Double Transitions & The Challenges of Fiscal Governance

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eBlog, 12/14/16

Good Morning! In this a.m.’s eBlog, we consider the dual transition periods for the U.S. and Puerto Rican governments as they change administrations in the midst of Puerto Rico’s insolvency. President-elect Trump has devoted little focus on the U.S. territory’s fiscal and health care crisis—and governance on the island is about to change too in the wake of the election last month of Governor-elect Ricky Rossello, who won with 41% of the vote in a four-way race.

Puerto Rico Governor Alejandro García Padilla, who has 18 days left in office, yesterday affirmed that it will require creativity to pull Puerto Rico out of its fiscal and political crisis—and that it would also mean the territory must file for restructuring as soon as possible. He added that the federal government would have to be a critical partner if the commonwealth is to resolve its fiscal crisis. He noted that even though the new PROMESA law offered the island a legal structure to restructure its public debt, he noted that the new federal statute “interfiere con la Constitución de Puerto Rico al extremo de que permite una junta no electa imponer un plan fiscal y controlar los presupuestos bajo ese plan”—that is that the PROMESA law provided for an unelected group to impose its authority, adding that even though the U.S. Supreme Court had recognized the “political reality and the changed law” in the territory, he  noted that for many in Puerto Ricans, PROMESA has created an unconstitutional intrusion. Thus, he urged that “no crisis should go to waste,” so that an important part of any fiscal solution will hinge on the commonwealth filing for restructuring “now;” because, he warned: “The chaos of costly, protracted litigation that would ensue if the commonwealth does not seek restructuring can easily be avoided with swift, decisive action within the next two months,” referring to the expiration of the stay on litigation” imposed by PROMESA until Feb. 15th, at which point, he added: the “commonwealth will face a cash deficit of over $3 billion that would likely force a government shutdown…There should be no excuse to force Puerto Rico to depression economics.”

He insisted on the importance of Congress and the Administration’s commitment of economic assistance—including equal treatment of Puerto Ricans with regard to Medicare and Medicaid. The Governor’s remarks came as a double transition is underway—both in Washington, D.C. and in Puerto Rico—and where the incoming Trump Administration has, so far, been silent with regard to PROMESA’s implementation and next steps—and as the current PROMSEA oversight board is currently reviewing Puerto Rico’s fiscal plan in order to determine whether and how to file debt restructuring petitions on behalf of the territory and its entities in federal district court if voluntary negotiations with the islands creditors fail.

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