August 31, 2017
The most recent meeting of Puerto Rico’s Financial Oversight and Management Board (FOMB)—known colloquially as “La Junta”—was held Friday, August 4, at the luxurious Hotel El Conquistador of Fajardo, a remote fishing town on the island’s northeast corner. Far from the urban milieu of protest in the capital city of San Juan, with few public spectators besides members of the press, bond-holding reps, and policy wonks, the meeting was held in a sterile conference room that would resemble that of any US hotel chain. Over the course of about two hours, La Junta went through the motions of hearing fiscal-plan testimony, resolution making, voting, asking each other questions, and almost robotically responding with prepared texts.
Then, seemingly out of nowhere, a sharp exchange between the government of Puerto Rico’s non-voting representative and members of the FOMB revealed the growing tension created by proposed austerity measures that would cut back on the hours of government workers. La Junta announced a plan that would impose furloughs on government employees of two days a month, down from its original proposal of four days a month, claiming that the savings of $218 million that would result were “necessary to ensure that the proper budget savings are achieved.”
Christian Sobrino, who, as the representative of Governor Ricardo Rosselló, has no vote, strongly took issue with the move. “On the issue of furloughs the government understands that a line has to be drawn. There will be no furloughs. You can take that to the bank,” he announced without irony.
The confrontation seemed to signal that, while insisting that Rosselló’s government will for the most part cooperate with La Junta on the goals and cost-saving strategies of the fiscal plan, there will be instances when the government will assert what is left of its autonomy from the US-imposed board. The only problem is that back in March Rosselló’s PNP (pro-statehood) government openly celebrated La Junta’s certification of the fiscal plan as a triumph that left behind the “times of incoherence and improvisation” that previous governments had promulgated. In a statement issued in conjunction with the plan’s certification, the Junta added amendments including a plan for employee furloughs that were set to begin July 1 of this year but were postponed until September 1.
Junta board member Carlos García bristled in his response to Sobrino, insisting that “the government representative said nothing in March; nobody said there was no opposition. The government has known about this.”
The media and several elected officials of the pro-commonwealth and pro-independence parties reacted with increasing skepticism toward the government’s sudden decision to embrace confrontation. Crusading PDP (pro-commonwealth) Representative Manuel Natal Albelo called it an attempt to “save face with public servants,” an argument to cast La Junta as “the bad guy. But the reality is that they are both the mother and father of this.” Even Sobrino joked about his outburst, when, as the press assembled for a Q&A following the Junta meeting, he remarked, “If this were a drama we would be nominated for an Oscar.”
Triggered by this halting performance of bad political theater, a kind of gloomy uncertainty has settled over the island. While lacking the spectacular chaos and violence of the crisis in Venezuela, there are times that the precariousness of life in Puerto Rico can sneak up on you slowly, unnervingly. La Junta, while not exactly the colonial viceroy of Erik Prince’s fantasies, is increasingly seen as an oppressive force, even as it faces criticism from bondholders for being too soft in its austerity measures.
Yet the furlough plan and other reductions to come will undoubtedly create a multiplier effect, as government workers will cut back on spending, which will affect local businesses and retailers. Puerto Ricans are losing their homes at an increasing rate, with more than 34,000 repossessed since 2008 and the yearly rate increasing from about 4,500 in 2015 to 5,600 in 2017. On the strip malls that dot the island’s slowly deteriorating highways, store closings are mounting, this time not cherished family-owned small businesses but big chain outlets like Sam’s Club, Radio Shack, Zales, and the Walmart-owned supermarket Amigo. Middle-class capitalism in Puerto Rico is gearing down, anticipating a dearth of consumers.
Electrical-power outages are becoming more frequent. That same Friday I found myself two towns down from Fajardo, inching through highway intersections with no operating traffic signals, hoping oncoming traffic would stop long enough to let me through. Citing a study done by his office, PPD Representative Ramón Luis Cruz Burgos claimed that during the first 20 days of July 65 percent of Puerto Rico’s municipalities reported blackouts. Since the problems began to escalate last year, UTIER, a labor union that represents 3,600 of the 9,500 employees of the Puerto Rico Electric Power Authority (PREPA), has accused PREPA, whose bankruptcy is among the worst examples of the island’s debt crisis, of purposely not performing proper maintenance of electrical lines, as a result of workforce cutbacks. On the union’s website, UTIER president Ángel Figueroa Jaramillo said the lack of maintenance was intentionally designed to create a climate of public acceptance for the failing agency’s ultimate privatization. Small things, like trimming the overgrowth of tropical forestation that is quite noticeable on winding mountain roads, cause power lines to fall. On August 21, the Puerto Rico Senate announced an investigation into the increasing incidence of blackouts on the island.
