The stay on litigation against Puerto Rico in its debt restructuring should not bar a lawsuit seeking financial and conflict-of-interest information from the board overseeing the U.S. territory's finances, a reporters' group argued in court papers filed on Tuesday.
The island's Centro de Periodismo Investigativo (CPI) said the board has been "stonewalling" its efforts to access the information, spurring it to file a lawsuit last month to force the board to hand over the information.
Elias Sanchez, Governor Ricardo Rosselló’s liaison to Puerto Rico’s financial oversight board who has been criticized over his financial disclosures, resigned on Thursday.
Sanchez, a trusted adviser to Rosselló who was effectively the face of the Puerto Rican government on issues concerning the U.S. territory's massive debt restructuring, said in an interview that he wanted to focus on opportunities in the field of law.
Rossello appointed Christian Sobrino Vega, president of Puerto Rico's Government Development Bank (GDB), as Sanchez's replacement on the board. In a statement, the governor called Sobrino "instrumental in the success of our administration."
Puerto Rico is in a historic economic crisis, with $72 billion in debt it cannot repay, a 45 percent poverty rate, and insolvent public pensions. Its finances are under the oversight of a federal board that has been given the task of helping the island craft and follow a blueprint for its fiscal turnaround.
As Rosselló’s delegate on the board, Sanchez, a former lobbyist, had become a favorite target of investors unhappy with potential cuts to debt repayment.
Specifically, Sanchez was disparaged for his financial disclosure forms - a requirement of all board members. According to critics, he did not provide enough information on the forms about his sources of income and potential conflicts of interest related to his role on the board.
Espacios Abiertos, a Puerto Rico-based nonprofit promoting transparency in government, said in a report this month that Sanchez's disclosures were more deficient in those areas than any of the other seven board members.
One adviser to a major Puerto Rico creditor group said many stakeholders "found it extremely concerning that his disclosures were so sparse."
"Not only does that undermine the board and Governor Rosselló's commitment to transparency, but it raises many questions when you've been in the lobbying sector," said the adviser, who spoke on condition of anonymity.
Sanchez, who had worked as a lobbyist in Puerto Rico, did not say whether he planned to return to lobbying.
"Right now I’m evaluating every alternative that I might have," in Puerto Rico and Central and South America, Sanchez said in a phone interview on Thursday morning.
Sanchez insists the decision to resign was his alone. "In no way was I pressured by anyone," he said, adding that while he may have come under attack, he is "very comfortable with everything" he did on the board to represent the best interests of the people of Puerto Rico.
In a statement issued in Spanish, Rossello praised Sanchez’s “great professional skills.”
“I wish to thank (Sanchez) for his willingness to serve Puerto Rico, his commitment to our administration and, on a personal level, our respect and esteem,” Rossello said.
As a non-voting member on the board, Sanchez did not have a direct role in board decisions. However, he acted as the governor's eyes, ears and voice on the board, helping him form positions on financial matters, and communicating them to the board and the public.
Jose Carrion, the chairman of the oversight board, said Sanchez "was always available, committed and dedicated to represent with determination the governor’s postures before the Board."
ALWAYS ENVISIONED LEAVING
The liaison position is unpaid, and Sanchez was technically not a government employee.
A spokesman for the governor said Sobrino will continue as president of the GDB, the island's now-defunct fiscal agent, which is being wound down as part of a liquidation agreement with creditors.
Sobrino, a lawyer, worked as a compliance officer for drug company AbbVie before his appointment to the GDB last December.
In May, Puerto Rico filed the largest bankruptcy in U.S. municipal history, sparking hard-fought litigation between the board and Puerto Rico’s creditors over the fates of the island’s agencies and the loans that back them.
The oversight board, created under the federal 2016 Puerto Rico rescue law dubbed PROMESA, certified a turnaround blueprint for Puerto Rico in March.
Sanchez said he had always envisioned leaving once the plan was in place.
The board and Rossello’s administration have not always seen eye to eye, with the governor resisting some of the board’s proposed austerity measures.
Sanchez attributed the tension to “growing pains associated with a new framework.”
“Puerto Rico had never had something like [PROMESA] before,” he said. “Were we not aligned in certain circumstances? Yes ... In the net, it’s been a positive experience.”
