CNE in Washington DC
On July 18 CNE’s Policy Director Sergio Marxuach participated in a bipartisan roundtable discussion in the US Congress on the future of Puerto Rico’s economy at the invitation of Rep. Nydia Velázquez, Ranking Minority Member of the House Committee on Small Business. Below is a summary of CNE’s testimony as well as a link to the unabridged version of the document submitted by CNE.
PROMESA is not working as expected
With the enactment of PROMESA in June 2016, Congress recognized that it has a moral obligation under the U.S. Constitution to foster the welfare of the U.S. citizens that live in Puerto Rico. This means that it is in Congress’s own interest to see through that Puerto Rico is successful in addressing its current fiscal and economic crisis. However, some of the policy tools set forth in PROMESA may actually hinder the island’s ability to escape its current economic death spiral.
First, the imposition of a Fiscal Oversight Board with broad powers over the island’s fiscal and economic policies, authority to command the implementation of its recommendations, and the capacity to prevent the enforcement or execution of otherwise valid contracts, executive orders, laws or regulations—has seriously undermined the island’s political institutions, already extremely compromised by clientelism, partisan politics and corruption.
The Fiscal Oversight Board has actually added a new layer of opacity to fiscal policymaking in Puerto Rico. The discussions among Board members have been carried out mostly behind closed doors, while interactions between the Board and the Government of Puerto Rico tend to be summarized ex post, usually through succinct letters written in rather cryptic language.
Second, PROMESA’s complicated territorial debt restructuring process combines principles drawn from both the U.S. Bankruptcy Code and from the realm of sovereign debt restructuring. This means that its benefits remain fairly uncertain and contingent on the successful implementation of a completely new and untested legal framework for territorial bankruptcy. The risk if this experimental framework fails is magnified by the fragile state of the Puerto Rican economy, which has already undergone a protracted decade-long contraction.