CNE to Congress: Debt Restructuring Mechanism for Puerto Rico Is Urgently Needed but must be Workable
Statement on Washington D.C. Congressional Staff Briefing on April 28, 2016
The Center for a New Economy (CNE) has been invited by the Committee on Natural Resources of the U.S. House of Representatives to share its expertise on the complexities of the Puerto Rico fiscal and economic crisis with committee members and staff. In its briefing, CNE stressed the urgency for Congressional action, but cautioned that any bill approved by Congress must provide Puerto Rico with a debt restructuring mechanism that will actually work. READ MORE
Staff Briefing by Sergio M. Marxuach for the U.S. House of Representatives Committee on Natural Resources on April 28, 2016.
- On behalf of the Center for a New Economy I want to thank the staff of the Committee on Natural Resources for the invitation to share with you some of the things we have learned over the last decade or so with respect to Puerto Rico’s complicated capital structure.
- We recognize the Committee has devoted a considerable amount of time, effort, and resources to this issue and understand progress has been made in developing a comprehensive legislative solution to Puerto Rico’s debt crisis.
- In spite of this progress, we believe that work remains to produce a bill that addresses the concerns of all stakeholders—both in Puerto Rico and in the mainland—in a balanced, equitable, and fair manner.
- We look forward to continue working with you as the Committee adjusts the legislative text currently under consideration.
The Endgame: An Analysis of Puerto Rico’s Debt Structure and the Arguments in Favor of Enacting a Comprehensive Debt Restructuring Mechanism for Puerto Rico
Puerto Rico’s debt structure is inordinately complicated. With no access to a broad debt restructuring mechanism, the chaos that a disorderly default could bring would further erode bondholder value, increase restructuring costs, depress the local economy, and make long-term recovery harder to achieve.
What follows is the executive summary of the policy paper “The Endgame: An Analysis of Puerto Rico’s Debt Structure and Arguments in Favor of Enacting a Comprehensive Debt Restructuring Mechanism for Puerto Rico” updated on April 2016.
A link to the updated paper in its entirety can be found at the end of this post.
Puerto Rico’s current crisis has been years in the making and is not limited solely to the public debt overhang. At the core of the current predicament is a deteriorated development model and economic institutions that have hindered growth. Thus, any solution enacted by the federal government must provide a workable process conducive to a comprehensive restructuring of the debt and recognize the multifaceted nature of the crisis. Following are the priorities identified by the Center for a New Economy to address the crisis:
- BROAD RESTRUCTURING AUTHORITY
If Puerto Rico does not address its debt overhang problem effectively it will be unable to attract the private capital necessary to generate sustainable economic growth in the future. Thus, it is important that the bill provide for a workable and viable mechanism conducive to broad restructuring of the public debt.
- SCOPE OF THE OVERSIGHT
A Federal Fiscal Control/Oversight Board for Puerto Rico solely focused on imposing “quick fixes” and addressing public debt issues runs the risk of failing to solve the crisis. If Congress wants to avoid facing the same predicament in 5 or 10 years, any solution crafted in the current juncture must ensure the long-term transformation of the island’s fiscal and development institutions and have the support of diverse stakeholders in Puerto Rico.
- SHORT-TERM ECONOMIC AND FISCAL STABILIZATION
Congress should consider enacting short-term measures to stabilize the island’s fiscal and economic situation. We suggest that Congress gradually treat Puerto Rico as a state with respect to Medicaid funding over the next ten fiscal years and propose a scale of decreasing wage subsidies in the form of a tax credit against the employer portion of the federal payroll tax.
- ECONOMIC GROWTH
We recommend creating a federal joint task force or working group to collaborate with an Economic Growth Commission to be set up in Puerto Rico with representatives from the island’s civil society, business sector, labor unions, government, and academia, to develop a medium-term economic growth strategy for the island.
CNE al Congreso de EEUU: el mecanismo de reestructuración de la deuda que se cree para Puerto Rico tiene que funcionar
Declaración en relación a la sesión informativa que CNE ofreció en el Congreso en Washington D.C. el 28 de abril de 2016.
