CNE: 5 years in, PROMESA isn’t fulfilling its promise
By The Star Staff
Five years after the enactment of the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), the objectives, achievements and successes attained fall short, the Center for a New Economy (CNE) concludes.
In the latest edition of the “CNE Review,” the CNE examines PROMESA since its enactment in June 2016, makes an inventory of its successes and failures, and reiterates the proposal it presented back in 2016 in Washington, D.C., and which is still an alternative to the Financial Oversight and Management Board (FOMB) created by PROMESA to oversee commonwealth finances. The CNE has called for a comprehensive economic plan for growth.
Since the enactment of PROMESA, Puerto Rico has benefited from the suspension of litigation demanding repayment and a moratorium on debt payment, and has attained certain control, transparency and visibility in government spending.
Puerto Rico had about $70 billion in debt when it filed for bankruptcy under the law. However, five years later, approximately 2/3 of the bond debt has not been restructured; critical projects for economic development have not been approved; the audited financial statements are still three years past due; the move to budgeting on a modified accrual (or accrual) accounting basis is a work in progress; and the government’s budget is not yet balanced, as it cannot yet include debt service.
In addition, CNE concludes, the oversight board’s insistence on implementing spending cuts, instead of eliminating tax exemptions and increasing collections, has generated anxiety and uncertainty among the population and may have permanently damaged important institutions for the economic development of Puerto Rico such as the University of Puerto Rico.
Back in 2016, CNE did not endorse the bill that eventually became PROMESA because “we believe[d] the political costs associated with the oversight part of the bill [were] extremely high and quite definite, while any benefits to be derived from debt restructuring [were] fairly uncertain and contingent on the successful implementation of a complicated, new territorial debt restructuring process, which combines principles drawn from both the U.S. Bankruptcy Code and the realm of sovereign debt restructuring.”
“Thus, as we stated in 2016, the economic, political, and social costs associated with the colonial PROMESA experiment have been extremely high and explicit, while any benefits we may have derived from it have been small and most remain quite uncertain and contingent,” the analysis concludes.
Finally, the Title V process to identify and implement high-value “critical projects” appears to have been discarded by the oversight board. Back in 2016, economic growth under that rubric was one of the three central pillars of PROMESA, in conjunction with debt restructuring and balanced budgets. Yet it appears the board has substituted the capital investment that was supposed to be generated using the Title V procedures for its “structural reforms.” If so, the payoff of that trade remains to be realized, the CNE said.
The CNE agrees with the late appellate court Judge Juan R. Torruella, who expressed that PROMESA has been “Congress’s fourth try at cutting through the Puerto Rican Gordian knot in its interminable attempt to colonially rule Puerto Rico and its people,” and, in the CNE’s opinion, it has failed.
CNE also coincides with the judge when he said it was time for the United States “to accept that its relationship with its citizens who reside in Puerto Rico is an egregious violation of their civil rights.”
“The democratic deficits inherent in this relationship cast doubt on its legitimacy, and require that it be frontally attacked and corrected ‘with all deliberate speed,’” Torruella said.
In addition, the CNE recommends that Puerto Rico take a step forward to begin reforms that are already overdue to restore credibility, improve governance, effectively implement accountability and transparency measures, and promote greater civic participation.
The CNE says fiscal responsibility laws can be promoted and implemented locally to reform the governance of key institutions to help ensure the long-term solvency of the government.
The report published Tuesday is a retrospective look and a collaboration between Rosanna Torres, director of CNE’s office in Washington, D.C.; Sergio Marxuach, policy director and editor-in-chief of the CNE Review; and Deepak Lamba-Nieves, research director.