When hundreds of thousands of people poured onto the streets of San Juan, Puerto Rico, last July, it wasn’t just the resignation of Gov. Ricardo Rosselló they wanted. “Ricky renuncia y llévate la junta,” many of them cried — “Ricky resign, and take the junta with you.” For three years, a federally imposed Financial Oversight and Management Board, known as the junta or the FOMB, had imposed severe austerity measures on Puerto Ricans, ostensibly in an effort to get a handle on the soaring debt. Like Rosselló’s administration, the junta’s members and consultants were riddled with conflicts of interest. The people had had enough.
Rosselló did resign, but the junta is still in place and pushing punishing austerity in the form of cuts to health care, public pensions, and the public university. The people have not stopped fighting. In dozens of municipalities across the island, newly formed public assemblies are meeting weekly to discuss how to carry forward the energy of the protests. In many of them, fighting debt management policies involving crippling cuts to public services has become a key focus.
On a very hot Saturday morning at the end of August, around 200 people showed up to a public assembly specifically focused on the debt crisis. Many of the retirees there were concerned about a deal the board had made earlier in the summer to cut as much as 8.5 percent of people’s pensions. Luis José Torres Ascencio, president of the Citizen Commission for the Comprehensive Audit of Public Credit, recalled the words of a retired public employee who attended. “I supported PROMESA and the fiscal control board,” he said, referring to the law that created the board. “Today I see that they are doing the same thing we were criticizing our government for. So now I want the board gone.”
On Tuesday, Sen. Bernie Sanders, Rep. Alexandria Ocasio-Cortez, and 11 other members of Congress sent a letter to the board. “We agree with the demands of the Puerto Rican people who came into the streets: Puerto Rico must no longer be treated as a colony,” the letter says. Signatories demanded that the board “reverse the crippling austerity imposed on Puerto Rico” and provide details regarding conflicts of interest among members of the board, as well as its consultants. The letter also demands that the board explain exactly how these massive cuts are going to achieve economic growth.
As a window is left open for the board to exploit the island’s governance crisis to exert more control there, Sanders, Ocasio-Cortez, and others appear to be firing back at the idea that the board members are any more responsible than was Rosselló’s administration. “As the Puerto Rican people seek to compel transparency and accountability from decision makers, we believe the FOMB should heed this call.”
“What we are doing with this letter is telling the unelected austerity board that enough is enough,” Sanders, who is running for the Democratic Party’s presidential nomination, said in a statement to The Intercept. “Two years after Hurricane María, they are still working hand in hand with ultra-rich investors to try to squeeze blood from a stone. We are saying, stop dictating Puerto Rico’s economic decisions and let the people decide their own future.”
As Puerto Rico continues to rebuild after Hurricane Maria devastated the island, the stakes of the debt fight are high. “Puertorriqueños will continue to die in the face of a severe health crisis and others are using blue tarps as roofs two years after Maria,” said Ocasio-Cortez in a statement to The Intercept. “We must hold la Junta accountable — otherwise Wall Street vultures will continue to be prioritized over the needs of the people.”
Torres Ascencio offered a measured response. “We are opposed to the existence of the fiscal control board and we are opposed to PROMESA, but while we have to deal with those institutions, we definitely support congressional efforts to oversee what the board has done,” he said.
Steep Cuts and High Fees
The debt restructuring the board was tasked with has been slow-going, involving a dizzying number of actors. On the island, Washington-appointed commissioners — who report to the House Natural Resources Committee — have final say over economic life on the island and have gone toe to toe with the local government in pushing still deeper cuts to everything from pensions to the minimum wage to Christmas bonuses.
Meanwhile, the bankruptcy-like proceedings the PROMESA legislation created, via its Title III, are taking place in the Southern District Court of New York, while debt repayment is on hold. Involving several different classes of creditors, those have also limped along. That there are so many people to pay off also means that any boost in the island’s economy — like the modest bump provided by federal recovery funds and the jobs they created after Hurricane Maria — are used as bargaining chips in the Title III talks by bondholders eager to scrape as much as they can. Rather than disburse that money to the Puerto Ricans desperate for jobs and aid to rebuild homes and infrastructure, recovery would mean more money available to the vultures.
After the largest demonstrations subsided and Rosselló stepped down, the board had said it planned to submit a new restructuring plan this month, though it hasn’t yet. As Sanders and Ocasio-Cortez’s letter notes, the board’s most recent fiscal plan proposes hundreds of millions of dollars in cuts to health care and public education, having this summer won steep cuts to public-sector retiree pensions. “They are determining the economic development of Puerto Rico for the next 40 to 50 years,” said Julio López Varona, a member of the steering committee of Vamos4PR, who advocated for a letter from Congress members.
