SAN JUAN (Reuters) - Puerto Rico’s federally appointed financial oversight board on Tuesday unanimously approved a revised fiscal reform plan meant to put the bankrupt island on a path toward solvency, but faced opposition from its elected government for being too strict.
The seven board members voted in favor of the plan even though some raised concerns about its ultimate viability to help Puerto Rico resume fiscal balance and economic growth.
“Frankly speaking, I don’t like this fiscal plan,” said Ana Matosantos, a board member who expressed concerns over the magnitude of government spending cuts, which she said could “seriously weaken” services to citizens.
As in previous versions, the U.S. commonwealth’s revised fiscal plan calls for a range of fiscal and structural reforms as well as stiff reductions in government spending.
In addition to revised data on actual revenues and expenses, the new plan was updated to account for lower levels of migration from the island following last year’s Hurricane Maria, as well as an additional $20 billion in federal disaster relief funding. It also imposes more cuts to government spending, which have raised opposition from the island’s government.
“This is not a fiscal plan for economic development, this is an austerity plan,” Governor Ricardo Rossello said as the board met in San Juan to approve revised fiscal plans for both the commonwealth and the University of Puerto Rico.
The revised plan for the commonwealth calls for a reduction of $427 million in government spending across agencies for this fiscal year, almost doubling to $926 million in fiscal year 2020.
Overall, the plan also projects a cumulative $30 billion surplus during the next 15 years, mainly triggered by the more than $80 billion in disaster relief funding for the Caribbean island following Maria and Hurricane Irma.
Rossello said that “money will be available to bondholders, but to the detriment of the most vulnerable and our people. This is simply unfair.”
U.S. President Donald Trump entered the fray with a tweet on Tuesday accusing Puerto Rico’s politicians, without providing evidence, of using “massive and ridiculously high amounts of hurricane/disaster funding” to pay off other debts, and said he would not allow a bailout with relief money.
However, both the board’s executive director, Natalie Jaresko, and chairman, Jose Carrion, immediately rejected the idea that disaster relief funding was being used to pay off debt obligations.
Asked at a news conference on Tuesday about the tweet, Jaresko responded that federal disaster relief funding does not go directly into the calculation of the surplus figures, except for the impact these monies have on the island’s economy.
Carrion further stated that the panel has no evidence that the commonwealth government is using disaster relief funds to pay for other purposes than the ones for which they were allocated.
In an interview with Reuters last month, Rossello said the island has received only a small fraction of the federal funding, roughly $3 billion to $4 billion, it needs to get back on its feet and that getting access to the rest could take more than a decade.
The federal government has earmarked only about $60 billion to $65 billion for recovery versus the $139 billion that Rossello’s administration estimates it needs to fully recover, the governor said in the interview.
On Monday, Jaresko said in a conference call with reporters that there was an “ongoing lack of political will” to implement certain measures, such as changes to labor laws to make Puerto Rico an at-will employment jurisdiction.
“Labor reform is not the end-all be-all of this,” said Christian Sobrino, the governor’s representative to the fiscal panel created by the so-called federal PROMESA law. “You can count on our collaboration to succeed, but we will not be jammed into failure,” he added.
The board released the latest version of the fiscal plan to the public on Monday, spurring a rally in the government’s defaulted general obligation bonds.
Investors cited how the plan shows an ability to pay debt service costs. The benchmark GO debt due in 2035 with an 8 percent coupon held just below Monday’s highs at 59.875 cents on the dollar, off 0.375 point in price, according to data from Refinitiv.
Reporting by Luis Valentin Ortiz in San Juan; Additional reporting by Makini Brice in Washington; Editing by Daniel Bases, Paul Simao and Jonathan Oatis