U.S.-governed territory Puerto Rico is in a decade-long economic slump; its governor said proposed austerity policies would send the country into an "economic death spiral"
SAN JUAN, Puerto Rico—Puerto Rico’s governor on Monday challenged a federal control board created by Congress just months ago to oversee the finances of the U.S. territory and help pull it out of an economic crisis.
In what could be a test of the board’s powers, Gov. Alejandro Garcia Padilla announced he would not submit an amended fiscal plan—the board’s first request of the island’s leader. He said he believes new austerity measures would only worsen the crisis and insisted the board restructure nearly $70 billion in public debt that he has said is unpayable.
“It’s not right, and it’s not necessary,” he said of austerity measures. “That would push us into an economic death spiral. It would mark a return to policies of depression.”
Board members who met in Puerto Rico for the first time last week said the 10-year plan issued last month needs to be amended, in part because it is not realistic and assumes federal financial help when none is likely. They requested that Garcia submit an amended plan by Dec. 15 so they could approve a final version by Jan. 31.
It was not immediately clear what happens now. A board spokesman said he was checking on whether board members would comment on Garcia’s announcement. A U.S. financial rescue package that created the board says the board itself can develop a fiscal plan and submit it to Puerto Rico’s governor and legislature if the governor fails to do it himself.
Garcia steps down as governor Jan. 1, but he has promised to reject any austerity measures while still in power.
“While I’m governor of Puerto Rico, I will oppose any … measures such as laying off public employees, reducing the pensions of our retirees and leaving the University of Puerto Rico unprotected,” he said.
The board previously requested that some of Puerto Rico’s most heavily indebted agencies submit their own fiscal plans, something that had never been required before. Government officials said at the board’s meeting Friday that the agencies, including Puerto Rico’s utility companies, would submit their plans.
During that meeting, board member Jose Gonzalez said Puerto Rico’s government needs to set priorities.
“Not everything is an essential service,” he said. “It’s an incredibly delicate balance between fiscal adjustment and economic growth … We’ll try to get the balance right.”
The board had requested the opinion of U.S. Treasury Secretary Jack Lew on the territory’s fiscal plan. He said in a letter before Friday’s meeting that the plan should promote economic growth and allow Puerto Rico to achieve a sustainable debt level, among other things. He said that one part of the plan lacked detail and clarity and that a required formal debt sustainability analysis was needed, adding that the government should not rely solely on austerity measures.
“As we have emphasized from the beginning of Puerto Rico’s crisis, austerity alone is a self-defeating remedy,” Lew wrote.
With Puerto Rico in a decade-long economic slump, Garcia’s administration has taken measures such as increasing utility rates and imposing new taxes to help generate more government revenue. Despite those measures, the island’s government has already defaulted on nearly $1.4 billion in bond payments since August 2015. It also owes $1.5 billion to government suppliers as it continues to delay vendor payments amid the economic crisis, which has prompted more than 250,000 people to move from the island to the U.S. mainland in recent years.
Garcia has warned the government will run out of money by February if a debt moratorium which expires that month is not extended. The moratorium has so far shielded Puerto Rico from numerous lawsuits filed by creditors seeking to recover the money they invested in Puerto Rico bonds.