Nonprofit organization Open Spaces posed to several members of U.S. Congress that if the Financial Oversight and Management Board for Puerto Rico is not eliminated, transparency regulations must be imposed on its executives and its contractors, a firmer code of ethics, and a re-routing of the failed fiscal policies the body has implemented.
In a letter to Congressman Raúl Grijalva, chairman of the U.S. House of Representatives Natural Resources Committee, Daniel Santamaría-Ots, senior public policy analyst for Open Spaces, said debt restructuring measures must meet the sustainability criteria, a debt sustainability analysis conducted by independent academic experts, and must support conducting a citizen debt audit conducted by specialists without conflict of interest.
The letter was submitted as part of the hearings Grijalva has been chairing to analyze amendments to the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), which created the Oversight Board.
“Without entering to debate the democratic overreach of the imposition of the PROMESA Law and having a non-elected Fiscal Oversight Board that the people of Puerto Rico pay from their pockets, it can be concluded after more than three years, that the strategies and policies imposed by the Board itself, product of the law that created it, do not address the real causes of the island’s problems,” he said.
“The situation of democratic deficit and fiscal crisis that had to be settled is not solved either with greater institutional repression or with fiscal austerity prescriptions that the international economic community has ruled out in consensus,” the economist said.
“Instead, it has contributed to the deterioration of the living conditions for the majority of the population. The implementation of a mechanism that was supposed to provide a legal framework that allowed, among other things, an orderly restructuring of the payment of an unsustainable public debt, has not granted citizens better means and tools in the face of the crisis,” Santamaría-Ots said.
He further said Congress should conduct a “deep introspection” on why the Board continues to implement economic austerity measures that have proven to be an unsuccessful experiment in recent economic history.
He used as an example of the Oversight Board’s lack of transparency is the recent leak to the press of an internal document of the Board in which they recognized failed projections.
“In this document, the Board reveals the failure of its own economic recipes — specifically, what they predicted as positive effects on economic growth resulting from their proposed structural reforms — by stating that growth projections will not materialize,” he said.
“As if that were not enough, the document also indicates and acknowledges their overestimation of federal post-disaster relief funding after hurricanes Irma and María that was projected at $69 billion,” Santamaría-Ots said.
According to the document it could be now cut to $39 billion. Previous studies by expert economists in debt restructuring already indicated with suspicion the excessive optimism of the projections made, but the lack of access to precise documents from the Board prevented to clarify such overestimations, he said.
The previous assumptions produced failed growth projections and now, just when they intend to reach an agreement regarding the restructuring of the General Obligation bonds with obsolete projections that will force payments of possibly unsustainable debt for more than 40 years, they indicate that such growth projections will decline, he said.
In the letter, he told lawmakers it is necessary to “know in detail why this sudden change in projections and if, as a consequence, a review of the restructuring already approved would be required — as in the case of COFINA — whose experts in the field already anticipated as too generous with bondholders.”
“If such downward growth projections materialize, tax collections would also decrease, and if revenues are reduced, the sustainability of debt payments would again be compromised. In a few years, we would be facing a second bankruptcy process and possibly another expensive restructuring process at the expense of the investment of public policies that Puerto Rico so much needs today. In economics, consensus among experts is not always possible. In the case of Puerto Rico, there is and among economists of different ideological spectrums: Puerto Rico needs a substantial haircut of its public debt,” Santamaría-Ots said.
He further noted that the Board has disregarded the results of a study entitled “An analysis of Puerto Rico’s debt relief needs to restore debt sustainability,” by Economist Martin Guzmán, Associate Research Scholar at Columbia University, in co-authorship with economist Pablo Gluzmann and the Nobel Prize in Economic Sciences, Joseph E. Stiglitz, which concluded that for the payment of Puerto Rico’s $72.2 billion debt to be sustainable it should be reduced by at least 80%.
The Oversight Board’s ‘lack of transparency’
In his letter, Santamaría-Ots said the Board has become known “for a persistent lack of transparency.”
He cited as an example, the lack of disclosure of the full financial interests of some members of the Board and employees, as provided by the same law that created it, “generated suspicion just months after they were appointed.”
“Another dimension of the lack of transparency is the limited access to all the documentation that the Board produces, manages, supervises, delegates and that either constitutes or should constitute public information,” he said.
“The Board’s intervention of the has added more vulnerability to public policy design and decision-making processes related to them. Puerto Rico still lacks a transparency law that allows its citizens, on the one hand, to know in-depth the details and pretexts for these public policies and, on the other hand, that allows them to defend themselves against possible excess and institutional abuses,” he said.
However, Puerto Rico does have jurisprudence of its Supreme Court that guarantees access to any public document produced by the elected government but not by the Board.
“This vulnerability is once again seen with the newly created Transparency and Open Data laws which place more obstacles to access public documentation,” he said of the law Open Spaces has openly opposed.