Fiscal board’s rejection of Senate enabling bill called ‘another intimidation tactic’
By The Star Staff
Citizen Front for the Debt Audit spokeswoman Eva Prados Rodríguez and Rolando Emmanuelli Jiménez, a bankruptcy lawyer, chided the Financial Oversight and Management Board over the weekend for trying to intimidate the public about the debt adjustment plan that seeks to restructure some $35 billion in debt.
The oversight board last week objected to the Senate version of House Bill 1003, which would enable the debt adjustment plan by authorizing a bond issuance and said it may be forced to withdraw the plan from the U.S. District Court, which would further delay the end of the bankruptcy.
The oversight board believes the Senate version of the enabling bill would make the 7th Amended Plan of Adjustment unaffordable. The legislation conditioned the bond issuance on the board not cutting government pensions.
“Puerto Rico House Bill 1003, as amended and approved by the Senate, conditions the issuance of the bonds on provisions that would cost tens of billions of dollars,” the oversight board said. “In addition to preventing any cuts to government retirees’ pension benefits, the Senate’s bill would prevent the freezing and reforming of the insolvent pension plans that previous Puerto Rico governments underfunded for decades. It adds costly mandates and massive spending increases as a condition to implementing the 7th Amended Plan of Adjustment.”
The oversight board said it has been working for five years in good faith with retirees, unions, bondholders and other creditors to negotiate a plan of adjustment that is fair and sustainable, and with the Legislature and the governor to pass the legislation to issue new bonds.
“The Oversight Board is convinced that the legislation passed endangers Puerto Rico’s ability to come out of bankruptcy and repeats the unsustainable spending practices and policies that drove Puerto Rico into bankruptcy in the first place,” the oversight board said.
“The outrageous costs of the amendments to House Bill 1003 taken together would make the confirmation of the 7th Amended Plan of Adjustment impossible. Therefore, the Oversight Board would be forced to withdraw the proposed Plan of Adjustment from the U.S. District Court.”
The Senate version of the bill would also prevent cuts to the University of Puerto Rico, the island’s 78 municipalities and the Legislature.
“This is another intimidation tactic from the Board,” Prados Rodríguez said. “Since they cannot be convinced about the real benefits of this proposal to the country, they resort to threats. This is the same Board that until a few weeks ago spoke of Plan B and that it did not need the Legislature [to move the plan forward]. Now it does accept that the Legislature is the only one who can authorize a new bond issue.”
“However, the Oversight Board wants legislators to be rubber stamps and accept a payment plan that, in addition to being unsustainable, goes against pensioners, the university and municipalities,” she added. “Neither the Legislature nor any pensioner should be pressured by the intimidation tactics of the Board.”
The debt adjustment plan proposes a debt service of $1.15 billion a year. It also would reduce the outstanding commonwealth debt and other claims by almost 80%, from some $33 billion of existing claims to $7.4 billion in new debt.
But critics say the terms are unaffordable.
Emmanuelli Jiménez concurred that given the clear recognition of the power of the Legislature over the confirmation of the debt adjustment plan, the oversight board is resorting to tactics of fear, uneasiness and misinformation.
He insisted that it is not true to say that without the adjustment plan, the bankruptcy case will end, allowing creditors to collect 100%.
“The Board can present further amendments to the adjustment plan and the process to follow until a truly sustainable agreement is reached for the country,” Emmanuelli Jiménez said. “The Legislature must resist and prevent the approval of this debt adjustment plan as it is, because it will lead us to a second bankruptcy and Puerto Rico to misery.”
Both Prados Rodríguez and Emmanuelli Jiménez insisted that paying debt issued illegally is unacceptable and that there are pending cases in Title III that question the legality of these bonds but would fall apart if the debt adjustment plan proposed by the oversight board is confirmed, costing Puerto Rico millions of dollars. Under the debt adjustment plan, the board agreed to pay certain debt it initially had challenged as illegal.
“While the Board alleges that not confirming this agreement would represent a penalty of $100 million, it does not tell the country about the hundreds of millions or billions that are also lost by waiving illegal debt cancellation requests and lawsuits against banks and brokerage houses that supported these fraudulent issues,” Prados Rodríguez said.