“The problem is that workers can’t focus enough on maintenance. If a tree falls, the system goes down,” said attorney Rolando Emmanuelli Jiménez, who filed two concurrent lawsuits for UTIER on August 7, one of which claims La Junta is unconstitutional, while the other asserts that the Puerto Rican government violated the Contracts Clause of both the US and Puerto Rican Constitutions by passing laws that impaired the collective-bargaining agreement. The latter suit argues that when a previously existing agreement—which had been in dispute because vacation-accrual rights and sick-leave days had been taken away—came under the supervision of La Junta, that violated the contract clause of both Constitutions. The other suit claims that La Junta violates the appointment clause of the US Constitution, because members of the board were named despite conflicts of interests.
While there are no clear precedents to these claims, Emmanuelli argues that “there is no legal precedent to the imposition of this board.” On the same day, Aurelius Capital, a significant holder of Puerto Rico General Obligations bonds, sued to invalidate the island’s Title III bankruptcy provision, using a similar argument about the appointments clause.
Meanwhile, in early August in the southwestern town of Peñuelas, there was an uptick in violence by police against a stubborn group of 100 or so protesters fighting the deposit of toxic coal ash in local landfills. A report by Puerto Rico’s Center for Investigative Journalism revealed that the ash was transported by the energy company AES, which operates a Guayama, Puerto Rico–based electric-power plant, to the Dominican Republic last year, severely contaminating a small town, and was subsequently rerouted to a landfill in Peñuelas, a community that had in past years faced contamination from the island’s failed attempt to develop a petrochemical industry in the 1970s. The government says that coal produces about 15 percent of the total amount of electrical energy generated by PREPA, which warned in mid-Julythat if its use were disrupted, the cost of electricity would rise by 2.5 cents per kilowatt-hour, or 15 percent, and that this would also increase the number of blackouts.
This past July 4, the Puerto Rico government passed a law that said that a toxic element of coal ash, called fly ash, could not be deposited anywhere on the island. This prompted AES to turn to the use of a new product called Agremax, which mixed fly ash with other forms of ash and water. On August 6, a court in nearby Ponce dismissed a suit that claimed the dumping would cause health and environmental damage, saying that, according to Puerto Rico’s Environmental Quality Board, the dumping was in compliance with law and did not pose an environmental threat.
Gerardo Medina Rivera, an adjunct professor and activist at the University of Puerto Rico–Ponce and a Peñuelas resident, has been part of the protest encampment for its two-year existence and feels that, despite the court ruling, Agremax contains highly toxic elements and that the government should explore safer ways of producing energy. The encampment is similar to the one that protested the imposition of La Junta last year, and, like the university-based resistance, combines youth with labor and environmental activists and is organized in a horizontal rather than hierarchical structure.
“As time passes, the violence from the police and riot squad is increasing,” said Medina about the incident in August. “They used tear gas, were very physical. Puerto Rico is facing multiple shocks: economic, psychological, environmental. The state uses the power of the police and the trucks keep coming in.”
Accusations of Fraud
Manuel Natal Albelo, a member of the Puerto Rican House of Representatives, was one of the first elected officials to call for an independent audit of Puerto Rico’s debt, and he’s one of the island’s most outspoken critics of La Junta and the pro-statehood New Progressive Party. He’s been all over the local media accusing the Rosselló administration of orchestrating a cover-up of what he calls a “multimillion-dollar theft,” which he attributes to a revolving door between Banco Santander—which underwrote much of the explosion of debt during the 2008–12 Fortuño administration—and the Government Development Bank, which was recently dissolved and replaced by the Puerto Rico Fiscal Agency and Financial Advisory Authority (AFAAF in Spanish), designed to be a “fiscal agent” between the government and La Junta.
