NY debt insurer: P.R. poised for fiscal recuperation despite recession, obstacles ahead
Such was the conclusion of a study of the island’s economic and political environment and the Luis Fortuño administration’s steps to implement “economic stabilization measures [that] should allow the Commonwealth and its debt issuers to improve their ability to raise capital and increase private-sector capital participation.”
“The Commonwealth has made significant efforts to address its structurally unbalanced fiscal environment,” said Christopher Chafizadeh, managing director and head of public finance at National. “We’ve seen solid progress in closing budgetary gaps, enforcing fiscal and stabilization reform and passing tax amendments.”
“Additionally, the current administration has initiated a major push toward fiscal transparency. These achievements go a long way toward furthering the investment community’s level of comfort with Puerto Rico’s ability to effectively manage its fiscal affairs,” Chafizadeh said.
NPFG and its affiliates have insured Puerto Rico’s debt for almost 25 years, and have a “deep understanding” of the island’s economic, political and demographic factors. National’s insured portfolio contains approximately $7.3 billion gross par of Puerto Rico public sector debt, all of which is rated investment grade.
Shortly after taking office, the Fortuño administration declared the island in “fiscal emergency,” implementing a number of cost-cutting measures to reduce government spending by $2 billion. Included in that package was Law 7 of March 2009, which affected 17,147 public workers who either “voluntarily” resigned, were temporary or transitory and did not have their contracts renewed, or were laid off.
During a recent presentation to bondholders, administration officials said as of February 2011 the government had achieved savings of some $839.9 million, broken down into $647.9 million through Law 7, $150 million in the reduction of expenses related to professional services contracts, and $42 million from the reduction of leasing contracts.
“Puerto Rico has a long history of protecting its access to the capital markets and enjoys a reputation for never having defaulted on a debt service payment. While significant challenges to the stabilization of the Commonwealth’s economy undoubtedly lie ahead, National believes that the steps already taken by Puerto Rico are a strong indication of its commitment to secure its continued access to the capital markets and to maintaining investment grade ratings,” the nonprofit group said.
The full study is available at http://www.nationalpfg.com.