(Reporting by Nicholas Brown in New York; Editing by Jeffrey Benkoe and Daniel Bases)
The Puerto Rico Oversight Board approved a negotiated plan for restructuring the Government Development Bank for Puerto Rico’s $4.8 billion in debt.
The deal offers three different bond restructurings that reduce principal by 25% to 45%. Bondholders will get to choose the restructuring deal for their bonds. The options with bigger principal reductions offer bigger percent coupons and stronger security for repayment.
After years of fiscal mismanagement, the Commonwealth of Puerto Rico is essentially bankrupt, owing more than $70 billion to creditors. This financial fiasco was largely the result of a declining economy brought on by poor policy decisions and has only been made worse by what appears to be a collective unwillingness to make tough but responsible financial decisions.
In the wake of Puerto Rico’s default on this massive debt, Congress last year passed the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) to create a plan to deal with the crisis.
The PROMESA legislation created an oversight board and gave it the responsibility of approving a fiscal plan, ostensibly to get Puerto Rico on the right track by making the hard decisions on spending and debt restructuring. But the fiscal plan, presented in January by recently elected Governor Ricardo Rosselló, was rejected by the board. Unable to negotiate a deal with creditors, Rosselló in May forced the Commonwealth into Title III, a bankruptcy-lite-type of protection also created by PROMESA.
Now, a year after Congress passed legislation, the path forward for Puerto Rico continues to be riddled with obstacles, including controversy over how to handle the massive debt owed to creditors.
While most experts think the Commonwealth needs a comprehensive settlement with all its creditors to get to get back on its feet, some politicians believe the way to go is to make side deals with select creditors and reduce the amount that will be repaid to them (a "haircut") by a larger percentage than other creditors.
Just last month, a subcommittee of the U.S. House Committee on Natural Resources reviewed the status of one key creditor, the Puerto Rico Electric Power Authority (PREPA), the island’s sole electric provider. The company serves 1.5 million Puerto Ricans.
Rep. Rob Bishop (R-Utah), the chairman of the subcommittee, sent a letter to the Oversight Board pressuring it to approve a special deal for PREPA that would limit its haircut on bonds to 15 percent while other bondholders could get haircuts of 70 percent. While PREPA is important to the rebuilding of Puerto Rico, favoring it over other classes of creditors stands to endanger the long-term economic growth for Puerto Rico. The result of such a huge disparity between treatment of PREPA and other creditors is likely to result in more limited credit access for the Commonwealth in the future.
The bottom line is that Puerto Ricans are worried about their future. Spending cuts include closing schools while young people are not sure if they’ll be able to go to college or get well-paying jobs. Retirees are worried about their reliable access to healthcare. Small business owners are struggling to grow and create jobs in an environment where they’ve seen tax bills rise. Young families are hurt by the lack of economic opportunities. People who are able are fleeing to the mainland in search of a better life.
On top of all this, Puerto Rico is facing a major demographic problem. The population in Puerto Rico is getting older, with 14.2 percent of the population above the age of 65. As the unemployment rate increases and the workforce shrinks, the territory’s unfunded pension commitments ($49 billion) will continue to a big problem.
The best chance of ending this spiral is to develop and implement a plan that relies on proven and sane policies that allow for job creation and economic growth. Given the reality that access to credit markets will likely be a key component of any such revival of the Puerto Rican economy, it seems the prudent thing to do would be to avoid steps, like the PREPA side-deal, that will put at risk Puerto Rico’s access to capital necessary to rebuilding its economy.
Otherwise, the economic crisis in Puerto Rico is likely to last much, much longer.
Mario H. Lopez is president of the Hispanic Leadership Fund, an advocacy organization aimed at promoting liberty, opportunity and prosperity for all Americans.
MAYAGUEZ, Puerto Rico— The economic crisis afflicting Puerto Rico for the last decade has also taken a toll on the island's only zoo, with critics saying it is sorely understaffed and struggling to care for its animals on a limited budget.
Conditions at Dr. Juan A. Rivero, a 45-acre zoo featuring over 300 species in the western coastal town of Mayaguez, have deteriorated so far as to catch the attention of the U.S. Department of Agriculture, which cited dozens of violations at the park in its most recent report from this spring.
