PROMESA: Alter, abolish or let it lie?

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The second of three stories marking the anniversary of PROMESA.

Among the observers concerned over the Puerto Rico Oversight, Management, and Economic Stability Act and the Oversight Board it created, a few advocate changing the law, and some even want it abolished.

However, most participants noted that because of the current climate in Washington, in an election year, any alterations to PROMESA are highly unlikely in 2020.

Center for Popular Democracy Julio Lopez Varona
Julio Lopez Varona, of the Center for Popular Democracy, called for the abolition of PROMESA.

There may be the possibility of changing the law for the better when a new Congress and possibly a new president are seated in January, University of Puerto Rico professor José Javier Colón said. However, for the time being it is “pie in the sky.”

Puerto Rico Oversight Board Executive Director Natalie Jaresko said that the board hasn’t called for any changes. House Natural Resources Committee Chairman Raúl Grijalva in May introduced H.R. 6975 to amend PROMESA. Grijalva’s Amendments to PROMESA Act gives Puerto Rico the option to discharge unsecured debt if it is deemed to be a financially excessive burden.

The bill also would prioritize funding for public health care, education, safety, pensions and the University of Puerto Rico as well as create a publicly-funded commission to audit Puerto Rico’s debt.

Jaresko said the board supported some of the changes and opposed others.

University of Puerto Rico Professor José Javier Colón
University of Puerto Rico Professor José Javier Colón said changing PROMESA could only happen if and when there is a new Congress and president in office.

"In my view the danger when you start tinkering with it is that you'll unleash unintended consequences and make it worse rather than better," said Puerto Rico Oversight Board member David Skeel. "And so if there were some enormous flaw in the law, some obvious thing that is simply unworkable, I would say we should have conversations about changing it. But I don't think that's the case."

While Center for a New Economy Public Policy Director Sergio Marxuach said PROMESA was a bad law he also said it isn’t a good idea to alter it now. If one went down the road to changing it now, creditors might get more influence, and for Marxuach, that would be a negative result.

Estudios Técnicos Chairman José Villamil said he would prefer the board be a “control board” with complete control over the local government but it isn’t a possibility for the time being.

“In the present political environment in Washington the probability of achieving a new consensus version of the bill is very low, there is significant risk in trying to reopen the matter,” said Banco Popular Chief Financial Officer Carlos Vazquez.

However, some sources urged real changes to the law.

On the left there are people who agree with Center for a Popular Democracy’s Julio Lopez Varona, who said, “We believe that PROMESA has failed and should be abolished. The PROMESA law has, in practice, been used to extract wealth from the island to pay bondholders at the expense of the people of Puerto Rico while failing to address the debt crisis.

“What we need is a serious restructuring effort, a complete cancellation of debt, an independent citizen audit to ensure that those who hurt the island are held responsible, a serious relief package, and economic policies that allow Puerto Rico to achieve a fair recovery,” Lopez Varona said. He is co-director of Community Dignity Campaigns for the center.

“Either the federal government buys the debt at 30 cents or less on the dollar and frees Puerto Rico from that burden or the island will continue to send the poor to the mainland,” said University of Puerto Rico Professor Emilio Pantojas said.

Tim Travis, chief executive officer of T & T Capital Management, saw things differently.

“The law is too ambiguous but changing it doesn’t seem practical in the short-term. The best thing that could happen is for the president to remove the [board] and replace [it] with a credible group that understands business, capital markets, and has a genuine interest in helping all parties obtain the best and most lawful outcome,” Travis said.

Heidi Calero
Puerto Rico business and economic consultant Heidi Calero said the Oversight Board should be geared to creating an economic plan.

“The role of the board should be geared to working with the Puerto Rico executive branch on a true economic growth plan that generates economic growth, allows for municipal reform, and a more reasonable negotiation of PR’s public debt ... The board has said in the past that it is not responsible for economic growth in Puerto Rico; only for achieving balanced budgets," Puerto Rico business and economic consultant Heidi Calero said. "Repaying a renegotiated debt and having access to financial markets. Without economic growth this is impossible.” Calero is president of H. Calero Consulting Group.

Puerto Rico Attorney John Mudd, who has argued for paying off much or even all of the island’s debt, said, “PROMESA should be repealed and the government of Puerto Rico left to its own devices. It refuses to change the way it does politics and must be forced by circumstances to make the changes it needs to make.”

Next: How should the Oversight Board and the local government change and what will happen on the island in the next five years?

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