By Javier Balmaceda
Rejected fiscal plans, dumped restructuring agreements, trashed projections: these are some of the fruits of three years of labor in Puerto Rico’s ongoing insolvency process. Ever since the US commonwealth entered default in 2015 it has paid external advisors hundreds of millions of dollars to produce reports and proposals that have done little to resolve the Gordian Knot that is its $70 billion restructuring.
The same goes for the Financial Oversight and Management Board (FOMB), the federally appointed board which since its August 2016 inception has awarded numerous multi-million dollar contracts to external personnel. In the same time frame, the FOMB has only hired a total of 18 employees, most serving in administrative roles unrelated to the restructuring, according to a FOMB spokesperson.
There’s nothing inherently wrong with seeking help from the outside. Municipal restructurings are especially complex matters that require seasoned professionals who have handled similar matters before. But to some observers the situation looks like a missed opportunity for Puerto Rico to invest in its own. It’s in Puerto Rico’s best interests to develop the institutional memory necessary to successfully steward the grueling process – and to remain at the helm after it’s over – rather than rely so heavily on a revolving door of advisors who will move on to other cases after their work on the island concludes.
Had all the money that Puerto Rico has poured into outside advisors so far yielded tangible results, one could venture to say the investment was worthwhile. But three years into the thick of it, the island hasn’t achieved a single consensual creditor agreement. Quite to the contrary, Puerto Rico and the FOMB have punted the bulk of the restructuring to a bankruptcy judge who, by the looks of it, will have to strike her gavel to resolve most creditor battles.
Castle de San Felipe del Morro in the Old San Juan, Puerto Rico
Emblematic of the gridlock, different government administrations have hired different sets of advisors, and those advisors often produce data that acquiesces to a specific set of assumptions. Former Governor Alejandro García Padilla’s fiscal plan forecast nearly $5 billion in negative cumulative cashflows through fiscal year 2026, while current Governor Ricardo Rosselló’s first fiscal plan—presented just five months later—revised that figure to a positive $11.7 billion.
Also consider the restructuring support agreement (RSA) for the Puerto Rico Electric Power Authority. Three years in the making, more than $40 million paid to an outside firm, and the FOMB jettisoned it with the stroke of a pen in June 2017.