • applicable laws; or
  • specific bills that require enactment in order to reasonably achieve the projections of the Fiscal Plan;
    • ensure the funding of essential public services;
    • provide adequate funding for public pension systems;
    • provide for the elimination of structural deficits;
    • for fiscal years covered by a Fiscal Plan in which a stay under subchapters III or IV is not effective, provide for a debt burden that is sustainable;
    • improve fiscal governance, accountability, and internal controls;
    • enable the achievement of fiscal targets;
    • create independent forecasts of revenue for the period covered by the Fiscal Plan;
    • include a debt sustainability analysis;
    • provide for capital expenditures and investments necessary to promote economic growth;
    • adopt appropriate recommendations submitted by the Oversight Board under section 2145(a) of this title;
    • include such additional information as the Oversight Board deems necessary;
    • ensure that assets, funds, or resources of a territorial instrumentality are not loaned to, transferred to, or otherwise used for the benefit of a covered territory or another covered territorial instrumentality of a covered territory, unless permitted by the constitution of the territory, an approved plan of adjustment under subchapter III, or a Qualifying Modification approved under subchapter VI; and
    • respect the relative lawful priorities or lawful liens, as may be applicable, in the constitution, other laws, or agreements of a covered territory or covered territorial instrumentality in effect prior to June 30, 2016.[13]

On October 14, 2016, Puerto Rico submitted a proposed fiscal plan to the oversight board.[14] On November 23, 2016, the oversight board released its initial assessment of the fiscal plan submitted by Puerto Rico.[15] The oversight board requested that the fiscal plan be amended to incorporate the following:

  1. Define and incorporate key aspirational goals, benchmarks and metrics for a ten-year vision for Puerto Rico. This aspirational vision should drive Puerto Rico to stabilize its current economic, social, demographic and financial situation, increase the economy's resilience, shore up public finances, support long-term, durable growth, address basic needs and restore opportunity for the people of Puerto Rico;
  2. Exclude any funding from an extension of Affordable Care Act as well as revenues from an extension of Act 154 revenues in light of their expiration (unless the assumption is accompanied by a specific bill). The Board supports efforts to extend Affordable Care Act funds and Medicaid parity for Puerto Rico, but consistent with the PROMESA Act the Board has to insure that the Fiscal Plan is based on existing law or a specific bill.
  3. Incorporate a revised baseline forecast to reflect pay-go funding for pension benefits and segregation of current employee contributions beginning no later than 2018; and
  4. Include a debt restructuring proposal and also a debt sustainability analysis.[15]

On November 29, 2016, the Governor of Puerto Rico responded to the oversight board's assessment of the Commonwealth's proposed fiscal plan, asking for Medicaid parity in Puerto Rico, the extension of Obamacare funds, and requesting for further federal intervention and support.[16]

With basic services risking privatization, and funding for pensions, education and healthcare already scarce, PROMESA strives to reallocate more public funding to restructure the $72 billion in debt. In late January 2017, the board created under PROMESA gave the government of Puerto Rico until February 28 to present a fiscal plan (including negotiations with creditors) to solve the problems. It is essential for the Commonwealth to reach restructuring deals to avoid a bankruptcy-like process under PROMESA.[17] A moratorium on lawsuits by debtors was extended to May 31.[18]

Recently elected Governor Ricardo Rosselló hired investment expert Rothschild & Co in January 2017 to assist in convincing creditors to take deeper losses than they had expected on Puerto Rico's debts. The company was also exploring the possibility of convincing insurers that had guaranteed some of the bonds against default, to contribute more to the restructuring, according to reliable sources. The governor also planned to negotiate restructuring of about $9 billion of electric utility debt, a plan that could result "in a showdown with insurers." Political observers suggest that his negotiation of the electrical utility debt indicated Rosselló's intention to take a harder line with creditors. Puerto Rico has received authority from the federal government to reduce its debt with legal action and this may make creditors more willing to negotiate instead of becoming embroiled in a long and costly legal battle.

Composition of the Fiscal Control BoardEdit

On August 31, 2016, President Obama appointed the seven members of the board.[19][20]

  Democrat    Republican

Name

Date appointed Affiliation
Andrew Biggs August 31, 2016 Republican
José Carrión August 31, 2016 Republican
Carlos García August 31, 2016 Republican
Arthur Gonzalez August 31, 2016 Democrat
José González August 31, 2016 Democrat
Ana Matosantos August 31, 2016 Democrat
David Skeel August 31, 2016 Republican
Officers
Name Position
José Carrión Chair
Natalie Jaresko Executive Director
Jaime El Koury Legal Counsel
Noel Zamot Revitalization Coordinator
Vacant Representative of the government of Puerto Rico

In March 2017, Natalie Jaresko, former Minister of Finance in Ukraine, was appointed as the board's executive director.[21] In 2019, Christian Sobrino Vega, PROMESA's Representative of the Puerto Rican government, resigned in the wake of the Telegramgate scandal effective immediately on July 13 2019.[22]

ResponseEdit

Critics suggest that the law continues to treat the island as an "anomaly", remarking on Puerto Rico's somewhat unique status as a populous unincorporated territory of the United States, while also alleging that PROMESA does not do enough to deal with the problems that Puerto Rico's economy was facing when the bill was signed into law: high unemployment, welfare issues, and brain drain.[23] Critics also claim that the United States Congress is granting unnecessarily broad powers to the new Fiscal Control Board, hindering Puerto Rico's development of democracy by allowing a federal body to effectively overrule all local authorities, and justifying such decisions through the Necessary and Proper Clause. According to Nelson Denis, the political and economic activities of the United States in Puerto Rico have created structural dependency, economic stagnation, and a growing debt problem that led to the creation of this fiscal plan in an attempt to resolve the situation.[24] Some critics have accused the Fiscal Control Board of failing to look into the legitimacy of the lending-scheme debt.[25]

