Puerto Rico's plan to adopt a balanced budget may not be enough to sway the rating agencies from considering downgrading the commonwealth.
On Friday Puerto Rico Gov. Alejandro García Padilla said he planned to propose a fiscal 2015 budget with little or no operating deficit.
On Monday he definitively said the budget would be balanced.
"A balanced budget for fiscal year 2015 will be positive, but will likely have little impact on near-term rating actions," said Janney Capital Markets managing director Alan Schankel.
Since late November all three major rating agencies have put the island's general obligation ratings on review for downgrades.
Any downgrade would push a rating to a speculative grade.
The balanced budget plan "will show that Puerto Rico is taking seriously the fiscal situation and that we are not the Greece of the Caribbean," José Nadal Power, chairman of the Puerto Rico Senate Finance Committee, said in an interview.
"It would be very unfair to punish Puerto Rico when we are doing what we have to do to provide stability to our government," he added, referring to the potential downgrades.
"To balance the budget, we will not need to utilize contingent reserves and additional expenses that were factored into the current budget," said Puerto Rico Office of Management and Budget director Carlos Rivas.
"We have also adjusted agencies' operating budgets, including payroll and service contracts, which will be implemented by agency heads by applying discipline, austerity and creative management," he added.
The government will not reduce the number of government workers to achieve the balance, Rivas said.
Axios Advisors managing partner Triet Nguyen had a different take from Schankel on the government's balanced-budget announcement.
"This announcement must've come as a result of their recent meeting with the rating agencies, so we must assume that it is one of the conditions they have to meet to preserve their rating," Nguyen said. "To the extent this may help Puerto Rico price a new deal, it'll also help prevent a downgrade."
As for Rivas' statement that no employees would be let go, Nguyen asked: "If that's the case, why haven't they implemented these expense-reduction measures already? The risk now is that they fail to deliver on this latest promise. Remember that they have promised to balance the budget many times in the past and have never come through."
On Monday Rivas said the government will cut the current year's deficit to $650 million from what had been anticipated to be $820 million.
The narrowing of the current year's deficit could affect the rating agencies' thoughts about downgrading Puerto Rico, according to Schankel. "I believe more important factors for rating agencies (and investors) are economic numbers and achievements of market access," he said.
Government officials have recently said that Puerto Rico will sell a bond in February or March. On Monday The Wall Street Journal reported that the commonwealth was preparing to sell some $2 billion of bonds in the near future. Government sources did not confirm the number.
In other news, Puerto Rico Treasury Secretary Melba Acosta Febo announced that December revenue collections were higher than had been announced in early January.
The Treasury collected $925.3 million for December, up 1.5% over the projected collections and 28% over December 2012 collections.
For the first half of the current fiscal year the government collected 2.4% more revenue than anticipated and 15.7% more than in the first six months of fiscal year 2013.
