The Caribbean island of Puerto Rico has been an unincorporated U.S. territory since the Treaty of Paris was signed in 1898. Typically, when Puerto Rico is in the news, it is because the island wishes to become our 51st state. But in the past few years, another kind of news has been developing — massive debt.
For more than a year, the Commonwealth of Puerto Rico has struggled with a debt of over $70 billion. To put that in context, their annual gross domestic product was $103 billion in 2013. This debt crisis reached an inflection point in July 2016 when the commonwealth defaulted on its debt.
At President Obama’s urging, Congress created the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) law shortly after Puerto Rico’s default. As part of this law, seven members were selected to an Oversight Board (OB) and were tasked with approving a fiscal plan. Six of these members were selected by Congress, with an additional member appointed by the president.
{mosads}So far, this effort has been a failure. The Oversight Board, put simply, operates with minimal fiscal transparency, zero accountability and a lack of overall respect of lawful priorities and liens. As a result, there is little progress towards finding an equitable solution to the crisis.
More specifically, the Oversight Board:
- Refuses to discuss the debt service capacity in the Commonwealth’s fiscal plan, distorting and misrepresenting the issue as a creditor challenge the Oversight Board’s right to certify the Commonwealth’s fiscal plan. According to Townhall, this has led a group of investigative journalists in Puerto Rico to sue “the congressionally created board that acts as the island territory’s representative in bankruptcy proceedings, claiming they are failing to be transparent in their financial dealings.”
- Uses faulty data. On March 28, 2017 creditors joined together and wrote a detailed letter of complaint to the board opposing the current plan based on the incorrect underlying data, assumptions and implications.
- Has shut down criticisms about Gov. Ricardo Rossello’s Commonwealth Fiscal Plan. According to one media report, “The territory’s representatives refused to budge from a fiscal plan limiting debt payment to 24 percent of the amount due … [and] Gov. Ricardo Rossello … indicated that the total amount of debt to be paid is unlikely to change from the Oversight Board’s fiscal plan.”
It’s time for President Trump to act. Taking advantage of his discretionary power for an appointed seat on the Oversight Board offers Trump an opportunity to make a conservative solution more likely. Obama’s appointee, Judge Arthur Gonzalez of New York, a bankruptcy expert, should be replaced with an expert in municipal finance, someone who knows the lawful priorities and liens involved in a complicated dispute involving different classes of creditors. By tipping the balance of the board with a conservative municipal finance appointee, we would be one step closer to a resolution.
Once this appointment is made, comprehensive negotiations should take place that lead to a pro-growth, realistic fiscal plan with an eye toward protecting the island’s ability to access credit, ensuring economic stability for the future. And all this should be done through a transparent process that holds the Oversight Board accountable: accountable to the law and accountable to the public.
A new administration marks a new direction and policy, and the president should seek proper representation on the Oversight Board to ensure a successful outcome of the Puerto Rican debt crisis, which will be in the best interests of Puerto Rican residents and U.S. taxpayers. President Trump needs to step up to the plate, and exert his executive authority by replacing Judge Gonzalez.
Matt Mackowiak (@MattMackowiak) is the president of Austin, TX and Washington, DC-based Potomac Strategy Group, a Republican consultant, a Bush administration and Bush-Cheney re-election campaign veteran, and former press secretary to two U.S. senators. His national politics podcast, “Mack on Politics,” is produced in partnership with The Washington Times. His podcast may be found on iTunes, Google Play, and Stitcher.
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