Using a trail of evidence previously reported by Hedge Clippers, Natal Albelo reveals that, before he became a Junta member, Carlos García moved back and forth between leadership roles at both Banco Santander and the Government Development Bank, where he approved an allegedly questionable emission of $18.3 billion of bonds, which resulted in $236 million in underwriting fees for Santander. Natal Albelo also points out that Gerardo Portela, the head of the AFAAF, was previously vice president of Santander Securities. Adding fuel to this fire are three other apparently incestuous connections: The vice-president under García during his time at GDB, Fernando Batlle, moved on to Santander after García’s departure, and his brother, Juan Carlos Batlle, replaced García as the head of the GDB. Finally, Jorge Irizarry, the leader of a group called Bonistas del Patio, a group of bondholders from Puerto Rico (local citizens not part of hedge- or vulture-fund groups), was GDB president preceding García’s tenure.
Natal Albelo’s suspicions were further stoked by an announcement on August 4—overshadowed that day by the drama over government-worker furloughs—that La Junta would create a committee to “investigate” the debt. This action, he says, was motivated by a recent petition in Title III bankruptcy court for a forensic debt investigation. That petition, which comes from a group of creditors holding unsecured debt, has unnerved both the government and La Junta, according to Natal Albelo.
“Back in January, when Rosselló eliminated the debt commission, he said the reason was that it was not needed, that it was a left issue, and in the end, it would all come out in court,” said Natal Albelo. “Now that the creditors in the bankruptcy court solicited a forensic investigation, the Rosselló administration presented a motion opposing the forensic investigation. The same day creditors raised the motion for discovery, AFAAF filed a motion against it, and the PNP-controlled Senate proposed a law…that has a provision that says that if there are loans, that were emitted in an illegal form, that were emitted by persons that did not have authorization to emit those loans, it doesn’t matter because this provision justifies or remedies them.”
At the Title III hearing, held on August 9 in San Juan, Judge Laura Taylor Swain redirected the request for a forensic audit to District Court Judge Judith Dein, who on August 22 ordered that the FOMB and the Committee of Uninsured Creditors find ways to coordinate a debt investigation involving Santander, Banco Popular, and the GDB, setting September 12 as a deadline. If La Junta were to conduct the investigation alone, both Emmanuelli and Natal Albelo said it would be tantamount to having the “goats in charge of watching the lettuce.”
Amid all this, the war of words between the governor and La Junta continues, with La Junta reserving the right to hold the governor in contempt in a court proceeding, and the governor, after some prodding by talk-radio star Rubén Sánchez, saying he was willing to go to jail for refusing to cooperate with the furlough plan.
“This is where the real political strategy of civil disobedience is finally available to the governor, the same thing that got the Navy out of Vieques,” said Emmanuelli sarcastically, referring to the thousands arrested protesting the military’s use of the island as a bombing range before it finally pulled out in 2003. “If Rosselló says he’ll go to jail, I’ll be out there in the streets supporting him!”
This unlikely scenario came closer to reality when, on Monday, La Junta filed suit against Roselló, claiming that neither he nor his then–FOMB representative, Elías Sánchez, raised an objection to the furloughs in March, when the fiscal plan was approved, nor in June, when the budget was approved. The suit claims that “Congress provided it sole and complete discretion regarding the fiscal plan certification decisions” and “Congress also provided that such certifications are beyond challenge.”
La Junta has made clear, as eloquently argued in an editorial on the San Juan–based news site Noticel, that it is a “control” board, hiding behind the euphemism “oversight and management.” While some may have characterized the absurd dance between the governor and La Junta as a charade, the decision made on this case will have the effect of law, guaranteeing the board’s irrevocable control.
[This post originally appeared on thenation.com]
4 thoughts on “Puerto Rico’s Oversight Board Is About to Slash Government Workers’ Hours—and Pay”
Well Ed, once again a demonstration of the power of organized finance to usurp democracy. Depressing – both for PR now and as a portent for a common future. If you are ever make it up to the Boston area let me know.
Thanks again, Bruce. I will definitely let you know next time I’m in B-town. meanwhile, about the “common future,” check this: https://www.scribd.com/document/357673061/Broken-Promises
Common future and shared past. Same predatory finance in the mortgage crises as well. Efficient allocation of capital? Right. About a hundred and fifty years ago someone wrote this book and the first chapter was about the inversion CMC to MCM…
where surplus value “trumps” use value, yeah. when will we ever learn.