Congress took a rare bi-partisan step four years ago when it passed legislation I authored to address Puerto Rico’s two biggest needs: restructuring more than $70 billion in public debt and regaining access to the capital markets. Unfortunately, the roughly 3 million American citizens that call the island home remain in limbo due to the perpetual ineffectiveness of the territory’s federally-appointed overseers. It is now incumbent upon President Donald Trump to install new and effective leadership.
The widely-supported 2016 bill—known as PROMESA—provided for the creation of a seven-member, bi-partisan oversight board to usher the Commonwealth and its instrumentalities through debt reduction proceedings. But despite having a clear mandate and spending hundreds of millions of taxpayer dollars on bankruptcy advisors, the board has restructured less than 30% of Puerto Rico’s public debt since forming in 2016.
This unacceptable lack of progress is particularly alarming when one considers that Puerto Rico’s central government currently has approximately $20 billion in cash on hand after not paying debt service for more than three years. What is most disturbing, however, is that the board has continuously reneged on consensual restructuring agreements that would have saved tens of billions of dollars in the decades to come.
In early 2020, more than half of Puerto Rico’s general obligation bondholders agreed to a restructuring plan that could slash the central government’s bond debt from $35 billion to $11 billion. The board ultimately upended the plan based on the illogical assertion that COVID-19 uncertainty may impact the island’s ability to repay a reduced debt load over the next 20 years. Although creditors tried to address these concerns by assuming more risk, progress has remained elusive.
In 2019, major creditors of the island’s electric utility system—known as PREPA—aligned with the board on a plan to reduce the utility’s debt from $9 billion to $6 billion. This pact has subsequently gone nowhere as well after the board buckled to the type of local criticism that Congress hoped it would rise above. This procrastination is now undermining a proper restoration and privatization of the island’s decaying power grid.
It is clear that the White House has to work with Congress to reconstitute this board with individuals that possess practical financial knowledge and the will to restructure the remaining 70% of Puerto Rico’s debt.
Per PROMESA, six of the seven board members are appointed by the president based on lists provided to him by the senate majority leader, senator minority leader, house speaker and house minority leader. One of the members can be appointed by the president based on his own search. This process is intended to yield a bi-partisan board composition, assuming both parties in congress cooperate with the White House when lists are requested.
The White House still has multiple slots to fill at the present time, including a replacement for current chairman David Skeel now that his term has expired. President Trump and Senate Majority Leader Mitch McConnell should agree on a replacement that has capital markets expertise and an action-oriented mindset. They owe it to the people of Puerto Rico to add a proven leader who is actually committed to reaching consensual deals so the Commonwealth can exit bankruptcy and regain access to the capital markets.
We must remember that having a qualified board that is committed to expeditiously restructuring debt—rather than serving as a shadow government—will help the island reduce its overdependence on federal aid and protect taxpayers. Debt reduction is also a key to reigniting a private economy that can afford to attract businesses with incentives. This is the only way to realize the White House Office of Trade and Manufacturing’s vision for transforming Puerto Ricointo a medical manufacturing hub.
Rather than pass the buck to the next administration, President Trump and Leader McConnell should seize their once-in-a-generation opportunity to revitalize Puerto Rico and realize PROMESA’s objectives. Time is of the essence.
