Puerto Rico’s bond payments should improve after nine years, said Oversight Board executive director Natalie Jaresko in an interview at The Bond Buyer offices Monday.

The statement was one of several where Jaresko indicated optimism about Puerto Rico’s future and the board’s relationships with bondholders and the government of Gov. Ricardo Rosselló.

Natalie A. Jaresko, executive director, Financial Oversight and Management Board for Puerto Rico.
Natalie A. Jaresko, executive director, Financial Oversight and Management Board for Puerto Rico. Aaron Weitzman

The next few years of reform will inevitably be tough, Jaresko said. The board doesn’t expect the island to return to nominal gross national product growth until fiscal year 2022 and inflation-adjusted growth until fiscal 2024. In the 10 fiscal years from 2017 to 2026 the board expects the “available cash” for debt service will be about 24% of due debt.

However, it is “misleading” to look at what the board’s approved 10-year fiscal plan has available for debt service. After 10 years, Jaresko expects Puerto Rico’s economy to be growing. “In the years 11 to 40 there’s bound to be more cash in all the estimates available for debt service,” Jaresko said. “So creditors shouldn’t only focus on the 10 years.”

Following the Puerto Rico Oversight, Management and Economic Stability Act’s section 312, the board is working on a “plan of adjustment” for the debt, she explained. She said she couldn’t provide any timing on when the board would release the plan.

The payment of debt in the current fiscal year remains a bit unclear, the official said. While the approved fiscal plan indicates that there is expected to be $404 million of available cash, the board-approved General Fund budget allots $0 to debt service.

The board sees the available cash as being available as a cash reserve buffer as well as for debt service, Jaresko said.

She noted that Title III bankruptcy judge Laura Taylor Swain has said she plans to rule by mid-December on the dispute between the Puerto Rico Sales Tax Financing Corp. (COFINA) and Puerto Rico over the ownership of sales tax proceeds allotted for the former. Once this is done the government may pay some of the debt due this fiscal year, Jaresko said.

Work on restructuring all of Puerto Rico’s public sector debt is going on three tracks simultaneously, she said. It is happening in negotiations, in the private mediation process overseen by Barbara Houser, and in the Title III litigation process overseen by Judge Swain.

On the Puerto Rico Aqueduct and Sewer Authority’s $3.7 billion in bond debt, Jaresko said the authority wasn’t in payment default yet but that there were negotiations going on concerning the debt’s restructuring. The authority owes money to federal agencies as well as to the wide range of parties that own bonds. Negotiations encompassing them, the board, and PRASA are underway.

She said she was “very hopeful that these consensual negotiations will result in a Title VI agreement and that will be helpful in attracting and maintaining federal funding [at PRASA.]” The Environmental Protection Agency and the United States Department of Agriculture are able to provide low-cost loans.

Since PRASA isn’t in payment default yet it may have a reasonably easy time to come back to the market, the executive director said.

The board is working with PREPA and parts of the Rosselló administration in creating a new fiscal plan for PREPA, Jaresko said. Lowering the island’s electrical rates is important for improving the commonwealth’s economic future. She said she expected the board to discuss a PREPA fiscal plan at the board’s Oct. 31 meeting.

While in late August the board filed a suit against Rosselló and his government to force pension cuts and the introduction of a furlough program, Jaresko was generally positive about the board’s relations with the elected government. She said she was satisfied with government’s progress in in releasing financial information to the board.

On a monthly basis the Rosselló government is providing the board a report comparing budgeted to actual spending department by department. The board is also receiving a weekly report of cash and liquidity. The government is moving towards better accounting practices, she said. Puerto Rico will soon release the fiscal year 2015 comprehensive annual financial report.

Jaresko said the lesson of her stint as Ukraine Minister of Finance in 2014 to 2016, a period of financial and economic crisis, was that “implementation is everything.”

At a board meeting in August, Jaresko said a lack of implementation plans led the board to order the government to institute furloughs.

“There are governments aplenty that can adopt plans, adopt laws, have full commitment and desire to change but implementation at an agency level in a bureaucracy is extremely difficult,” Jaresko said. “And that is the key to success.”

Jaresko said she thought the Rosselló administration was “committed” to the fiscal plan. “If you take the case of right-sizing the government, I have no doubt there is a desire and intent and it is part of the public campaign of the governor to right-size the government. So I don’t think there’s not an alignment in the goal.”

However, “the devil will be in the details of the implementation and enforcement of the fiscal plan and that is the biggest lesson learned [from the Ukraine.]”

Without an implementation plan to execute cuts in an agency, the agency can run out of money eight or nine months into the fiscal year, she said. Then the agency usually turns to the central government for an additional allocation to continue operations.

“There is a general fatigue among creditors [with Puerto Rico’s continuing problems] and I understand that because they have been dealing with these problems for years. But the problems that grew didn’t evolve overnight and didn’t evolve over one year and resolving them is also going to take time.”

“I would just ask your readers to understand that the goal of the board is to work itself out of a job. As quickly as possible [we wish] to return to structural balance and renewed access to markets.”

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