The devastation wrought by Hurricane Maria has made Puerto Rico’s already dire financial situation even worse: The island’s leaders acknowledged late Wednesday that they will not be able to pay down any portion of their more than $70 billion debt for the next five years because of the damage.
Just before the hurricane, Puerto Rico had made plans to pay creditors a total of $3.6 billion through 2022. That was a fraction of the amount due, had the island, a United States territory, not gone into default.
Now, Puerto Rico expects its budget to be $3.4 billion in the red this year — a deficit that will take five years to close — because of the storm’s toll. On Wednesday, Gov. Ricardo A. Rosselló said that measures were needed to help the island’s government achieve a balanced budget, as required by the federal oversight board that controls Puerto Rico’s troubled finances. Without the economic reforms, the deficit would be closer to $8 billion, Mr. Rosselló’s administration estimated. But some creditors sharply criticized the governor’s projections, signaling legal battles to come.
After years of propping up a struggling economy with unsustainable borrowing, Puerto Rico’s financial reckoning was inevitable. The hurricane’s long-lasting impact, a new plan shows, will only make matters worse and extend the suffering of the island’s workers and businesses.
The five-year debt moratorium was part of an updated fiscal plan that Puerto Rico was required to submit to the board on Wednesday. An earlier draft had been approved, with certain exceptions, before Hurricanes Irma and Maria slammed into the Caribbean island in September. But that plan had to be reworked in light of Maria’s vast devastation, which prompted tens of thousands of Puerto Ricans to flee the island amid job layoffs and power blackouts. Nearly a third of customers remain without electricity, more than four months after the storm.
“We already had a recession in Puerto Rico,” Mr. Rosselló said. He added that the hurricane’s “social impact was significant, because of the exodus and population decrease we’ve had in Puerto Rico, and expect to have in the future.” The government projects its population will shrink by 19.4 percent over the next five years, with a total exodus of over 600,000 people.
In the new fiscal plan, the government relies heavily on federal money both to repair damage and rekindle the economy, which the plan estimates contracted by 11.2 percent, nearly triple what the government estimated last year. It calls for receiving $35.3 billion in public assistance from the Federal Emergency Management Agency. But the island hopes to receive “significantly more” in assistance, having requested $94.4 billion in disaster aid from Congress.
Whether Congress will agree to the disaster aid request remains in question. Hurricane relief was kept separate from a stopgap spending bill last month, and lawmakers, embroiled in a political fight over immigration policy, have yet to decide when they might take up the aid bill.
The new fiscal plan calls for devoting $17 billion of the federal money to rebuilding and upgrading power plants now owned by the Puerto Rico Electric Power Authority, an island-wide monopoly that by some measures is one of the largest public power companies in North America. The plants produce electricity by burning oil — an out-of-date feedstock that is dirty and exposes Puerto Ricans to oil-price swings. Last year, officials from the authority, known as Prepa, were planning to spend just $2.4 billion to modernize the power plants and switch to cleaner sources of energy.
Assured Guaranty, a company that has insured some of Puerto Rico’s bonds, said in a statement Thursday that the plan was “fiscally irresponsible” for failing to identify real economic reforms, and “would insure that Puerto Rico would be distracted by years of costly litigation.” It warned that Puerto Rico’s actions could shake confidence in the entire public finance system of the United States, making it more expensive for all states and cities to raise money for infrastructure and essential services.
The federal government has questioned whether Puerto Rico is as cash-poor as it says. On Jan. 9, the Treasury Department and FEMA notified Puerto Rico it could not begin drawing on its share of a $4.9 billion disaster-relief loan approved by Congress, because the territory still has about $1.7 billion in cash available to spend on its own — as well as another $6.9 billion in cash “on deposit in over 800 accounts across all Commonwealth governmental entities.”
Last Friday, the oversight board asked Puerto Rican officials about the $6.9 billion, which was discovered in December. About $4.3 billion was said to be tied up in funding for other government agencies, even as utilities struggle to make ends meet.
Puerto Rico declared a form of bankruptcy last May, giving the island a way to decide how much to cut pensions, debt payments and other obligations under federal court supervision. The board will represent the Puerto Rican government in the proceedings — but first it must accept the governor’s fiscal plan by Feb. 23. If it disagrees, it is empowered to impose its own fiscal plan on the island.
The board has been at odds with Puerto Rican leaders over how to restore fiscal balance after years of the island spending more than it had and borrowing to make up the difference. The board, for example, has insisted on reducing public employee pensions by 10 percent, on average, as a way to spread the economic suffering evenly among Puerto Ricans. Mr. Rosselló maintained on Wednesday that the pensioners are too “vulnerable” a population.
“The Oversight Board views implementing structural reforms and investing in critical infrastructure as key to restoring economic growth and increasing confidence in residents and businesses,” Natalie Jaresko, the board’s executive director, said in a statement. “Our focus in certifying the revised plans will be to ensure they reflect Puerto Rico’s post-hurricane realities and provide a realistic basis” for recovery and sustainability.
On Monday, Mr. Rosselló announced his intention to privatize the power authority. The governor said that privatizing it would make electricity cheaper and more reliable and attract more business to the island. He also suggested that the proceeds from selling Prepa to private investors could be used to pay the pensions of retired public workers.
Many Puerto Ricans blame Prepa, which is insolvent, and their government for their suffering during the long blackout. The utility hired a little-known contractor in Montana, Whitefish Energy Holdings, to handle repairs immediately after the storm, breaking with the usual procedure of allowing another utility to make repairs at cost after a natural disaster. Prepa was forced to cancel the contract after it came under intense federal scrutiny.
Now Prepa is so short on cash that it shut down two power plants on Tuesday night to save fuel. The government said people who had already gotten their power back would not be affected.
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