Puerto Rico Governor Ricardo Rossello, along with other witnesses, met with the Subcommittee on Indian, Insular and Alaska Native Affairs of the House Committee on Natural Resources this week. “Insular” refers to islands, and the subcommittee is the one responsible for Puerto Rico.The hearing was primarily about PREPA, the source of nearly all electricity in Puerto Rico. This government-run utility is deeply in debt, and had worked out a deal with its creditors last year. The new governor is asking to renegotiate the 2016 deal.
Resident Commissioner Jenniffer Gonzalez-Colon made an opening statement saying, “Make no mistake about it: Puerto Rico’s territorial status is the real problem.” She pointed out that the current status is “based on the social and economic inequality of its citizens.”
Gonzalez reminded the committee that the Task Force created by PROMESA had made recommendations to Congress that require action beyond a decision on PREPA’s ability to renegotiate its agreement with creditors. Issues like the inequality of funding for health care strongly affect Puerto Rico’s ability to turn around the economy. Gonzalez asked that the witnesses at the hearing address these issues.
Governor Rossello was the only witness in the first of two panels. He spoke about the financial problems Puerto Rico has been facing, about his fiscal plan, which has been certified by the fiscal oversight board, and his hopes for the future.
In the question time, Rep. Nydia Velazquez spoke firmly about the need for restructuring of the debt rather than relying on austerity plans that could be harmful to the people of the Island. “We will be working hard,” Rossello responded. “We want to fix it once and we want to do it right.
The second panel included members of the fiscal board and creditors.
Jose Carrion III, chair of the PROMESA fiscal oversight board, reported on the actions taken by the board. He restated the goals of the board, and acknowledged that meeting these goals could be “painful.” Carrion described the fiscal plan the board approved in positive terms, but didn’t downplay the degree of financial difficulty the Island is facing. “Puerto Rico faces a nearly existential financial shortfall,” he said cryptically. In response to questions, he said that the board was asking sacrifices of everyone, “including our people,” but that the pain would be shared by all stakeholders.
Carrion insisted that economic growth for Puerto Rico is essential.
Ms. Ana J. Matosantos, a member of the fiscal board, emphasized the problem created by the high energy costs in Puerto Rico. She pointed out that the PREPA creditors had negotiated better terms than any other creditors will be able to achieve.
The cost of energy is a continuing problem in Puerto Rico. It certainly affects the territory’s ability to appeal to investors. The board, the resident commissioner, and the members of Congress who were present all agreed that restructuring of PREPA debt is essential. All these stakeholders spoke in favor of renegotiating the agreement made between PREPA and its creditors.
The creditors did not agree. They have agreed to accept 85 cents on the dollar in payments and do not want to change that agreement.
PREPA’s main creditor, National Public Finance Guarantee Corporation, was represented by Adam Bergonzi. Bergonzi claimed that PREPA does not have more debt than it can handle and that fixing inefficiencies could make it possible for PREPA to pay off its debts. Renegotiating the agreement, he said, would make Puerto Rico seem less trustworthy and would be “a lost opportunity” to demonstrate stability.
Stephen Spencer, speaking for Franklin Advisers, Inc. and OppenheimerFunds Inc., also spoke up for the current agreement. Spencer told a story of lots of little creditors across the nation, rejecting the idea of rapacious hedge funds acting as predators among the people of Puerto Rico. He pointed out that the deal has been approved by the Puerto Rico legislature and courts. He described the “attacks” on the current PREPA deal as “false and misleading.” He claimed that the deal has already benefited PREPA and the people of Puerto Rico. “We agreed to reduce debt service,” he said. “Without a deal, PREPA faces either a liquidity crisis or an immediate large rate hike… We’ve extended our deal 15 times and the deadline on the last extension is in nine days.”
The hearing certainly included two narratives: greedy hedge funds kicking the people of Puerto Rico while they’re down, and honorable creditors expecting Puerto Rico to hold up its end of the deal. Representatives of the board, however, emphasized repeatedly that they know there will be hardship, but they expect everyone to participate in that hardship.