People crowd Fort Lauderdale International Airport

Economics

As premissas perigosas da PROMESA

Sep 18, 2017 Martín Guzmán and Joseph E. Stiglitz

NOVA IORQUE –A economia de Porto Rico está em grandes apuros. Mais de uma década de recessão tornou a dívida pública insustentável e está a fomentar fluxos de migração para o continente dos Estados Unidos, afetando a vida de milhares de famílias e impondo um fardo maior aos que ficam. Inverter esta dinâmica desestabilizadora exigirá uma reestruturação da dívida que proporcione o alívio necessário para implementar políticas pró-crescimento. Infelizmente, o que está a ser oferecido não é de modo algum suficiente.

A dívida de Porto Rico é para ser reestruturada de acordo com uma comissão estabelecida pela Lei de Supervisão, Gestão e Estabilidade Económica de Porto Rico (PROMESA). Essa lei federal, promulgada em junho de 2016, também estabeleceu um Conselho de Supervisão com autoridade de tomada de decisão fiscal para a comunidade dos EUA.

O processo de reestruturação teve início no dia 3 de maio, quando o Conselho entrou com uma petição no tribunal federal. Mas muitas decisões cruciais ainda têm de ser tomadas, tais como a quantidade total da redução da dívida a ser fornecida e como é que a margem de avaliação será distribuída entre os titulares dos diferentes tipos de obrigações. Estas decisões irão determinar que políticas são viáveis para impulsionar as perspetivas económicas de Porto Rico - e, portanto, o montante que o país pode pagar aos seus credores.

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Martín Guzmán

Writing for PS since 2014
16 Commentaries

Martín Guzmán is a former minister of economy of Argentina.

Joseph E. Stiglitz

Writing for PS since 2001
322 Commentaries

Joseph E. Stiglitz, a Nobel laureate in economics and University Professor at Columbia University, is a former chief economist of the World Bank (1997-2000), chair of the US President’s Council of Economic Advisers, and co-chair of the High-Level Commission on Carbon Prices. He is a member of the Independent Commission for the Reform of International Corporate Taxation and was lead author of the 1995 IPCC Climate Assessment.

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0 Comments on this paragraph, 4 Comments on this article

Andrew Wolfe Sep 25, 2017

Incorrect, in the cyclical period the decline in population is some .75-1%. The 0.2% is to get an estimate of the trend GNP which by definition is independent of policy.
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Andrew Wolfe Sep 25, 2017

This is incorrect. The fiscal plan includes the feedback loop from lower economic activity.
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martha michaels Sep 24, 2017

It's a moot point now.
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Cate Long Sep 23, 2017

I was the first municipal bond analyst to call the insolvency of Puerto Rico in 2012. The Commonwealth was then rated BBB but it was obvious that government officials had no intention of adjusting spending to revenues and preferred to issue debt to cover deficits and refused to adequately pension fund contributions.

I wont speak to the economic assumptions of Mr Guzman and Stiglitz other than to point out that 1/3 of Puerto Rico's GNP comes from cash transfers and grants from the federal govt although Puerto Ricans do not pay federal taxes for the most part other than SS & Medicare. So projections of fiscal multiplier need to take that into account.

As for debt restructuring the 10 year fiscal plan approved by the federal oversight board on March 13 ***cuts debt service 88%*** in 2018 and ***74% over 10 years***. That essentially would put PR into the category of the poorest third world nations in ability to service their debts. And in terms of precedence in the US municipal bond market that would be a blood bath. No US state has defaulted since Arkansas in the 1930s and they eventually repaid all their debts.

After the fiscal plan, with massive debt haircuts, was approved the PR governor announced they would be cutting taxes. That move alone would likely end any access Puerto Rico has to non-institutional US investors which is the market they historically borrowed from because their debt is legally tax exempt from federal, state and local taxes in 50 states therefore substantially lowering their borrowing costs. So Puerto Rico will likely pay higher interest rates in the future.

Unlike Mr Guzman and Stiglitz most observers of Puerto Rico believe short term economic activity will take a blow but longer term the availability of federal funds for restoration will benefit Puerto Ricans. Current statute allows for the fed govt to pay 75% of restoration cost for public infrastructure and Pres Trump can waive that and Congress will likely step up to provide plenty of funding to get PR back on their feet.

Prior to the hurricanes many debt issues were being litigated in federal court and a team of 5 federal judges are overseeing mediation between bondholders and the Oversight Board. Likely the court litigation will be put on temporary hold and Reuters reported that the mediation judges advised that the fiscal plan should be revised. To note in the current fiscal plan the Oversight Board assumed the federal govt would provide zero Medicaid dollars to Puerto Rico over 9 years -- a political absurdity -- as a means of forcing larger losses on bondholders. Revising the fiscal plan will require an understanding of the cost of restoration and the amount of federal funds to be provided.

Most bondholders have invested in PR for decades and are wedded to the long term prosperity and strength of the people. There are over 500,000 retail bondholders on the island and mainland and many times more who invested in PR via mutual funds. They deserve a fair resolution to PR's problems too. Too presume that they dont care about the economic recovery of the island is ridiculous.

Hurricane Irma and Maria struck hard blows to Puerto Rico but the US govt and some state govts (NY, VA, FL) have already begun sending men and equipment to deal with the disaster. The US Army Corp of Engineers, FEMA, Dept of Defense, US Coast Guard, the Marines, the US National Guard and many others are on the ground or headed to PR. Various mainland electric utilities led by the CEO of the New York Power Authority are assisting Prepa to do a damage assessment and plan for restoration of power.

Unlike Mr Guzman and Stiglitz I wouldn't write off Puerto Rico as an economic basket case. The key to debt restructuring and recovery is transparency by all parties. Hopefully the catastrophic winds of Maria will blow out the old unstable ways of Puerto Rico and usher in a bright economic future for the la isla del encanto.
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