In this July 7, 2017 photo, a monkey stares out from its enclosure at the Dr. Juan A. Rivero Zoo in Mayaguez, Puerto Rico. Danica Coto / AP
They included a distressed cougar housed in a tiny enclosure; a lack of working fans for camels and deer exposed to tropical heat; expired food and medicines; and a tiger that inspectors said was underweight and had not had any medical exams or lab tests for two years.
"It makes you want to cry," said Susan Soltero, an animal activist appointed to a newly formed government committee charged with investigating conditions at the zoo. "This is unacceptable to me as a human being."
The tiger mentioned in the USDA report suffered from kidney failure and other health problems and was euthanized last month, around the time that five lion cubs also died. Four were crushed by their mother after a worker did not properly separate her from the cubs, according to Marilyn Arce, the zoo's part-time veterinarian, and the fifth was asphyxiated while being fed.
Officials at the zoo referred questions to Puerto Rico's Department of Sports and Recreation, which oversees the facility. The department's secretary, Andres Waldemar, and the zoo's former veterinarian both declined to comment. And the USDA did not respond to a request for previous inspection reports.
But Arce, who was hired in February, disputed the federal inspectors' findings and said the zoo's animals are now at a healthy weight and in good condition. She acknowledged that the 13 current caretakers need training to avoid a repeat of the lion deaths and said the zoo should hire at least four more.
"The workers did not have sufficient training to handle this type of cubs," Arce said.
The deaths and run-down conditions have prompted more than 21,000 people from Puerto Rico and elsewhere to sign a petition calling for the zoo's closure. Zoo officials have put up signs in front of certain enclosures thanking visitors for their concern and assuring them that those animals are under veterinary care.
On a recent day Cynthia Gonzalez, 35, watched as a rhinoceros knocked its horn repeatedly against a metal railing. Gonzalez said she came frequently when she was in high school but today it's noticeably worn.
"It has become a bit more deteriorated," she said. "We used to see more animals, and it needs a bit more maintenance."
Angel Luis Rodriguez, who was visiting with family, agreed: "The animals used to look stronger before. They were plumper."
In this July 7, 2017 photo, a tiger named "Angel," who recently died at the Dr. Juan A. Rivero Zoo, still has his sign outside his enclosure in Mayaguez, Puerto Rico. Danica Coto / AP
At recent public hearings held by concerned lawmakers, Jose Arce, a veterinarian who is on a committee charged with investigating the zoo's conditions and is not related to Marilyn Arce, testified that the park needs more employees and new cages, among other things.
But that's a tall order amid the prolonged economic recession that has also forced the government to declare a state of emergency at certain agencies and seek a bankruptcy-like process for a portion of its $73 billion public debt.
Gerardo Hernandez, auxiliary secretary of the island's National Parks Program, said the government has ordered a study of how much money is needed to improve zoo conditions. He said the animals are in good condition and well fed, but bringing in new employees is unlikely for now.
"No government agency is hiring people. We are working with what we have," he said. "If we had more revenue, there would be more improvements."
The zoo operates on $1.2 million in funds it receives yearly from Puerto Rico's government. Victor Oppenheimer, former president of Puerto Rico's Veterinary Medical Association, estimated it needs $8 million to $10 million to run properly.
"A lot of times," he said, "they make decisions based on money and not necessarily on what's best for the animal."
Oppenheimer said the zoo needs not only more caretakers but also a full-time curator as well as a full-time and several part-time veterinarians. He praised Marilyn Arce's work but said that as a lone part-timer, "she cannot keep up."
Jose Arce said the lack of an adequate hospital forces vets to perform surgeries in the animal enclosures, raising concerns about safety and contamination. Meanwhile the shabby exhibits turn away visitors and the revenue they bring.
In this July 7, 2017 photo, "Mundi," the only elephant at the Dr. Juan A. Rivero Zoo, reaches out to eat shrubs in Mayaguez, Puerto Rico. Danica Coto / AP
Marilyn Arce said she plans to start an animal welfare program in August with volunteer help. She also would like Rivero to join the Maryland-based Association of Zoos & Aquariums, which imposes regulations and carries out inspections. Membership would provide opportunities to access more funds, she said.
