Puerto Rico governor welcomes reconstruction opportunity

Q: How are you combining the needs of fiscal restructuring and economic reactivation?

A: On the one hand, we experienced a historic fiscal crisis that triggered an economic crisis; now we are in the process of restructuring the outstanding debt. On the other hand, there was the devastation left behind by Hurricane Maria, and the resources that are about to come in for the reconstruction programme.

Looking forward, we first adjusted our local public policy to cut public expenditure. When I assumed office in 2017, we started reducing the number of public agencies, which fell to 109 from 138, and I aim to bring it down to 40 because we are still spending more than we get in fiscal revenues. At the same time, we froze assumptions in the public sector, and took other measures to reduce expenditure. 

All things being equal, today our public expenditure is 17% lower than when we assumed office. With regards to the restructuring of the outstanding government debt, we want to strike an agreement with the bondholders and settle to avoid court procedures. We have found a principle agreement for about 50% of the bulk of the public debt leading to a saving of about one-third on their face value – that doesn’t include pension liabilities.

On the other hand, we are going to receive between $77bn and $100bn to rebuild the island. That is going to have an impact in terms of fresh resources and economic and construction opportunities. All that money will foster economic growth without affecting the level of public debt.  

Q: There are concerns over the governance of that much money, as a first round of emergency relief aid has been reportedly mismanaged by the agencies involved. How are you going to deal with that?  

A: I need to have visibility over all the resources we are going to receive. We are going to build a transparency platform where anyone can track all the projects under development, how much we are investing in each one, their timeline and other details, so that any citizen can see how the money is being spent. We need to get that visibility in one place because those resources are going to be scattered over a number of different agencies across the island.

Q: The government recently established a public-private partnership [PPP] authority to develop a PPP programme. Is this going to improve the governance of existing and future assets?

A: PPPs are a priority for our administration. We are waiting for $100bn for the reconstruction programme and we have a stock of assets that we want to improve, and new infrastructure we want to build. Before, we had limited access to the financial market to develop a PPP programme. With the resources for the reconstruction programme we can earmark some funds for the PPP programme. We are aiming to award at least four PPPs before the end of the local legislature in 2021.

Q: The US's Tax Cuts and Jobs Act narrows the advantages of Puerto Rico’s fiscal incentives, but makes of the whole of Puerto Rico an ‘opportunity zone’. Will this be enough to keep the island attractive from a fiscal standpoint?

A: The fiscal reform penalised Puerto Rico as it treats it as a foreign jurisdiction for fiscal purposes. Waiting for final implementation rules to be issued, we are still fighting to change that state of things. If we pull it off, that would be of great help for our manufacturing sector, which makes up about 42% of our GDP. On the other hand, opportunity zones offer US businesses a chance to reinvest their earnings in troubled areas without paying capital gain taxes, and Puerto Rico as a whole has been made an opportunity zone. Besides that, $100bn will be invested to improve the power, water and transport infrastructure. In this context, Puerto Rico becomes a very attractive investment destination.