Puerto Rico Gov. Ricardo Rossell- rejected the Financial Oversight and Management Board for Puerto Rico's demands for quick and deep austerity measures.
The board made the
The governor
"We have a clear difference in approach and outlook from those expressed in your letter," Rossell- said. "It is my view that any fiscal plan premised exclusively on a reduction in the health, well-being, and living standards of the people of Puerto Rico through healthcare delivery cutbacks, current retiree pension reductions of our most vulnerable segments of the population, and layoffs is by its nature unacceptable."
He also rejected tax increases on the poor and middle class, saying revenues could be increases through improved tax collection methods. The governor went on to say that all who are concerned for Puerto Rico should focus on creating economic growth.
The governor calls to the board to work with him to reach "an acceptable balance."
Rossell- describes the board's debt proposal as an "average 79% haircut."
To this he responds, "We will reflect a fundamental willingness to pay based upon available resources, while satisfying the need for essential services, adequate funding for public pensions and providing a platform for economic growth, all as required by [the Puerto Rico Oversight, Management and Economic Stability Act]."
On Friday the board released a statement saying it had received the governor's letter and would respond to it.
In its lengthy Wednesday letter demanding austerity, the board indicated little flexibility about demanding $4.5 billion in spending cuts and/or tax increase per year. While the board said it was open about how the governor achieves that number, it also said, "To be clear, presenting a plan that can achieve at least this level of savings is a pre-requisite to certifying a fiscal plan."
PROMESA requires the creation of certified five-year fiscal plan that would, among other things, provide a balanced budget to the commonwealth, regain access to the capital markets, fund essential public services, fund pensions, and achieve a sustainable debt burden.
If the governor doesn't present a fiscal plan the board finds acceptable, PROMESA allows the board to create a plan of its own and have it legally considered as having been "approved by the governor."
In its Wednesday letter the board appeared to lay down the gauntlet, saying the plan must target a structurally balanced budget by fiscal year 2019. They called it a "once and done" approach to dealing with Puerto Rico's structural deficit.
However, in a telephone press conference on Dec. 20 board Chairman José Carríon III said the fiscal plan will belong to Rossell-. It remains to be seen how insistent the board will be in getting its way with the plan.
"Negotiations pose a healthy tone and it looks like they are not breaking down just yet. This is a good thing," said Michael Ginestro, Bel Air Investment Advisors' director of municipal research.
A separate but related issue is whether the board will grant an extension to the already expired Jan. 15 deadline for the governor's submittal of a fiscal plan and to the Feb. 15 expiration of the stay on debt lawsuits.
Rossell- recently asked for these to be extended to Feb. 15 and May 1, respectively.
The board had laid out in its Wednesday letter conditions for extension of these deadlines. On Monday Rossell-'s non-voting representative to the board, Elías Sánchez, sent a letter
However, Sánchez stated he had a concern about the board's "once and done" approach to structural balance. He wrote that it may be necessary to revise the plan at a later point.
Sánchez assured the board that the governor has no plans to seek a short-term loan.
A holder of Puerto Rico bonds who is also an analyst said the past week's letters are about appearances. The board is trying to show it is tough, said the bondholder, who wants to remain anonymous, while the governor is trying to show his independence. Sánchez's letter on Monday is the bridge between the two approaches and is the most important letter, the bondholder said.
Former Gov. Alejandro García Padilla created a version of the fiscal plan without assuming federal help on Medicaid. This has forced the board to keep this assumption, the bondholder said, adding that it is likely that the federal government would ultimately provide Medicaid and Medicare help beyond what is currently scheduled.
University of Puerto Rico professor Alex Betancourt agreed that the board's differences from Rossell- on a number of assumptions were important.
The governor's "Plan for Puerto Rico," which he is using to guide his work in office, assumes that the island will become a state and that the federal government will provide substantial Medicaid funding aid.
The board doesn't assume these things.