She noted that much of the zoo's population was donated or seized from drug traffickers, such as bears and zebras, and said it's important for people to know the zoo is not actively buying animals.
"It's a lack of fixing things in a timely manner and giving it maintenance," Arce said of the zoo's struggles. "You see that problem across all of Puerto Rico."
Brevard County Commissioner John Tobia’s failed resolution calling for Congress to reject Puerto Rican statehood may have awakened the political awareness of Puerto Ricans across Central Florida instead, said civil rights activist Sam Lopez.
“It’s not over. He woke up a sleeping giant. So many are upset with him right now,” said Lopez, president of civil rights organization United Third Bridge, Inc.
Lopez said the organization will meet Thursday at its office in Melbourne to work out plans to organize protests against Tobia and to picket Valencia College in neighboring Osceola County where he works as a professor. The group is also refocusing its look on other areas – from economic to education – where it believes improvements must be made.
However, the commissioner is not backing away from his stance.
“I greatly appreciate political participation, so if that’s something (Lopez) thinks will benefit his case, I’d strongly encourage it. It’s within his right,” said Tobia, offering to provide water and sustenance for any protesters.
“I’d even furnish him with the dates and times I’ll be on campus,” Tobia said, adding that the protesters should check with Valencia’s administrators first.
Lopez says he wants to use the momentum from Tobia’s rejected resolution to also apply pressure to other entities, including Eastern Florida State College to improve or increase Hispanic representation among administrators. He says the organization has fought for two decades to break down language barriers and to improve the job situation for area Hispanics.
The move by Brevard County Commissioner John Tobia to recommend that Congress block efforts to approve Puerto Rican statehood is attracting attention on social media. Wochit
“I believe this has focused people. This resolution by Tobia shows us what he thinks. Yes, look at the debt of the island but don’t pick on a group of people to promote fear,” Lopez said. "This was also (live streamed) .. .people in Puerto Rican were also watching this," he added.
Tobia introduced the controversial measure after the start of Tuesday’s Brevard County Commission meeting before several hundred people.
The measure died without any of the other commissioners offering to second the motion’s reading. Tobia says he wanted to use the vote to send a message to Congress not to allow statehood for the U.S. territory which voted in June, until its debt – projected to be up to $120 billion – is brought under control.
But opponents took the resolution as a provocative challenge to one of the fastest growing minority populations in Florida.
A report by the Hispanic Federation shows that there are one million Puerto Ricans living in Florida.
Many more are moving stateside, including Florida, as the island reels from over $100 billion in lingering debt and deep cuts in social services from education to healthcare. Puerto Ricans are also expected to surpass Cubans in three years as the state’s largest Hispanic group.
There are an estimated 22,241 Puerto Ricans living in Brevard County, according to information gleaned by the Center for Puerto Rican Studies in 2015.
In comments during Tuesday night’s County Commission meeting, Orlando resident Anthony Suarez, told Tobia that, because of Tobia’s resolution, “this is getting wide coverage in Puerto Rico and around the country” in the news media.
“You gave us this opportunity to bring forth this issue of Puerto Rico,” said Suarez, a lawyer who is president of the Puerto Rican Bar Association of Florida and a former member of the Florida House of Representatives.
Lopez said he is coordinating with other Puerto Rican groups and organizers across Central Florida to ensure the protests are well attended.
“There’s no question to us that this is about discrimination,” Lopez said. “Don’t trash us.”
Dave Berman contributed to this report. Contact Gallop at 321-242-3642, jdgallop@floridatoday.com and Twitter at @JDGallop
To further their narrow financial interests, Puerto Rico’s mainland creditors appear to be peddling three myths related to how the island should address its debt problems. Yet, these myths would seem to have little basis in reality. In the interest of its local population, the Puerto Rican government would do well to ignore these myths and to continue with the orderly bankruptcy procedure to restructure its debt that is already underway under the PROMESA Act.
The first myth being bandied about is that the island has the ability to fully service its debt mountain without the need for any debt relief. It is maintained that if only the island had the willingness to do so, it could make deep public spending cuts and raise taxes. By so doing, it could generate a sufficiently large budget surplus, excluding interest payments, which would allow it to fully meet its debt service obligations.
