Board: Reforms, fiscal responsibility are key to economic growth for PR
By The Star Staff
The Financial Oversight and Management Board warned the government that bringing economic growth to Puerto Rico cannot be done by simply restructuring the debt and investing federal funds into infrastructure, but also must include restoring fiscal responsibility and implementing structural reforms.
The oversight board warned that if the government wants to spend more than it has, it should raise taxes or cut tax incentives to corporations.
“Fiscal responsibility requires discipline to not overpromise and the prioritization of available resources,” the oversight board said in a recent statement. “If a government wishes to spend more resources than it has while having no access to credit markets, it must find a way to increase revenues. In Puerto Rico that would entail either reconsidering the over $20 billion in annual tax breaks the government hands out or increasing taxes, or both. If those are not an option, further spending is not an option. The Puerto Rico Constitution itself enshrines the concept of a balanced budget.”
The federally appointed entity was responding to remarks made by Gov. Pedro Pierluisi Urrutia in which he criticized board member Andrew Biggs for statements in which he denounced the island government’s lack of administrative capacity and political will to push through reforms.
The oversight board appeared to side with Biggs’ remarks.
The board noted that for decades, the governments of Puerto Rico have “overpromised and underdelivered to the people of Puerto Rico.”
“Across different administrations and different political parties, promises were made but were not fulfilled because the Government failed to deliver the funding necessary to deliver on those promises,” the board said. “Financial mismanagement led to financial crisis – the singular reason for the adoption of PROMESA [the Puerto Rico Oversight, Management and Economic Stability Act] more than five years ago.”
Before PROMESA and before the oversight board was established, the board said, Puerto Rico’s governments overestimated revenues, overspent, and overborrowed not only from bondholders, but also from local suppliers, from employees and from retirees.
“Previous governments piled up more than $72 billion in debt – without building a strong Puerto Rico with excellent education, pristine infrastructure, well-maintained roads, reliable electricity, and a thriving economy with opportunities for its people,” the board said. “Recession, outmigration, loss of competitiveness, overspending, overborrowing and lack of investment into Puerto Rico’s infrastructure and government services, and into the people of Puerto Rico unfairly wreaked havoc on the people of Puerto Rico’s lives. Puerto Rico’s governments allowed Puerto Rico’s public pension systems to become bankrupt.”
For the past five years, the members of the oversight board have worked to partner with elected officials, the business community, and the people of Puerto Rico to end the practices that led to the crisis, the board added.
“The Oversight Board succeeded in cutting the government debt by 80% and saving Puerto Rico taxpayers $50 billion in debt payments,” the board said. “The Oversight Board succeeded in ensuring that pensions could be paid from the government budget since no pension funds exist, ensured that all civil servants become eligible for Social Security, and paved the way to establish an independent Pension Reserve Trust that will begin to rebuild what had disappeared: funds to pay future pensions.”