In 2017, after the Board presented its plan, Joseph E. Stiglitz and Martin Guzman claimed that the Act and the Board that came with it "[are] bringing more problems than solutions" and that the appointed Board lacks "any understanding of basic economics and democratic accountability".[26] As the Board's plan predicts a 16.2% decline in GNP for the next fiscal year with a further decline to follow and prioritizes payment to creditors, "a social [and] economic catastrophe" is "all but guarantee[d]".[26] Stieglitz and Guzman proposed instead that steps to enhance economic growth and not debt repayments should be at center of a plan to solve the crisis. Similar critics have argued that the United States is attempting to enforce neoliberal economics on the island without its consent through the Board.[27]

In 2017, Barry Sheppard wrote in Green Left Weekly that by 2014 when "the island's debt to US financial lenders hit US$73 billion," vulture capitalists bought the debt cheaply, demanded it be paid in full and that this law "created an un-elected seven-person financial board with sweeping powers over the island's economy".[28]

ReferencesEdit

  1. ^ Lin, Tom C.W., Americans, Almost and Forgotten, 107 California Law Review (2019)
  2. ^ a b c Pub.L. 114–187
  3. ^ a b DeBonis, Mike (June 9, 2016). "House passes Puerto Rico fiscal rescue bill ahead of July cliff". The Washington Post.
  4. ^ a b c d Brown, Nick (June 30, 2016). "Puerto Rico authorizes debt payment suspension; Obama signs rescue bill". Reuters.
  5. ^ Lopez, Anamaria (September 12, 2017), "Puerto Rico is Getting Squeezed, and it will Cost All of Us", Institute for New Economic Thinking (INET), retrieved October 6, 2017
  6. ^ González, Juan (May 9, 2017). "Puerto Rico's $123 Billion Bankruptcy Is the Cost of U.S. Colonialism". The Intercept. Retrieved October 6, 2017.
  7. ^ Joseph Prentiss Sanger; Henry Gannett; Walter Francis Willcox (1900). Informe sobre el censo de Puerto Rico, 1899, United States. War Dept. Porto Rico Census Office (in Spanish). Imprenta del gobierno. p. 160.
  8. ^ "Financial Oversight and Management Board for Puerto Rico". juntasupervision.pr.gov. Retrieved April 3, 2017.
  9. ^ "Overview". PROMESACODEX.com. Retrieved November 18, 2016.
  10. ^ "Who are the Members of the Puerto Rico Fiscal Control Board?". NBC News. Retrieved April 21, 2018.
  11. ^ a b "48 U.S.C. § 2121". PROMESACODEX.com. Retrieved November 21, 2016.
  12. ^ "Covered Entities". PROMESACODEX.com. Retrieved November 21, 2016.
  13. ^ a b "48 U.S.C. § 2141". PROMESACODEX.com. Retrieved November 21, 2016.
  14. ^ "Commonwealth of Puerto Rico - Fiscal Plans". PROMESACODEX.com. Retrieved November 21, 2016.
  15. ^ a b "Oversight Board's Assessment of Commonwealth's Fiscal Plan" (PDF). PROMESACODEX.com. Retrieved December 6, 2016.
  16. ^ "Governor's Response to Oversight Board's Assessment of Fiscal Plan" (PDF). PROMESACODEX.com. Retrieved December 6, 2016.
  17. ^ Brown, Nick (January 18, 2017). "Puerto Rico oversight board favors more time for restructuring talks". The Fiscal Times. The bipartisan, seven-member oversight board was created under the federal Puerto Rico rescue law known as PROMESA, passed by the U.S. Congress last year. It is charged with helping the island manage its finances and navigate its way out of the economic jam, including by negotiating restructuring deals with creditors.
  18. ^ Associated Press (January 29, 2017). "Puerto Rico gets more time to propose fiscal plan". Star Herald. Scottsbluff, ME. Retrieved February 16, 2017.
  19. ^ "White House names seven to Puerto Rico oversight board". Washingtonpost.com. Retrieved September 24, 2016.
  20. ^ "Puerto Rico oversight board appointed". Reuters. August 31, 2016. Retrieved September 24, 2016.
  21. ^ "Fiscal board chairman: Extent of Puerto Rico crisis justifies new executive director's salary – Caribbean Business". caribbeanbusiness.com. March 23, 2017. Retrieved April 3, 2017.
  22. ^ Rosselló Makes Two Appointments
  23. ^ Gillian B. White (July 1, 2016). "Puerto Rico's Problems Go Way Beyond Its Debt". The Atlantic. Retrieved July 2, 2016.
  24. ^ Denis, Nelson (2015). War Against All Puerto Ricans: Revolution and Terror in America's Colony. New York, NY: Nation Books. ISBN 978-1568585611.
  25. ^ Democracy Now! (November 26, 2015), Juan González on How Puerto Rico's Economic "Death Spiral" is Tied to Legacy of Colonialism PT.1, retrieved July 26, 2019
  26. ^ a b Joseph E. Stiglitz, Martin Guzman (February 28, 2017). "From Bad to Worse for Puerto Rico". Project Syndicate. Retrieved April 8, 2017.
  27. ^ "Special Report: Voices from Puerto Rico's Students Leading an Anti-Austerity Movement | Democracy Now!". April 6, 2016. Archived from the original on April 7, 2016.
  28. ^ Barry Sheppard, "[Puerto Rico devastation badly worsened by US treatment — before and after the hurricanes] (https://www.greenleft.org.au/content/puerto-rico-devastation-badly-worsened-us-treatment-%E2%80%94-and-after-hurricanes)," [Green Left Weekly], Oct. 5, 2017.

External linksEdit