Ever since I joined the Financial Oversight and Management Board for Puerto Rico, many friends and relatives have asked me why I agreed to become one of the seven members of this highly criticized body. I joined because I want to contribute to a better future for Puerto Rico, and the Oversight Board provides an opportunity to not only resolve our fiscal crisis but also to improve our government institutions and provide a strong framework for Puerto Rico’s long-term economic growth.
However, after reading and listening to the detractors of the Oversight Board, I realized it is time to provide both the critics and, more importantly, the 3.2 million Puerto Ricans whom I represent as the only voting member of the Oversight Board who lives in Puerto Rico, a more comprehensive understanding of why this board is such a vital institution for Puerto Rico. I must share why the work of the Oversight Board is so important for any Puerto Rican and for our island’s future, and why it is an honor to have been selected by the President of the United States to be a board member.
It’s so easy to demonize the Oversight Board and its members. We have been called everything from “dictatorial” to “perverse,” with the goal of politicizing our objectives in the hopes of stalling the change Puerto Rico needs.
Why was PROMESA enacted, and the Oversight Board created? Our elected officials drove Puerto Rico into the largest public-sector bankruptcy in the history of the United States. We can argue about how the funds were used, who is to blame, and whether issuing debt to cover day-to-day expenses was the right public policy without a plan to drive economic growth.
But the fact remains: in 2016, Puerto Rico owed over $72 billion, through various debt instruments and spread over many government entities. The Commonwealth’s pension fund, which is the source of income for approximately 167,000 Puerto Ricans, was depleted. In total, Puerto Rico owed about $127 billion in 2016, including pension debt. Commonwealth debt service payments alone had become almost 30% of the government’s income from taxes and fees. Payment of the debt was unsustainable without the protection of bankruptcy proceedings.
In addition, we faced hurricanes, earthquakes, and the COVID-19 pandemic. We lost close to 100,000 manufacturing jobs since 2000, and thousands of jobs in the retail and service industries over the last few years. More than 500,000 Puerto Ricans left over the last decade. The economy fell into a long recession.
If PROMESA had not been enacted, the cost of any potential settlement with aggressive creditors would have been astronomical.
PROMESA was the U.S. Congress’ answer to Puerto Rico’s own request for help. After significant deliberations in a divided Washington D.C., all parties together found a solution: PROMESA. Puerto Rico received much-needed bankruptcy protection, but with the requirement that an objective body would oversee the restructuring of the island’s debt and finances: the Oversight Board.
When PROMESA was enacted, most people agreed oversight was necessary to solve our problems. While public opinion shifts over time, I am confident that most Puerto Ricans still agree that our government systems and processes are antiquated and inefficient, our roads are in disrepair, our educational system needs to change to benefit our children, our healthcare system needs to improve, and we need to help our university regain the strength to drive economic development.
I believe in the Oversight Board and PROMESA because its objectives are aligned with the objectives of most Puerto Ricans. The Oversight Board and PROMESA were created with several goals in mind; to exit bankruptcy, regain access to credit markets, and four consecutive balanced budgets. When these goals are achieved, the Oversight Board will cease to exist. I work to end the Oversight Board I serve on.
As part of our objectives on the board, we must also ensure long-term economic growth in partnership with the Governor and the Legislature. To promote successful economic development, we must implement structural reforms that ensure Puerto Rico becomes more competitive. Government processes must become more efficient so that we do not face bankruptcy ever again.
Is that so perverse? The real obstacle to achieving the goals of PROMESA is a human one: fear of change.
Together, we can overcome this fear. Our political class and special interest groups have worked for too long in an environment where the loudest voice gets the most attention – and votes. The benefits to the few are considered our “heritage” (patrimonio). As John F. Kennedy said: “Change is the law of life. And those who look only to the past or the present are certain to miss the future.”
The achievement of our common objectives for a better Puerto Rico requires transformation. We must change the way we do things, adopt new technologies, embrace new ideas, and welcome innovative ways of doing things. Not only do we need to improve our computer systems and accounting practices, we also must accept new ways of doing business, sometimes allowing for ideas that are different or even contrary to our present state, to replace what we have assumed is the way things must be.
Imagine you default on your credit card bill and the credit card company forgives 55% of what you owe. That is what the Oversight Board proposed against the Commonwealth. But now imagine you continue spending as before. You would end up in bankruptcy again. Do you think you would get a second chance? We cannot spend more than we earn, in the same way, the government has to adapt its expenses to not be greater than its collections.
The Oversight Board must drive significant change to how Puerto Rico is governed. We must reduce government spending. We must promote ethics and transparency. We must not allow the usual politics and special interest groups to preserve the status quo. We deserve better.
Let’s examine what the Oversight Board has accomplished so far:
- Fiscal Plans to forecast revenues and expenses, providing a road map to fiscal discipline.
- Saved the Puerto Rican people $17.5 billion already through the restructuring of COFINA’s debt service and an incremental $42.5 billion from the General Obligations and Public Buildings Authority restructuring.
- Reduced the annual debt service payment from an average of $2.7 billion to $1.15 billion, less than half.
- Defined structural reforms to improve education, human capital, infrastructure, ease of doing business, and the Puerto Rico energy system.
Once we complete the debt restructuring, including PREPA, Puerto Rico could emerge from bankruptcy, perhaps in 2022. This would accomplish the Oversight Board’s first goal of debt restructuring to achieve capital market access.
Further, the Oversight Board is working closely with the Governor and Legislature in preparing the 2022 budget. Differences remain among the parties, but this could become the first balanced budget in over a decade. Once we achieve this second goal, the Oversight Board could go away within the next five years.
To make this happen, we must have the courage to accept change, to adapt our way of thinking, and leave behind personal interests for the greater good. It is time we work together for the benefit of our children.
I am grateful for the opportunity to be a member of the Oversight Board, working in partnership with my fellow board members and staff, Governor Pierluisi, his administration, and the Legislature for a better future for Puerto Rico.