Former Gov. Fortuno Slams Puerto Rico's Reticence

Puerto Rico's fate rests in its own hands, and whether the island can dig itself out of its debt-mired-dilemma depends on if it accepts changes and "follows the rule of the law," former Puerto Rico Gov. Luis Fortuno told me.

"The bottom line is that the rule of law has been eroded for more than two years and that's why Puerto Rico is where it is now," said Fortuno, referring to its recent failure to make good on a $72 billion debt installment plan. 

Fortuno places the blame squarely on the shoulders of the Democrat who unseated him in 2012, Alejandro Garcia Padilla, whose spending "led directly to the much lower bond rating Puerto Rico is now dealing with," according to Fortuno.

There is evidence that this is not just political rhetoric on the part of Fortuno who served as governor from 2008-12 as the candidate of the Statehood Party (which is closely affiliated with the Republican Party on the mainland).

According to the conclusion of a just-completed study by the American Bankruptcy Institute Journal, "The Puerto Rican government has been inconsistent in what it says and does. On Nov. 4, 2013, Gov. Alejandro Garcia Padilla stated that Puerto Rico had no liquidity problem, the public debt was payable, the Puerto Rico Constitution prohibits default and the government was not requesting aid from Congress. On June 22, 2014, the governor indicated that his administration approved the territory's first balanced budget in 22 years."

However, noted authors Sonia Colon and Jorge L. San Miguel, "On June 28, 2015. . . the governor backtracked and announced that the $72 billion in public debt was not payable."

The rescue package just signed into law, which includes protection from creditors for Puerto Rico, also includes a seven-member board of oversight that will have the final say on all major spending decisions by the San Juan government and whether they violate the rules of the package.

Similar "control boards" were successfully used by the cities of Philadelphia and Washington, D.C., when they were under bankruptcy legislation. When both cities were restored to solvency, the boards were promptly dissolved. 

"Like any legislation, it isn't perfect," Fortuno told me, "But it is the law of the land.  It will depend in part on whether some thoughtful members are chosen by the congressional leadership for the seven positions."

Among those mentioned for the positions are former D.C. Mayor Anthony Williams (a Democrat who was previously the city's chief financial officer when it was under the control board from 1995-98), economist Douglas Holtz-Eakin, past head of the Congressional Budget Office and adviser to Sen. John McCain, and former Rep. Phil English, a past member of the House Ways and Means Committee.

Fortuno said he was unaware of who actually might be named for the board positions. But, he added, "If these are people who provide certainty for investors, make sure the right-sizing of government occurs, attain sustained economic growth, and increase the bond rating enough so that Puerto Rico can regain market access, they will have been the right people for the job." 

By John Gizzi
Former Gov. Fortuno Slams Puerto Rico's Reticence