The fundamental weakness with this myth is that it overlooks the fact that the Puerto Rican economy is already in a deep economic slump that has caused its output to decline by 10 percent over the past decade. More important yet, it ignores the fact that, like Greece before it, the island is stuck in a monetary union and does not have a currency of its own. As such, it cannot lower interest rates or depreciate its currency to promote exports as a means to offset the contractionary effect of budget tightening.
If, at its creditors’ behest, Puerto Rico were to take budget-tightening measures over the next few years beyond the 6 percent of GDP that its Oversight Board has already demanded of it, the island’s economic slump would only deepen. It would do so in much the same way as the Greek economy collapsed with similar policies during the European sovereign debt crisis. A further slump in the island’s economy would seriously erode its tax base, which would hardly be conducive to improving its ability to meet its debt service obligations.
The second myth being advanced is that the island can restructure its debt on a voluntary basis without recourse to formal bankruptcy procedures. A basic flaw with this myth is that it overlooks the fact that the island has as many as 18 different bond classes that are backed by different guarantees or that have separate legal claims on different revenue streams. As such, the interests of different creditors do not coincide with one another. Rather, they collide.
In a situation where Puerto Rico cannot fully meet the claims of all of its creditors, the favorable treatment of one class of creditors would necessarily come at the expense of disadvantaging the remaining classes of creditors. In such circumstances, an orderly bankruptcy procedure is necessarily required to establish the relative seniority of the different claims as well as to reconcile these claims with the capacity of the island to repay.
Absent a bankruptcy procedure, there would be a legal free-for-all by its creditors that would seriously damage the island’s economy and hence its ability to repay.
The last of the myths being propounded is that, should the island default on its debts, it will be indefinitely barred from future international capital market access. This myth flies in the face of the experience of many countries that have re-accessed the international capital market after having defaulted on many occasions.
If it was true that economies that defaulted were permanently barred from future capital market access, how is it that a country like Greece, which has defaulted as many as eight times over the past 200 years, repeatedly regains access to the international capital market?
Or, how is it that a country like Argentina, which as recently as 2001 repaid most creditors only 30 cents on the dollar in what was then the world’s largest sovereign debt default, can today place a $2.75 billion 100-year bond in the international capital market on relatively favorable terms?
The truth of the matter is that following a debt restructuring, an economy appears to new creditors as a better risk than it was before, since it is no longer weighed down by excessive debt claims. As long as its old creditors no longer have legal claims that they can pursue in the courts and that can help them thwart that economy’s market access, the economy can now tap the international capital market on better terms than it could before the debt restructuring.
Hopefully, the Puerto Rican government will see the self-interest of its creditors in promoting those debt myths and it will chose not to be swayed by them. By so doing, it will be in a better position to serve the interests of the island’s population.
Desmond Lachman is a resident fellow at the American Enterprise Institute. He was formerly a Deputy Director in the International Monetary Fund’s Policy Development and Review Department and the Chief Emerging Market Economic Strategist at Salomon Smith Barney.
Since the Spanish claimed Puerto Rico for their own in 1493, the land saw independent rule from July 17 to July 25 1898.
Eight days.
The American invasion of Puerto Rico on July 25, 1898, changed the land, politics and people forever. And today, it’s for the worse. Puerto Rico is in serious economic distress, and it’s almost entirely the United States government’s fault — and we’ve done nothing to fix things for our territory. It’s time for the U.S. to make some serious changes to the way it treats Puerto Rico, namely allowing the territory to file for bankruptcy and funding a binding referendum that will empower the people with full autonomy of choice.
Today, Puerto Rico exists as a commonwealth — not quite a territory, not quite a state. Residents of the island receive full U.S. citizenship at birth, but are also disenfranchised while they live in Puerto Rico. In fact, any American living in Puerto Rico does not have the right to vote in the U.S. presidential election, nor do they benefit from representation at the federal level.
But there are some positives to the commonwealth status as well. For example, workers in Puerto Rico do not have to pay a federal income tax, nor do they pay into programs such as Social Security. However, as with everything on the island, this comes at a cost — Puerto Ricans are subject to a much lower Medicaid federal match rate than residents of US states are, meaning the commonwealth received only 14 percent of its total Medicaid costs in 2015, compared to the state average of 57 percent.