El Centro para una Nueva Economía (CNE) fue invitado por el Comité de Recursos Naturales de la Cámara de Representantes de EEUU a ofrecer su peritaje sobre la crisis económica y fiscal de Puerto Rico durante una sesión educativa dirigida a los miembros y el personal del Comité. Durante la sesión, CNE resaltó la urgencia de que el Congreso tome acción sobre Puerto Rico pero advirtió que cualquier proyecto de ley que se apruebe debe proveerle a la isla acceso a un mecanismo de reestructuración que verdaderamente funcione. READ MORE
Puerto Rico’s current crisis has been years in the making and is not solely limited to the public debt overhang. At the core of the current predicament is a deteriorated development model and institutions that have hindered growth. Thus, any solution enacted by the federal government must recognize the multifaceted nature of the crisis. Following are the Center for a New Economy’s key recommendations regarding the proposed Puerto Rico Oversight, Management, and Economic Stabilization Act. READ MORE
La crisis económica y fiscal de Puerto Rico tardó años en gestarse y no se circunscribe exclusivamente al problema de la deuda pública. La raíz del dilema actual se encuentra en un modelo de desarrollo económico deteriorado y unas instituciones que han impedido el crecimiento. Por lo tanto, cualquier solución que adopte el gobierno federal debe reconocer la naturaleza compleja y plural de la crisis actual. A continuación esbozamos las recomendaciones principales del Centro para una Nueva Economía en relación al Puerto Rico Oversight, Management, and Economic Stabilization Act. READ MORE
Por: Sergio M. Marxuach
El autor colombiano Juan Gabriel Vásquez escribe en su novela “Las reputaciones” que “las certezas adquiridas en algún momento del pasado podían dejar de ser certezas con el tiempo: algo podía suceder, un hecho fortuito o voluntario, y de repente toda evidencia quedaba invalidada, lo verdadero dejaba de ser verdadero, lo visto dejaba de haber sido visto, y lo ocurrido de haber ocurrido: perdía su lugar en el tiempo y en el espacio; era devorado y pasaba a otro mundo, o a otra dimensión de nuestro mundo, una dimensión que no conocíamos.”
Durante los últimos meses muchas de las cosas que los puertorriqueños dábamos por sentadas o ciertas—la solvencia del gobierno, el repago de la deuda pública, la relación política con Estados Unidos, la voluntad del gobierno federal para asistir a Puerto Rico, las garantías de nuestra constitución, entre muchas otras cosas—han dejado de serlo. Más desconcertante aún, este fenómeno es causado en gran medida por fuerzas fuera de nuestro control y que muy pocas personas comprenden. READ MORE
Sparking a New Conversation about Puerto Rico in Washington D.C.
On March 2, 2016, the Center for a New Economy (CNE) broke new ground by hosting the conference “Is a Federal Fiscal Control Board the Only Option for Puerto Rico?” in Washington D.C. The forum sought to generate a balanced discussion on options for achieving fiscal balance for Puerto Rico beyond the current binary debate over the imposition of a federal control board.
The conference explored the concept of a Fiscal Responsibility Law (FRL) for Puerto Rico as a policy proposal that could lay the groundwork for the stabilization of Puerto Rico’s public finances and prompt a broad overhaul of Puerto Rico’s fiscal infrastructure. FRLs are mechanisms that allow for the establishment of monitorable fiscal targets and policy reforms. The panel discussed the benefits of enacting and implementing a FRL as the basis for a strong fiscal regime for Puerto Rico, and how it might fit within the broad framework of any federal policy that addresses the island’s current fiscal and economic crisis.
Miguel A. Soto-Class, President of CNE, introduced the discussion stressing that solutions to the Puerto Rico crisis need to have legitimacy within the island and seek to rebuild its fiscal institutions for the long-term.
Andrés Velasco, Former Finance Minister of Chile and Professor at Columbia University’s School of International and Public Affairs, discussed how Fiscal Responsibility Rules are being successfully applied throughout the world; while Tracy Gordon, Senior Fellow, Urban-Brookings Tax Policy Center, explored how they are applied in the United States and the type of oversight mechanisms with which they interplay.
Sergio Marxuach, Policy Director of CNE, discussed how a Fiscal Responsibility Law for Puerto Rico could be designed in order to deal with the current juncture and manage fiscal policy in the long-term; while Gordon Gray, Director of Fiscal Policy at the American Action Forum, cautioned about the challenges such a law would face in the context of Puerto Rico’s current politically charged atmosphere.
Puerto Rico’s elected officials, Congressman Pedro Pierluisi, Resident Commissioner for Puerto Rico, and Senator Eduardo Bhatia, President of the Puerto Rico Senate, closed the event, cautioning against externally imposed solutions to the Puerto Rico crisis.
If you want to be part of the conversation regarding Puerto Rico’s future, join us, and watch CNE’s DC panel on the link below.
Click on the link below to watch the opening remarks of the Center for a New Economy’s forum “Is a Federal Fiscal Control Board the Only Option for Puerto Rico?” delivered by CNE’s President Miguel A. Soto-Class. The event took place on March 2, 2016 at the National Press Club of Washington D.C.
Click “Read more” for the text of the opening remarks.