As the chairman of the Financial Oversight and Management Board for Puerto Rico, I am often surprised when I read the many comments, assessments, and speculation about our actual work, our supposed power, and our perceived reach into the depth of Puerto Rico politics. Recently, I found myself yet more surprised: I learned from the news that the Oversight Board could remain in place for decades.
That rumor – and a rumor is all it is – is bewildering. It is not what I signed up for when two U.S. Presidents appointed me to serve on the Oversight Board. PROMESA has given us members of the Oversight Board a job to do, and we are doing it. It won’t take decades.
So, let’s start by getting the basic facts straight. Under PROMESA, the Oversight Board will stay in place until two requirements are met: Puerto Rico needs to regain access to the credit markets “at reasonable interest rates”. Access to the credit markets means that the government would have the ability to borrow money if it wished to. The government doesn’t have to borrow money; it just needs to be able to borrow money.
In addition, Puerto Rico must achieve balanced budgets for four years in a row, which means revenues need to be at least as much as Puerto Rico’s expenses, including debt payments. Puerto Rico has taken a huge step towards fulfilling this statutory mandate of PROMESA. The Plan of Adjustment would reduce the amount the government will have to pay every year to creditors from as much as $3.8 billion per year without a restructuring under PROMESA to $1.15 billion, a massive cut. We hope the court will confirm this plan later this year.
Anyone who says that the proposed restructuring of Puerto Rico’s debt will entrench the Oversight Board for the next twenty or thirty years has it completely backwards. Confirming the Plan of Adjustment will speed up our departure, not slow it down. I never would have voted for the plan if it meant keeping the Oversight Board around any longer than PROMESA requires.
Until Puerto Rico gets out of bankruptcy, there is no hope for meeting either of the PROMESA requirements. No one would be willing to lend to Puerto Rico while it is mired in bankruptcy. Puerto Rico’s economic future is far too uncertain, and Puerto Rico wouldn’t be able to repay the new debt if it fails to restructure the $35 billion of claims.
Nor will Puerto Rico achieve the four balanced budgets until the annual payments Puerto Rico owes on its debts are reduced to an amount the Commonwealth can afford to pay.
How did anyone get the deeply mistaken idea that the proposed restructuring would lock the Oversight Board in place for thirty more years? The rumor seems to reflect confusion about how the restructuring plan works.
Under the plan, funds will be set aside to make sure that pension benefits will be paid on schedule in the coming decades. Someone needs to make sure the funds are set aside each year, as required, and to oversee other obligations under the Plan of Adjustment. Because the Oversight Board will play this role initially, some people seem to think it will continue to do so for thirty years. But nothing could be further from the truth. As soon as the requirements of PROMESA are met, the Oversight Board will be dissolved and the Puerto Rico government will take over responsibility for making sure the funds are set aside and the Plan of Adjustment is implemented.
If you hear someone say that the proposed restructuring will prolong the time that the Oversight Board stays in place, I encourage you to help them to get their facts straight. Then ask them to urge politicians and public officials to support the proposed Plan of Adjustment. The restructuring will be a huge step forward for Puerto Rico, and it will start the clock ticking toward the day when the Oversight Board can dissolve. To borrow from Mark Twain, the reports of the Oversight Board’s longevity are greatly exaggerated.