“Only the truth will set you free”
-San Juan de la Cruz
The upside of the current crisis is that the fictions and lies on which many of the fiscal and economic decisions have been based in the past three decades are gradually being uncovered. The sad and negative part of this process is that we were not able to build solutions for ourselves. Congress had to send us financial supervisors to do the work that elected politicians did not want to do for fear of the electoral cost.
With less than two weeks to go until the effects of fiscal austerity on public employees begin to be felt, the demagoguery of our political class is seeking to monopolize the public debate. It turns out that the PROMESA law was good for hitting creditors and filing for bankruptcy (Title III) for the government’s main credits, but now it is bad when the Fiscal Oversight Board tries to implement the fiscal discipline required by PROMESA .
If I am correctly reading the arguments outlined, it seems that the government wants a bailout of the government apparatus financed by the money of creditors and pensioners. That is, we can cut pensions and not pay the debt, all to save a government that is unsustainable. If that is the premise, then, nothing has been learned as to why we have the current crisis.
Next, I present the road map already outlined, which sets out the concrete actions for fiscal consolidation of the country, which will be painful, but which will lead us to our encounter with the truth.
The Fiscal Plan, as stipulated in Section II of PROMESA, was approved on March 30.It sets the guidelines for balancing the central government deficit of $ 7 billion. The Plan, although it is being questioned by the creditors, provides concrete actions for the Executive Branch to implement the government reforms and spending reduction, which will enable us to get the fiscal consolidation on track. This Plan endorsed by the administration included the possibility of reductions in the working day.
Although he promised that the debt could be paid, on May 1, 2017, Governor Ricardo Rosselló Nevares, asked the Oversight Board to activate Title III of PROMESA, which sent the constitutional debt (GO), COFINA, the debt of the Highways Authority Of Roads (PRHTA), and eventually, the debt of the Electric Power Authority. There is already $ 50 billion (71.4% of the total) of the public debt of Puerto Rico under Title III of PROMESA, and the debt restructuring process is headed by Judge Laura Taylor Swain.
During the first week of August, legislation was passed (Senate Bill 603) aimed at privatizing the central government pension systems, the system for the judiciary, and that of teachers.
The combined actuarial deficit of pension systems is $ 40 billion, and the annual cost of disbursement of pension payments is close to $ 1.8 billion. The government has assumed the payment of pensions from the General Fund, given the near collapse of retirement systems. At the moment, there are more people in the retirement system than people contributing to the retirement plan.
The elimination of $ 150 million in subsidies from the central government for the municipalities is generating strong fiscal pressures in the town councils, which already faced serious challenges due to the bankruptcy of the Government Development Bank (GDB), which provided them with a source of revenue. It is estimated that there are 40 municipalities on the verge of insolvency and that they have already reduced working hours.
In the absence of mechanisms to assist them financially, it is highly likely that the Oversight Board will intervene to restructure the municipalities. In all probability, the Oversight Board will promote a reorganization of the municipalities under a regional consortium structure, which will allow them to reduce costs for essential services such as garbage collection, security, administration, and resource control.
Municipalities generate the majority of their revenue from the municipal patent, the SUT, and other sources. Even so, many municipalities incurred debts greater than the sources of repayment that they had available, which led them to the GDB to be able to repay debt and to cover municipal operating expenses.
It is widely known that the “Mi Salud” model runs the risk of running out of funding in the coming months, in what is known as the “Healthcare Fiscal Cliff”, given the Federal Congress’s reluctance to extend new fiscal resources, the Oversight Board itself recommended that the government implement a reduction of $ 800 million in spending for this item. Of all the elements of risk this is the most potentially dangerous from the social point of view.
We have plenty of challenges, all we are lacking are courageous leaders to guide us along the path of truth.
