Puerto Rico’s economic recovery has been set back by the taint of criminality at the highest levels of government. The alleged criminal behavior must stop, but the recovery must proceed. Indeed, the recovery could get stronger from this recent purge.
Governor Rosselló’s betrayal of his public responsibilities rattled the already vulnerable public and market confidence in the Island’s future. All contractors and partners involved with Puerto Rico are now seen as suspect.
All of them should be called before a team of independent experts headed by the Puerto Rico Financial Oversight and Management Board (FOMB) and include independent, skilled, prominent public leaders. The purpose of this review would be to establish the degree to which companies now doing business with Puerto Rican government agencies received their contracts based on a fair process, are performing real services for fair compensation, and are free from corrupt ties to government officials or other people with influence in the government. The review should especially focus on the larger contractors: Citibank, Filsinger Energy Partners, Rothschild, law firms, accountants, financial advisors, builders and others.
Real performers with real credentials should remain. Those who are corrupt should be terminated. The status of some contractors may be unclear. If they are kept on, they should be monitored. The review team should only accept verbal and written statements from company principals and counsel. False statements made during this process should result in immediate referral of the company and its representatives for criminal prosecution.
A new governor may change policy priorities, but the governor and the public need to know immediately that all the firms with major government contracts owe their allegiance to the people of Puerto Rico.
Major contracts are in the works, as well as an $8 billion debt restructuring, for the Puerto Rico Electric Power Authority (PREPA). There is now sufficient evidence to: 1) place on hold the current court proceedings and any steps to close the debt restructuring process under the proposed Restructuring Support Agreement; 2) take no further steps on awarding the contract for the operator of PREPA’s transmission and distribution systems until there is a thorough independent investigation of the process to date; 3) conduct a peer review of PREPA’s FY 2016 and FY2017 financial statements certified by BDO; and, 4) review the process by which the New Fortress Energy contract was awarded for the natural gas conversion of the San Juan power plant.
There are a few important lessons here for the next governor and the elected leaders of Puerto Rico.
First, the current crisis in Puerto Rico is not a license to use every last nickel of public dollars to recreate patronage networks to support political ambition. If for no other reason they will be caught, prosecuted and pay a price.
Second, the federal government, the FOMB and the creditors can be powerful tools to rebuild Puerto Rico for the people of Puerto Rico. But those powerful interests will concede nothing without a mobilization in Puerto Rico of labor, business, the religious community, the professions and others around a realistic program of growth and opportunity. Short-term, difficult decisions can only be made with everyone participating and understanding that as growth is restored, new community and individual opportunities will emerge. Social responsibility will grow as fiscal and economic growth takes place — but social solidarity and political leadership is required now to make it happen. The hurricane has shown the solidarity of the people and Rosselló’s downfall the weakness of its leadership.
The corrosive discussion of Puerto Rico’s debt must be recast. Governor Rosselló let everyone down, but he too was weighed down by $72 billion in old debt. The legacy of a corrupt use of public finance goes well beyond the personalities currently involved. If Puerto Rico misses this lesson, it will repeat it. No creditor should be paid anything by Puerto Ricans until all litigation is resolved or settlements are made regarding culpability of the army of financial advisors who have collected large fees for white shoe Wall Street firms while pushing Puerto Rico to issue more and more debt it couldn’t afford. And creditors need to accept any settlements based on Puerto Rico’s ability to pay, not another round of gimmicks and borderline fraudulent bond offerings that can only lead to another bankruptcy.
In the meantime, Puerto Rico should move forward with better plans and hopefully in a spirit of greater unity among the people and the government, with the government representing an agenda that can bring the power of the federal government and markets to assist with a true rebuilding of Puerto Rico’s economy.
The people elect leaders with the hope that they will rise to the occasion during difficult times. Sometimes the leaders fail. The lessons learned are the beginning of the next chapter. It is called democracy.
