Puerto Rico Governor Ricardo Rosselló filed on Thursday for a type of bankruptcy protection under the aegis of the fiscal control board overseeing the island's fiscal situation. The U.S. territory is now the largest government in U.S. history to seek refuge from its creditors.
The filing came the day after time ran out on a deadline for Puerto Rico to negotiate a debt payment plan with its debtholders, who filed a spate of lawsuits as the deadline passed.
“After extensive talks done in good faith and after opening the financial books of Puerto Rico’s government to the creditors, there hasn’t been enough progress in the negotiations" of Puerto Rico's $72 billion debt, Rosselló said during a press conference in San Juan, the capital of Puerto Rico.
“The PROMESA law allows us to take the debt restructuring to a special court,” he said, referencing the law passed by Congress to start returning Puerto Rico to solvency. Roselló said negotiations with creditors would nonetheless continue. Puerto Rico's court filing allows the government to make deep cuts in the amounts that creditors can recuperate, a move that was slammed by creditors.
As a territory and not a state, Puerto Rico cannot file for Chapter 9 bankruptcy like other municipalities have done. But under PROMESA, Puerto Rico can seek a form of bankruptcy protection, Title III, when it cannot come to an agreement with its creditors.
The General Obligation Bondholders group said they were on the verge on an agreement and accused the Financial Oversight and Management Board for Puerto Rico, which was formed by the Obama administration and Congress to oversee the island's fiscal situation, of sabotaging negotiations.
"For months, the Oversight Board has made every effort to sabotage consensual negotiations, to flout the requirements of PROMESA and Puerto Rico's constitution, and to force Puerto Rico into bankruptcy," said a statement from the group. "With that bankruptcy now started, the Governor has forfeited all power over the restructuring, and the economy of Puerto Rico will be put on hold for years. Make no mistake: The Board has chosen to turn Puerto Rico into the next Argentina," the group said.
This takes place as the island's government grapples with reaction to the steep cuts in pensions and high sales taxes. On Monday, thousands, including university students, participated in May Day protests, paralyzing traffic and forcing some businesses to close.
The island's financial crisis was the main topic at a Washington forum on Wednesday, where several economists, including a member of the fiscal control board, gathered to discuss steps forward.
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"These are difficult reforms that are politically difficult to do," said board member Andrew Briggs at the American Enterprise Institute panel.
Anne Krueger, the former chief economist at the World Bank and former managing director at the International Monetary Fund, says both the U.S. government and the island government are to blame for the current economic situation.
"The U.S. shot them (Puerto Rico) in the one foot and Puerto Rico shot themselves in the other. It was like they were waiting for each other to do something and they weren't used to dealing with it. And the United States can certainly do more (to alleviate the problem) by fully funding Medicare payments to the island," said Krueger.
As a U.S. territory, Puerto Rico receives less than half in Medicare funds than what the 50 states receive, and even less in Medicaid. The high cost of healthcare funding amid years of recession and retrenchment in the island is one of the reasons for the island's spiraling financial situation.
The control board has also come under criticism for negotiating a lucrative compensation package for the board’s executive director, Natalie Jaresko, including a salary of $625,000 a year for the next four years. Taxpayers on the cash-strapped island are footing the bill, according to a recent report by the non-profit Centro de Periodismo Investigativo (Center for Investigative Journalism) in San Juan.
Her compensation is more than twice what Kevin Orr, the manager of Detroit’s fiscal emergency board, was paid.
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“How can Ms. Jaresko look into the eyes of a student at the University of Puerto Rico, whose budget will be cut in half thanks to the board, or a pensioner whose benefits will be cut, or a bondholder who hasn't been paid, while making a $625,000 salary and having taxpayers fund monthly plane tickets to Kiev,” said Federico de Jesús, a former Obama administration official and principal of FDJ Solutions in Washington. Jaresko was born in Chicago to Ukranian parents. Kiev is Ukraine's capital.
Fiscal control board chairman José Carrión said that while he understands the criticism, the board paid “what the market would bear.”
“We take no joy in paying someone that amount of money, but the fact is we undertook an extensive search for the person that we felt had the skill sets and the qualities necessary for the position. It’s an extremely complex job ... We chose her and we are very happy with the choice we made,” Carrión told NBC Latino during Wednesday's forum in D.C.
Jaresko's salary is higher than the presidents of the United States and the World Bank, the Federal Reserve chair, and the director of the International Monetary Fund, critics counter.
"Just today they (fiscal board members) announced the rental of an expensive Manhattan office (nearly $9,000 a month on a year-long lease), plus other offices in D.C. and Puerto Rico in the near future — all paid by the government that is too broke to pay for certain essential services,” de Jesús told NBC Latino.