While today thousands of workers will meet at the Milla de Oro (Golden Mile) to protest against the loss of labor rights, school closures and cuts to the pensions of public employees, the Oversight Board is focused on one thing: receiving the draft of the government recommended budget to implement the certified fiscal plan.
And, in that route of economic and fiscal correction – to which governor Ricardo Rosselló Nevares partially disagrees – there seems to be no place for reconsiderations, reiterated yesterday the executive director of the Board, Natalie Jaresko.
“Now is the perfect time to make the change. That does not mean that nobody will suffer,” said Jaresko, who said that the proposals established in the plan are based on studies and successful experiences in other countries and states in the United States.
Jaresko noted that not having an ongoing plan will make it more difficult to renegotiate the debt under PROMESA Title III and argued that the longer the process is delayed, the more likely that elections will be held while talking about the reforms instead of the benefits that these changes can bring.
“The sooner this (the reforms) is done, the easier it will be for everyone because it will be done during the strongest growth period,” Jaresko said. “The later it becomes, the more, potentially, complicated it will be for the economy and, frankly speaking, due to the electoral cycle,” added the executive director of the Board.
Twelve days have gone since the federal entity, created through the federal PROMESA law, certified the central government’s fiscal plan and the plans of the Electric Power Authority (PREPA), the Aqueducts and Sewers Authority (PRASA), the Highways and Transportation Authority (PRHTA), the University of Puerto Rico (UPR) and the Government Development Bank (GDB).
Since then, “although there is always dialogue,” according to Jaresko, the Board and Rosselló Nevares’ administration have not been able to resolve their differences.
“There have been discussions about pensions and the labor reform. Yes, it is being discussed, but there is nothing concrete to announce,” Christian Sobrino, government’s representative to the Board, told El Nuevo Día.
Sobrino made it clear that the government will not change its position concerning these issues, neither regarding others such as the tax reform.
“Our analysis is that, from the outset, the labor reform projects a 30-year primary surplus that is not real. It is not reasonable to negotiate the future 30 years of Puerto Rico based on a number that does not reflect the true impact of that measure,” said Sobrino.
“The tax reform cannot be subject to conditions that cause greater uncertainty in the private sector,” added Sobrino. In summary, the Board established that tax changes would have to be reversed if, after implementation, tax revenues are affected.
Although they are on opposite sides regarding the labor reform, pensions and the tax reform, Rosselló Nevares has proceeded with the strategies he shares with the Board.
Yesterday, just hours before the workers’ protest, the government announced the start of the incentivized resignation plan and the UPR Governing Board approved to double the cost of undergraduate credits.
Meanwhile, last week, the Board gave the government until May 4 to submit the budget.
“The vast majority of the fiscal plan includes measures that come from the government, the differences are in those proposals that do not come from the government,”,said Sobrino, noting that they are still evaluating whether the time the Board gave to submit the budget draft is reasonable.
The lawyer explained that although the Executive works in the budget, the certification process consists of two stages. In the first stage, the governor submits the draft budget to the Board, but then the federal agency must interact with the Legislature to approve it.
From paper to action
In short, the certified fiscal plans of the government and public corporations are just a recipe in paper without an approved budget.
“The translation of the fiscal plan into action is the budget,” underlined Jaresko.
And what would happen if the governor does not submit the budget?
“I think it would be a shame not to have the right budget because the governor can influence politics and carry out the fiscal plan that is 80 percent to 90 percent his,” said Jaresko.
Jaresko said that if Puerto Rico maintains the current budget as legislative leaders have hinted at, this would not answer to the reality brought by Hurricane Maria or the proposals that Rosselló Nevares himself submitted to address the budget deficit and place economic activity back on track.
Pieces that do not fit
Yesterday – while the proposals long presented by civic and union groups have been forgotten – Jaresko and Sobrino set the direction that each of the parties follow, despite the fact that in recent days, economists and experts have warned that it is a recipe for disaster.
Over the weekend, the Center for a New Economy (CNE) joined the detractors of the fiscal plans, noting that the structural reforms seem to respond more to a “neoliberal” vision of public management than to scientific evidence.
“In the short and medium term, the most likely effect of this labor reform will be an increase in the informal economy by making employment in the formal economy less attractive,” said the director of Public Policy of the CNE, Sergio Marxuach.
According to Marxuach, the plan suffers “from multiple defects” and, therefore, will have higher social costs than the economic benefits that would result from its implementation.
To start with, as the researcher wrote, PROMESA section 201 refers to premises that the International Monetary Fund (IMF) itself has accepted as “erroneous”, while “underestimating” the severity of the cuts and “overestimating” the benefits of the structural reforms.
The fiscal plan could resemble a big puzzle to build a new Puerto Rico, where some pieces fit in the macroeconomic side.
Among these are changing the labor legislation, privatizing the generation of electricity and simplifying procedures to do business.
On the fiscal side, among other things, is a new tax reform that does not reduce the revenues of the Treasury, the consolidation of over a hundred agencies and the reduction of public spending by about $ 2,926 billion in six years.
The puzzle that the Board and the government created for Puerto Rico will not be completed in this four-year period.
Yesterday, the House president, Carlos “Johnny” Méndez, revealed the letter he sent to the president of the Board, José B. Carrión, regarding the labor reform.
“Please let the members of the Board know that the proposed legislation will also be challenged in any forum that attempts to impose it and that the intention to submit medieval rules on our economy will not be supported by any legislator of this House”, said Méndez in the letter of April 25.
Despite criticism, for Jaresko, there is evidence that favors the actions of the Board.
According to the former Ukraine Minister of Finance, the federal assistance that Puerto Rico will receive due to Hurricane Maria will make it “easier” to implement structural reforms now.
“The key to structural reforms is not related to the budget now, but with the budget within 20 years. It is about how to create an environment where growth in economy can be sought, where we can be more competitive, where revenues, instead of dropping year after year, can increase and the government and the people can choose how they spend that income,” said Jaresko, who recalled that even without paying bondholders, Puerto Rico would face again a deficit as of 2020 fiscal year.
Journalist Leysa Caro contributed to this article.