In exerting control over the island’s budget, the board has operated under the premise that cutting local taxes and scaling back labor protections and social programs would create a welcoming business climate for investors, increasing islanders’ incentives to work for cheap and thus, fuel economic growth. It’s not an uncommon approach, deployed by the International Monetary Fund in its so-called structural adjustment packages and the Troika in Greece in the wake of that country’s debt crisis. But as the bicameral letter points out, the strategy has been better at delivering lucrative fees and contracts to banks and consultants than recovery to Puerto Ricans, living in a painful recession that has lasted well over a decade.
The consultancy firm McKinsey & Company has already collected $50 million from the board, whose budget is furnished by Puerto Ricans. “In what appears to be blatant disregard for conflict-of-interest norms,” the letter notes that McKinsey “is also a holder of Puerto Rican debt and stands to make millions on any potential restructuring deal for investors.”
Revolving doors between those tasked with reining in the debt and those who either engineered or stand to profit from it aren’t unique in Puerto Rico. Board member Carlos M. García, for instance, oversaw a massive bond issuance as the head of Puerto Rico’s Government Development Bank, deals underwritten by the Spanish bank Santander where he has served as a top executive. For Wall Street especially, underwriting new Puerto Rican debt has proven profitable.
“FOMB members are reported to have been involved in government institutions that contracted billions of dollars of debt; served as officials in banks that underwrote that debt; and currently maintain familial relations to some of the largest financial institutions in Puerto Rico. Under federal statute, board members are required to provide financial disclosures and reveal any conflicts of interest. However, we are deeply concerned by the apparent failure to comply with the law,” the letter states, citing García’s failure to disclose third-party compensation. “These incomplete disclosures make the full scope of possible conflicts of interest impossible to assess.”
By October 7, Sanders, Ocasio-Cortez and their co-signers, who include Democratic presidential candidates Sen. Cory Booker and Sen. Elizabeth Warren, call for detailed accounts from the board, including an “explanation for the increasing fiscal surplus available to creditors despite the absence of significant changes in the FOMB’s economic assumptions,” an analysis of potential negative effects of budget cuts, and “all documents related to the FOMB’s consulting arrangements” with banks and contractors that could profit off debt repayment deals.
They’re also requesting any and all documents about the board’s internal conflict of interest policy and a “full accounting of each member’s professional or familial ties to any institutions and people who hold Puerto Rico’s debt or maintain contracts with the FOMB, and thorough financial disclosures of each board member, including details of outside compensation.”
Calling for a Citizens’ Audit
This isn’t Sanders or Ocasio Cortez’s first foray into Puerto Rico issues. Sanders has introduced a “Marshall Plan” for Puerto Rico’s recovery. And Ocasio-Cortez has called for a full audit and cancellation of the debt, as well as the abolition of the junta.
Congressional intervention has been meaningful in the past. This past winter, after years of pressure from activists, the board took a half-measure in the direction of its demands, declaring $6 billion in bonds illegal. But months went by without any corresponding action penalizing the banks involved. After members of Congress sent the board a letter, a series of lawsuits were filed.
“What we have seen is that, because the local government has no power over the control board, it is important that Congress uses its oversight capacity to hold the board accountable,” said López Varona.
But it’s not just any intervention that people on the ground want. Rep. Raúl Grijalva, chair of the House Natural Resources Committee, recently said he would hold a hearing in October to present proposed reforms to the PROMESA law. Among the proposals he’s considering is the cancellation of unsecured debt, as well as a debt audit. He’s also calling for the appointment of a federal reconstruction coordinator to oversee Hurricane Maria recovery and new federal funding for the FOMB, which is currently funded by Puerto Rican taxpayers. He would also include measures to protect funding for education, health, and retirement.
“We support any effort by any governmental entity to conduct an investigation on the debt. But our project is a citizens’ audit,” said Torres Ascenscio. “We’re not going to endorse a federally created governmental audit commission.”
López Varona also pushed back on the idea of a new PROMESA. “We as a coalition of groups in Puerto Rico and the U.S. continue to oppose PROMESA and any other legislation that imposes federal oversight in Puerto Rico, because it hasn’t worked,” he said, referring to a coalition that includes Vamos4PR, the Center for Popular Democracy, Boricuas Unidos en la Diáspora, Diáspora en Resistencia, Diáspora en Acción, and Construyamos Otro Acuerdo. “The summer uprising showed people want democracy; they want to be part of the decisions being made.”