With the passage of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) on Thursday, Puerto Rico has narrowly avoided what was expected to be its largest economic calamity yet. The bill prevents the island from being sued for not paying the nearly $2 billion in bond payments that came due on Friday—a possibility that would have threatened payouts from programs such as pensions and social services and plunged the territory further into turmoil. But while the bill will give the island some reprieve from debtors, and help create a path forward for managing the crisis, it also establishes a system that may cause resentment.
PROMESA sets the following events in motion: the establishment of a seven-person board to oversee negotiations with creditors, the creation of a fiscal plan (which must include the “adequate” funding of the island’s pensions, currently underfunded by more than $40 billion), and the restructuring of debt (including the option to use of a bankruptcy-like tool), among other steps.
Compared to the options left on the table in the final hours before Friday’s default, PROMESA is certainly better than nothing. But when it comes to actually creating long-term stability for Puerto Rico’s economy, the structural problems that have brought about this crisis remain in place. “PROMESA is necessary to stave off an immediate crisis, but it will not resolve the debt situation longer term and there is no viable plan to deal with the longer term collapse of the islands,” says Barry Bosworth, a senior fellow at the Brookings Institution.
The bill has been controversial for plenty of reasons, chief among which is that PROMESA gives sweeping power to a financial-oversight board, which has yet to be appointed. They will be in charge of doing things such as approving budgets and fiscal plans, they can veto debt issuances and determine which projects get funded and which don’t. And they don’t answer to Puerto Rico or its leaders. Instead, board members are appointed by the president for three-year terms and can only be removed by the president. As a result, some feel PROMESA gives the people of Puerto Rico and its elected officials virtually no agency in the island’s future. The island’s governor will serve only as an ex-officio member of the board and only one of the voting seats explicitly requires that the appointee reside or have a business in the territory. Many of these critics argue that the emergency measure is a cop out compared to bigger, more substantial changes, such as statehood or formal bankruptcy, options that many had hoped would provide longer-term solutions for the island’s ongoing problems.
All of these together makes many onlookers understandably concerned, especially since many of them believe that the island, and its residents, are often treated like colonies with second-class citizens. “It shows what complete imperial power there is in America,” a Puerto Rican student named Camila Sánchez told The New York Times.
Senator Bob Menendez, one of the bill’s most outspoken critics didn’t mince words when it comes to his thoughts about the usefulness of PROMESA back in May, “I'm afraid this bill provides little more than a Band-Aid on a bullet hole with regard to Puerto Rico's unsustainable debt," he said. "Mark my words—if we don't seize this opportunity to address this crisis in a meaningful way, we'll be right back here in a year from now picking up the pieces."
Menendez—and others—criticized PROMESA for what it didn’t promise, including: the provision of any federal tax dollars to chip away at existing debt, a path to statehood, or a special dispensation that would have allowed the territory to file for chapter 9 bankruptcy—the route that New York City and Detroit have considered to relieve themselves of burdensome, unpayable debt. Instead, the recently passed bill continues to treat Puerto Rico and its debt as an anomaly—neither state, nor municipality, which leaves it in a nebulous space when it comes to questions about how much of a markdown creditors will be asked to take on debt, and how future budgets and finances will be doled out to the island and its people.
And then there’s the fact that tighter budgets and debt restructuring won’t solve Puerto Rico’s underlying problem, a languishing economy devoid of growth opportunities. “I do not believe that people understand how poor the residents of Puerto Rico are. Average incomes are only one third the mainland average and more than half of the families are below the poverty level,” Bosworth says. Even after PROMESA’s implementation, Puerto Rico will have many of the same problems: high unemployment, brain drain, few job opportunities, low labor participation, and a dysfunctional welfare system, to name just a few. Compared with other islands, and nearby cities—such as Miami—Puerto Rico struggles to remain competitive in both tourism and business. And it isn’t the same bargain for manufacturers that it once was. “It is difficult to develop an area of comparative advantage when the exchange rate is fixed and they have limited control over most aspects of economic policy,” according to Bosworth. “For an increasing number of people, the only viable option is to move to the mainland.”
While PROMESA may help whittle away at the island’s enormous $72 billion worth of debt, it doesn’t put the island on a path toward the sort of economic growth that could help the island thrive on its own once again.