PROMESA (the Puerto Rico Oversight, Management, and Economic Stability Act) was enacted in 2016 after then-governor Alejandro Garcia Padilla declared Puerto Rico’s debt “unpayable.” The law established a Fiscal Oversight and Management Board (FOMB), which was appointed by the U.S. President and Congress rather than elected by the people of Puerto Rico and had the job of restructuring Puerto Rico’s debt while encouraging long term fiscal responsibility. Once the Island had four consecutive years of balanced budgets, the Board was to be disbanded.
A decade later, the FOMB is still in place. The Board has made good progress to some of their goals, but the lessons of PROMESA include some central lessons on economics and some unavoidable conclusions about the relationship between the United States and Puerto Rico.
What has PROMESA accomplished?
“The Board can reject budgets approved by Puerto Rico’s legislature, signed by its governor and funded by its taxpayers, despite having no electoral mandate from Puerto Rico’s residents,” explains George Laws Garcia, executive director of the Puerto Rico Statehood Council. In this way, the Board has some of the advantages of central economic planning — and some of the disadvantages. They were able to impose austerity measures to meet their narrow goals without making investments in the future. Deep cuts to schools, health care, and the university system helped stabilize finances but damaged public capacity and quality of life. “While the FOMB has overseen a largely successful debt restructuring process, its continued existence contradicts a basic democratic principle reflected in both the U.S. and Puerto Rico Constitutions: officials who exercise ultimate authority over public funds should be accountable to the people they govern,” said Laws Garcia.
Puerto Rico’s debt is nearly resolved. Unemployment is down. This year’s budget is expected to be the second certified balanced budget in a row and the current governor speaks proudly about fiscal responsibility. Yet Puerto Rico’s economy remains flat. Without continued federal disaster funding, growth will be limited. Governor Gonzalez-Colon’s platform is resolutely pro-business and is aims to encourage manufacturing on the Island, but continuing out-migration and an aging population threaten these opportunities.
Speaking of the Board, Laws Garcia said, “It also has not done enough to advance pro-growth fiscal policies that can expand opportunity, strengthen revenues and reduce the pressure that drives residents to leave the island. Congress should complete the FOMB’s mission, dissolve the Board and enact legislation to end Puerto Rico’s territory status, which is the central structural barrier to the island’s full economic potential and long-term fiscal health.”
PROMESA revealed the truth about territory status
While Governor Garcia Padilla insisted that Puerto Rico was not “a mere territory,” U.S. laws prove otherwise. An unelected board could not have taken over any state’s fiscal operations, overruled its laws, and imposed austerity policies against the will of the people. Puerto Rico’s territory status allowed this to happen. Cuts to education and health care show that short-term savings can undermine long-term human capital and recovery, but the future good of Puerto Rico was not the Board’s mandate. Its job was to restructure the debt and force harsh repayment of the remaining debt.
The PROMESA board laid bare the colonial relationship between the United States and Puerto Rico. Not only did it overrule the elected leaders of the Island, it also appeared to many observers as though it was working more for Wall Street creditors than for Puerto Rico. The Board staunchly denies this. Yet the poverty rate in Puerto Rico is still just about where it was in 2016: at 40%, it is more than twice as high as the rate in any of the 50 states.
PROMESA reduced debt and encouraged fiscal responsibility, but it did not improve Puerto Rico’s financial position from the point of view of the residents — or of the future of the Island.
Moving forward
“True economic progress requires changing the underlying structure of territorial governance – an arrangement Puerto Rico’s voters have repeatedly rejected in favor of statehood and the full equality and democratic accountability it would provide,” says Laws Garcia. “Our nation was founded on the principle of government by the consent of the governed. A decade of Board control is a reminder that prosperity and productivity are best advanced not by extending territorial control, but by treating American citizens equally under the law and giving Puerto Rico’s residents the power to hold their elected officials accountable through active participation in democratic institutions.”
The post The Lessons of PROMESA appeared first on PUERTO RICO REPORT.
