Puerto Rico’s Path to Financial Recovery and Stability Faces a New Obstacle

Voting members of the Financial Oversight and Management Board of Puerto Rico // Juan Costa, Centro de Periodismo Investigativo

A year and a half after getting battered by Hurricanes Irma and Maria, the American territory Puerto Rico still struggles to achieve financial recovery and stability. Since 1973, the government of Puerto Rico has been dealing with a debt crisis due to imbalanced budgets that have led to exacerbated spending and the local government’s inability to issue bonds. By 2014, the local government was unable to obtain funding to cover the imbalanced budget after major credit agencies graded Puerto Rican banks as “junk.” The local government then moved to pay its debt with the territory’s savings while warning that such savings will deplete, eventually leading to Puerto Rico not being able to pay its debts, nor fund government services.

 

In a move to ameliorate the financial crisis, Congress passed the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) in 2016, which established an oversight board responsible for managing all of the the territory’s finances and standing above the powers of the local government. PROMESA forces Puerto Rico to adopt stringent austerity measures that increase taxes, cut public services, and reduce workers’ benefits. PROMESA has sparked debates regarding the sovereignty of American territories. Likewise, there has been growing resentment coming from the opposition that see the federally imposed oversight board as orchestrating a power-grab by stripping the Puerto Rican government of all financial controls. This contributes to the already present sense of distrust among Puerto Ricans.

 

The Oversight Board is composed of seven voting members appointed by the President. Six of the members are recommended by Congressional leaders and one is selected directly by the President. There is also an eighth non-voting, ex officio member appointed by the Governor of Puerto Rico. Last week, the First Circuit Court of Appeals declared unconstitutional the process by which the members of the oversight board are elected. However, PROMESA and all of the ruling done under the purview of the act, remain in place. The verdict gives the president ninety days to submit nominations for the oversight board (be they new members or the acting ones). Such nominees, instead of being appointed to the board by the executive as previously established, will have to be confirmed in the Senate. As Puerto Rico looks for alternatives to ameliorate its burdensome financial crisis, this verdict is an obstacle on the path to sound finances.