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Unwanted Help in Puerto Rico

The Unpromising PROMESA

At the end of June, U.S. President Barack Obama signed the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), creating a seven-member federal oversight board tasked with bringing Puerto Rico’s $70 billion public debt under control. With appointees chosen by U.S. congressional leaders and the president, the board has broad powers to reconfigure Puerto Rico’s financial and economic policy. It will be able to initiate binding negotiations with creditors and, if needed, a court-supervised restructuring. A board will be announced in the coming weeks and will begin operations in September.

That is, if anyone will take the job. The board will serve until Puerto Rico achieves “fiscal responsibility and access to the capital markets”—both likely years away—and its members will not be compensated. And the first thing on the to-do list will be fending off attacks from a broad spectrum of groups contesting its claim to authority. Would you throw your hat in the ring?

SORE SPOTS

Puerto Rico is in this mess for several reasons. A 1974 opinion from the Puerto Rican attorney general on the Spanish translation of “revenues” permitted a generation of officials to borrow from bond markets to balance the budget. In 1994, a health-care plan was established without a corresponding revenue stream to fund it, and the subsequent debt was bonded out through an agency originally meant to invest in development. In 2006, Puerto Rico imposed its first sales tax, then it sold bonds backed by the revenue to close deficits—a gambit indicative of an ailing state. The year 2008 brought the U.S. real estate crash; in 2010, the Federal Deposit Insurance Corporation closed three Puerto Rican banks that held about a quarter of the banking assets on the island; 2015 saw the start of an unprecedented wave of defaults on government bonds—three cataclysms that vaporized much of the island’s wealth.

This list only hints at the complexity of Puerto Rico’s economic collapse, and PROMESA is a correspondingly complex solution. But

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