Ten years after the signing of the federal Puerto Rico Oversight, Management and Economic Stability Act, many analysts say it has been better at cutting debt and delivering balanced budgets than at improving the island's political culture and strengthening its economy.
President Barack Obama signed
Of the 12 analysts and participants who responded to queries on PROMESA, one — Foundation Credit CEO Hector Negroni — was very critical of it, one — Muni Credit News Publisher Joseph Krist — was generally negative, and three — Advantage Business Consulting President Vicente Feliciano, Cumberland Advisors Portfolio Manager Strategist Shaun Burgess and Counselor to Secretary of the Treasury in the Obama administration Antonio Weiss — were generally positive. The rest offered mixed views.
"PROMESA has been an unambiguous, wholesale failure — for investors, for the municipal market and ultimately for my fellow Puerto Ricans," Negroni said. When PROMESA became law, Negroni held Puerto Rico debt affected by the act but no longer does so. "Since its first days, creditors' constitutional protections and contractual rights were set aside by a contorted federal law that has never delivered on its core promises: restoring fiscal discipline to the commonwealth [of Puerto Rico] and returning it to the capital markets."
By comparison, Weiss said, "PROMESA was well-constructed legally and withstood multiple challenges all the way to the Supreme Court. It allowed the debt to be dramatically reduced — by around 50% in the aggregate to date. It also achieved the [U.S.] Treasury['s Puerto Rico] team's goal of maintaining pension payments without haircuts."
Several respondents said PROMESA's granting of the ability to cut debt was a great boon. About $63 billion in debt was cut to $28 billion, said Melba Acosta Febo, who served as secretary of the Puerto Rico Treasury and as president of the Government Development Bank for Puerto Rico from January 2013 to July 2016. While many bondholders were Puerto Rico residents, the cutting of the debt allowed the government to move forward and provide basic services to its residents.
Puerto Rico business and economic consultant Heidi Calero, Feliciano and Weiss agreed PROMESA opened the door to a necessary debt restructuring.
Calero and Municipal Market Analytics President Matt Fabian said PROMESA, by giving birth to the Puerto Rico Oversight Board, gave necessary fiscal discipline to the island's government. At least for the last 10 years PROMESA has stopped "Puerto Rico's reliance on borrowing to patch operating deficits that ultimately led to the commonwealth's debt crisis," Fabian said.
Others don't think the period has been characterized by fiscal discipline. "No meaningful fiscal reforms have been undertaken," said former Oversight Board Member Justin Peterson.
Former executive director of Puerto Rico bondholder group Bonistas del Patio Jorge Irizarry said the board's 2025 annual report indicated that over the last 10 years the student head count in the public schools had declined by 34% and the education department's expenditure had increased by 104%. The board said this wasn't acceptable.
Irizarry said the department was the biggest use of local spending in the last 10 years and the fact that the board was only noticing the problem then indicates it wasn't evaluating its largest spender for 10 years.
Negroni says Puerto Rico's problem has always been poor governance in a "bloated bureaucracy unwilling to live within its means." The general fund has grown 44% over the 10 years, he said.
Peterson said when he was on the board from 2020
Some said one of PROMESA's biggest failures has been the failure of the board to change Puerto Rico's political culture. Muni Credit News Publisher Joseph Krist said the board hasn't had a "willing participant" in the local government and populace. "The inability of the political establishment in Puerto Rico to adapt to a new reality has allowed old cultural issues to stand in the way of progress. The constant swings back and forth politically make policy implementation almost impossible."
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"While the Financial Oversight and Management Board repeatedly calls for fiscal discipline, there appears to be little political will to make the necessary shifts — such as implementing a responsible, viable tax reform or launching initiatives to break the reliance on federal funds," El Nuevo Dia said.
The board is very unpopular, "which suggests political volatility once [it] leaves," Fabian said.
Acosta Febo said it was disappointing the Puerto Rico government had consensually achieved only one budget balanced under modified accrual standards. For the board to leave there must be at least four of these in a row. Since that interview the board on Tuesday approved a budget that it said could be a second consensually achieved balanced budget under PROMESA, if an audit finds it to be balanced after the fiscal year ends.
The commonwealth is plagued by a lack of long-term economic growth. From 2007 to 2018 the territory's real gross national product declined every year except for a small increase in 2012. Since 2018 it has increased at a moderate pace of around 2% except for 2020 when it contracted 3.1%. The unemployment rate declined to 5.6% in May of this year from 11.6% in June 2016.
Calero says an economic transformation has been lacking. "Puerto Rico continues to face population decline, low labor-force participation, a fragile electric system and persistent poverty… Economic growth remains uneven and dependent on factors beyond the board's control."
The board and local government haven't done enough to promote economic development, Acosta Febo said. She said federal funds largely stemming from the Hurricane Maria catastrophe of fall 2017
"The economy has improved but there will always be challenges ahead," said John Hallacy, president of John Hallacy Consulting.
"When the U.S. Treasury team on Puerto Rico started working on solutions for Puerto Rico in 2015, it called for an expansion of the Earned Income Tax Credit and the Child Tax Credit for Puerto Rico to help the local economy," Weiss said. "These proposals didn't get into the final version of PROMESA."
Several respondents said the failure to reach a
"PREPA, of course, gets more difficult and expensive to fix every day as the old facilities get older and solar alternatives get cheaper," Fabian said. "I think the board was wrong not to restructure PREPA first, leveraging credit support from the commonwealth. Lots of local electric utilities in the U.S. are not self-supporting and there's no reason why PREPA needs to stand on its own."
"PREPA, which was the first entity to default, remains in limbo, with far-reaching consequences for the economy and well-being of the population," Weiss said.
Where Puerto Rico and its bonds are headed will "rest heavily on the outcome of the PREPA bankruptcy," said Puerto Rico attorney and commentator John Mudd. "The real question is how high will the electricity rates go?"
Some voiced concern about the board's extended stay. Its continuance in Puerto Rico "is not optimal from a basic democratic rights perspective," Feliciano said. "They must go. Although [the board] says it intends to wrap up its operations, its behavior is inconsistent with an organization in the middle of a phase out."
The board "is still in place and has no plans to leave," Peterson said. "Congress never intended for the [board] to be permanent but that's what it has become. Honestly, the [board] has become the greatest threat to Puerto Rico."
In response, Oversight Board Executive Director Robert F. Mujica, Jr. said: "PROMESA is working. Today, Puerto Rico is dramatically different. In 2016, Puerto Rico was in crisis. Today, Puerto Rico is stable. The fiscal crisis and the horrific Hurricanes that followed took a generational toll on the people, communities, and businesses of Puerto Rico. It is the Oversight Board's responsibility to complete Congress' mandate. Puerto Rico must not fall back into fiscal instability."
The statement cited 12 debt restructuring, $72 billion in saved debt payments and spending reductions, and better government transparency.
Improvements include budget reserves and a process to financially score legislation, the board said.
"Many steps are still necessary to fully transform the budget process to ensure Puerto Rico maintains the stability achieved under PROMESA without continued reliance on the Oversight Board to keep the budget in balance," Mujica said. They include capital budgeting, stronger accounting, and fiscally accountable and efficient government agencies. "The government must take the lead on all of these initiatives and become champions of reform. Only then can we assure that Puerto Rico does not fall back into bankruptcy," Mujica said.
