| NEW YORK, March 7
NEW YORK, March 7 Puerto Rico's oversight board
is racing to review Governor Ricardo Rossello's blueprint for
steering the island's economy out of fiscal crisis, but has key
concerns over whether it can be implemented as planned, a source
familiar with the process told Reuters on Tuesday.
Rossello last week unveiled a draft turnaround plan - a
requirement of the federal Puerto Rico rescue law known as
PROMESA - for the U.S. territory struggling with $70 billion in
It outlines plans for $33.8 billion in fiscal reforms,
including $12.9 billion in new revenues, and forecasts the
Puerto Rican government to have $1.2 billion a year available to
service debt - just 30 percent of what comes due next fiscal
A turnaround plan must be approved by the oversight board,
which is in charge of managing the island's finances. But the
plan likely will not be approved as is, according to the source,
who is familiar with ongoing talks between the board and
Rossello's plan departs from some of the board's key
financial projections. Board members are not convinced the
figures are based on sound data, said the source, who declined
to be named because the talks are not public.
"The board just doesn't see a degree of specificity in the
document that can give basis or justification for these
numbers," the person said.
Specifically, the board is concerned about the basis for the
island's claim that it can generate $3.6 billion over ten years
from improvements in tax collection. It also is skeptical as to
whether Rossello can successfully implement key cost-saving
measures like turning the island's government into a
single-employer structure, the person said.
The board wants to approve a turnaround plan for the island
by next Wednesday. It met with government officials in Puerto
Rico last week and convened a private board meeting on Monday in
It also plans to hold a public meeting in New York on
The island needs to do more to shore up short-term
liquidity, the source added, especially in light of the
government's announcement on Tuesday that its funding gap this
fiscal year is $500 million above projections.
Elias Sanchez, Rossello's liaison to the board, defended the
plan in an interview with Reuters on Tuesday.
The tax reform measures "are not simply based on
improvements in collection, but on use of new technology and on
reforms that will broaden the collection base," Sanchez said.
He added Puerto Rico's dire straits will ensure the
political will to make the single-employer plan a reality.
"We either make these structural changes or we collapse,"
Sanchez said. "It's not a matter of political will."
The island's creditors, meanwhile, say the current version
of the plan does not do enough to ensure debt payments will be
One creditor said the governor "changed his tune" from
campaign promises last year to minimize cuts to debt repayments.
"He campaigned on paying debt, and this plan shows there's going
to be severe impairment," the creditor said in an interview on
Monday, requesting anonymity because of the sensitive nature of
Rossello's $1.2 billion figure is below debt service
projections proposed last year by ex-Governor Alejandro Garcia
Padilla - a populist and Wall Street critic, whose policies
Rossello railed against during last year's election.
To be sure, government officials have said they believe it
likely the U.S. Congress will increase the island's federal
healthcare reimbursements, which could boost its debt service
capacity as high as $2.7 billion.
The plan calls for a $64 million annual cut in pension
benefits. That's a lot less than the $200 million the board
recommended, but still does not sit well with pension advocates.
"These retirement benefits were promised in exchange for
labor and services rendered and constitute deferred compensation
owed to these citizens," said Robert Gordon, a lawyer for a
committee of local pensioners.
While creditors are quick to protest, some believe
Rossello's plan has more to like than dislike from a
bondholder's perspective. As Height Securities analyst Ed
Groshans said in a note on Tuesday, the oversight board's own
projections had forecast Puerto Rico to have only $800 million a
year to pay debt.
(Reporting by Nick Brown; editing by Daniel Bases, G Crosse)