To address issues like these, Puerto Rico held three referendums since 1998 on the issue of statehood — most recently, on June 11, statehood won with a staggering 97 percent of the vote. But there’s one big problem with the results. Only 27 percent of eligible voters showed up at the polls, and many, including U.S. Congressman Luis Gutierrez (D-IL), say that only those in favor of statehood voted.
“Those who advocate statehood in Puerto Rico will claim that this Sunday’s vote is a referendum on statehood. That is a fiction, because it’s clear that only one party will participate in the one-sided election … the June 11 plebiscite is a farce.”
Gutierrez also pointed out that the U.S. government made no claims to honor the results of the referendum, leaving many voters rightly wondering — what’s the point?
But the governor of Puerto Rico, Ricardo Rossello, sees a reason for it all.
“If we establish that the people of Puerto Rico want statehood and reject the current colonial status, then the nation that professes democracy is going to need to act,” he told The Guardian after the recent referendum.
But even if Puerto Rico were to become a state, which would take decades, there first needs to be change surrounding Puerto Rico’s economic situation.
Puerto Rico is in such serious debt that in 2015, then-Governor Alejandro Garcia Padilla announced that the commonwealth’s $72 billion debt could not be repaid. This announcement surprised the creditors, which include 34 hedge funds, most of which are known as vulture funds — hedge funds that specialize in distressed debt. Many of these hedge funds also sought to profit from the economic crises of Greece and Argentina, The Guardian reports.
These hedge funds then commissioned a report by former International Monetary Fund economists to find a solution to the problem. They proposed that Puerto Rico should cut social services, including spending on public education and healthcare — and the Puerto Ricans are displeased.
“The simple fact remains that extreme austerity is not a viable solution for an economy already on its knees,” saidthe Governor’s Chief of Staff Victor Suarez Melendez.
One of the largest problems with this situation is the fact that the U.S. government is responsible for creating this debt. By incentivizing investment in Puerto Rico through massive tax breaks, the U.S. brought major corporations and the jobs they come with to the island. But this made investment in Puerto Rico only artificially attractive and created a bubble.
If the tax breaks were ever repealed, the island would lose all of its investors — which is exactly what happened when President Bill Clinton’s repeal of section 936 went into effect in 2006, launching the island into the recession that it’s still in today. And when the island lost all of its investors, it lost all of the jobs that come with it. The unemployment rate in Puerto Rico rose from about nine percent to over 17 percent from 2006 to 2011, and today it sits at 11.5 — that’s compared to the U.S. rate of 4.6 percent.
But reinstating these tax breaks isn’t the answer, nor is it a short-term solution.
In the short-term, Puerto Rico must be permitted to pursue bankruptcy as any other municipality, city or state in America can. Currently, the island can restructure its debt under an Obama-era act called PROMESA — that many, including Wall Street Journal columnists, state representatives in Puerto Rico and the director of the National Hispanic Caucus of State Legislators say has failed to live up to its promises.
Instead, the U.S. government should do what’s within its power and allow Puerto Rico to restructure its debt like Detroit did in 2013. Under PROMESA, Puerto Rican debt is controlled by an advisory board appointed by the U.S. government, compared to Detroit’s ability to manage its debt alone, essentially stripping Puerto Rico of autonomy, and following a centuries long trend of doing so.
But there are other steps that can be taken as well.
In light of the most recent vote, it appears — although it is not certain — that the island wishes for statehood. But that uncertainty is enough to warrant another referendum, and this time, the result should be guaranteed by the U.S. government. The cost of the referendum should also be absorbed by the U.S. — after all, it’s our fault that Puerto Rico got to this place, so the least we can do is fund a referendum.
And hopefully, Puerto Rico will serve as a model for other U.S. colonies, such as Guam, American Samoa and Northern Mariana Islands. By working in cooperation with the U.S. government to pursue a plan that the residents of the island are satisfied with, Puerto Rico has the chance to succeed.
But unfortunately, the blame points back at the mainland — it’s time for the U.S. government to recognize the severity of Puerto Rico’s problems and accept responsibility for its role in creating them. And from there, as one reporter said about Detroit’s recovery, “when you hit rock bottom, the only way is up.”
Let’s hope that Puerto Rico finds its way up, whether it’s with or without the 50 states.
