Puerto Rico bankruptcy rolls forward as the island shuts down
Puerto Rico’s bankruptcy judge is pushing the legal proceedings forward despite the governor’s order to end most activities on the island to slow the spread of COVID-19.
While the Puerto Rico U.S. District Court ordered a delay of most of its deadlines until April 10, the Puerto Rico government bankruptcy within the court is rolling forward with little interruption.
On Monday, in response to the virus outbreak, Puerto Rico U.S. District Court Chief Judge Gustavo Gelpí ordered nearly all court deadlines from that date to April 10 extended to April 10.
However, on Tuesday Gelpí and Puerto Rico bankruptcy Judge Laura Taylor Swain issued an order saying that all scheduled deadlines in that case were to remain in effect unless the court ordered otherwise.
Eighteen minutes later Swain ordered extending the deadline for responses or cross-motions in a general obligation bond matter to be extended to March 20 from March 17. She also extended two other March deadlines by three and six days.
In response to the appearance of COVID-19 on the island, on March 15 Puerto Rico Gov. Wanda Vázquez Garced issued an order for all residents except a few classes of essential employees to remain at home.
She issued an island-wide curfew from 9 p.m. to 5 a.m. every day. She said people were allowed to travel only to buy groceries or drugs or to travel to banks, hospitals, or doctor appointments. She also halted all cruise ship visits to the island.
There are now five patients with confirmed COVID-19 in Puerto Rico.
“I would expect that the coronavirus pandemic impacts the Puerto Rico economy in a similar fashion as the U.S. economy,” said Vicente Feliciano, president of Puerto Rico-based Advantage Business Consulting.
“Consumption is hit hard as a result of the lockdown, with retailers and restaurants closed,” he said. “Tourism, the hardest hit sector, is more important to the Puerto Rico economy than to the U.S. economy. However, the federal transfers and social security pensions are a bigger part of the Puerto Rico economy than is the case for the U.S. Initially, transfers would not be affected by the crisis while, subsequently, the impact would be positive.
“Pharmaceutical manufacturing is not covered by the lockdown and could benefit if companies bring more of their supply chains within the domestic market,” Feliciano said.
Inteligencia Economica Chairman Gustavo Velez said, "Preliminary reports gathered from different sources show a 50%-60% reduction in consumption. In the short term, the main risk is for how long consumers will be able to keep their disposable income, since the savings rate is very low.
"Another concern is how damaging will be the current shock over the local economy since Puerto Rico’s still dealing with the effects of a decade depression, a bankruptcy, and natural disasters. What looks certain is the fact that the local government will depend on federal stimulus packages to avoid a major economic disaster," Velez said.
While the economists predicted the virus will depress island economic activity, the scale of impact on government revenues remains unclear.
Puerto Rico Treasury Secretary Francisco Parés told the El Nuevo Día news web site on Friday that he was unsure how the shutdown would impact the revenues. He added that he wouldn’t have a sense of what has happened to March revenues until the end of April.
On Tuesday the Puerto Rico Oversight Board granted the local government’s request for an opportunity to hand in a revised proposed fiscal plan. On Monday the Puerto Rico Fiscal Agency and Financial Advisory Authority had asked the board to allow it to revise the proposed fiscal plan it had already submitted.
FAFAA Executive Director Omar Marrero said “that the macroeconomic assumptions underpinning the fiscal plan are expected to change as a result of the adverse effect of the COVID-19 on the global economy and the preventive shutdown of most businesses in Puerto Rico.
“The negative impact on the economy is expected to persist over the next two quarters and could be considerable,” he said. “The entire fiscal and economic team of Governor Wanda Vázquez Garced is working on evaluating measures to supplement federal aid programs — which are being considered by the U.S. Congress — that would allow our economy to rebound and protect our merchants, as well as workers affected by the closing of businesses.”
The board responded on Tuesday by telling the governor and legislative leaders to submit a new proposed fiscal plan on April 15. While the board had been scheduled to certify a new fiscal plan on April 30, the board said that it might change that date.
On Friday the board approved the local government use the remaining $160 million in the Emergency Reserve Fund to address needs associated with the virus. The money is to be used through April 15.
On Wednesday the governor asked Federal Aviation Administration to either ban all flights to the island and within the island except for those conducted for medical, police, or military purposes for 14 days or limit arrivals to a few airports where National Guard officials would screen all incoming passengers for signs of sickness.
The governor noted that as of Tuesday the National Guard was screening passengers for signs of sickness at the Luis Muñoz Marín International Airport in San Juan, Puerto Rico's primary airport.