(Adds comment from government and board, confirms official letter)
By Daniel Bases and Nick Brown
NEW YORK/SAN JUAN, March 9 (Reuters) - Puerto Rico’s federally appointed fiscal oversight board on Thursday rejected a fiscal turnaround plan proposed by Governor Ricardo Rossello, saying it did not comply with PROMESA, the restructuring law passed last year by the U.S. Congress.
The board told Rossello in a letter that his plan to put the U.S. Commonwealth on a sustainable fiscal path was insufficient and based on unrealistic projections for economic growth, spending and revenues.
“The Board has determined that the Proposed Plan does not comply with the requirements set forth in PROMESA,” Thursday’s letter said. A board spokesman told Reuters the members were looking forward to a response from the governor.
The thumbs down from the board is a blow to Rossello, who was elected in November but has limited room for maneuver as Puerto Rico struggles with $70 billion in debt and a 45 percent poverty rate. The U.S. territory also faces a shrinking population as residents move away seeking better economic conditions.
A deadline for submitting a revised proposed fiscal plan was set by the board for Saturday March 11 at 0900 AST (1300 GMT). A turnaround plan must be approved by the oversight board, which is in charge of managing the island’s finances.
Following the rejection of his plan, Rossello told reporters he hoped to meet with board members face to face, saying information gets missed in a back and forth of letters. He did not specify if there would be a new plan by the deadline.
“Listen, this doesn’t need to be a battle. We need to remember who gets to pay the price if this gets done in the incorrect manner, and it’s the people of Puerto Rico,” Rossello said
“I just hope that we can maintain what the spirit of PROMESA is, which is: the board makes sure they identify the magnitude of the problem, but the governor and the government execute the policy,” he added.
Sources earlier in the week told Reuters the oversight board was concerned about key financial projections not being based upon sound data and would likely reject the plan.
“The Proposed Plan does not provide a path to restructuring debt and pension obligations to reach a sustainable level, and ensuring funding of essential services for the people of Puerto Rico,” the letter said.
Rossello’s draft turnaround plan, unveiled last week, called 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 year.
Thursday’s letter followed correspondence between the two sides on Wednesday in which the board recommended emergency measures while the government called the measures unnecessary. The board’s said Puerto Rico faced a possible cash deficit of about $190 million by July.
“Debt restructuring is necessary, but it alone is neither sufficient nor a sustainable solution,” Thursday’s board letter said.
Matt Rodrigue, an adviser to some senior creditors holding debt backed by sales tax receipts, known as COFINA, told a panel in San Juan on Thursday that his group stood ready to provide the government with bridge financing to address the island’s short-term liquidity issues. The board, however, has said Puerto Rico should not be borrowing money given its fiscal straits.
The board said revenue projections used by the government to calculate structural deficits are “overly optimistic,” specifically citing projections for economic growth rates and return to nominal economic growth.
In addition it said the projections failed ”to reflect near-certain declines in baseline revenues associated with corporate taxes and non-resident withholding taxes.
The rejection letter was first reported by El Nuevo Dia. (Reporting By Daniel Bases in New York and Nick Brown in San Juan; Editing by Jonathan Oatis and Tom Brown)