San Juan—April 30, 2019. A study on the sustainability of Puerto Rico's debt, commissioned by the organization Espacios Abiertos (EA) to debt restructuring specialist, Martin Guzman, concludes that the restructuring of Puerto Rico's public debt Rico, it has to be done covering the entire debt stock as a whole. His main question in the analysis is how large the debt relief needs to be so that it can be sustainable.
Martin, who will testify on Thursday, May 2, 2019, before the House Natural Resources Committee in Washington DC, on behalf of EA, will raise his voice about Puerto Rico's debt dilemma based on his study and based on 5 findings:
- Although there is a strong consensus among economists who are following the case of Puerto Rico about what are the basic premises that debt policies should follow, the policies that the Board is implementing are not aligned with that consensus. On the contrary, the Board continues to promote debt payments that are excessive in relation to Puerto Rico's payment capacity.
- The terms of the COFINA agreement mean that COFINA bondholders will get much more than the market expected in the months following Hurricane Maria. In short, the result of the political game between the Fiscal Board, the Government of Puerto Rico, the United States Congress and the bondholders has been contrary to the interests of those who live in Puerto Rico and favorable for those who invested in speculation. Those who bought COFINA bonds in the months that followed María have amassed great fortunes at the expense of the future of the Puerto Rican economy and those who had to sell in the desperate situations generated by the hurricane.
- The COFINA agreement puts the restructuring process at risk of being a failure. The agreement would only make sense if the reduction on the rest of the public debt were of a substantial magnitude, between 85% and 95% according to the calculations of Guzman and his co-authors, and up to 100% according to the calculations of others. authors.
- The Board is tackling the debt restructuring puzzle one piece at a time in a way that will likely end up proving inconsistent. If terms similar to those of the COFINA agreement were agreed upon with the General Obligation bondholders, Puerto Rico would be forced to commit another default or suffer even more tax cuts that would put the economy back into a destabilizing spiral of recession when federal aid funds begin to dwindle.
- The Fiscal Board and the government of Puerto Rico have exaggerated the savings that the COFINA agreement implies for those who pay taxes in Puerto Rico, and have minimized both its distributional consequences and the risk it implies for the future.
In conclusion, the analysis by Guzman and his collaborators that he will transmit during the hearing on PROMESA in which he will participate, points out that although in the past three years they have presented difficult challenges to the Fiscal Oversight Board, he still does not see that the process of restructuring is well oriented. He is concerned that with the evolution of events observed in Puerto Rico, it is likely that the recovery facilitated by federal aid will be short-lived. He hopes that Puerto Rico's economy will grow in the short term, but if the problem of the unsustainable debt burden is not completely resolved, when federal aid funds decline, it will once again see a declining economy, with more emigration and a prolongation of the crisis. In his vision, such a path would eventually end in a new and costly restructuring.
-The testimony is based on research on the sustainability of Puerto Rico's debt commissioned by EA and directed by Martin Guzman, including a study co-authored by Martin Guzman, Pablo Gluzmann and Joseph Stiglitz.