Financial Oversight and Management Board for Puerto Rico (PROMESA)
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| Financial Oversight and Management Board for Puerto Rico (PROMESA) | |
|---|---|
| Name | Financial Oversight and Management Board for Puerto Rico (PROMESA) |
| Native name | Junta de Supervisión y Administración Financiera para Puerto Rico |
| Formation | 2016 |
| Headquarters | San Juan, Puerto Rico |
| Leader title | Executive Director |
| Parent organization | United States Congress |
Financial Oversight and Management Board for Puerto Rico (PROMESA) is a federal oversight entity created by the United States Congress to address the sovereign debt crisis of Puerto Rico. The board was established by the Puerto Rico Oversight, Management, and Economic Stability Act and interacts with the Government Development Bank for Puerto Rico, bondholders including holders of general obligation bonds and Puerto Rico Sales Tax Financing Corporation securities, and institutions such as the United States Department of the Treasury, the Federal Reserve, and the Supreme Court of the United States. Its mandate affects relationships with creditors like Franklin Templeton, BlackRock, and bond insurers such as Assured Guaranty, Ambac Financial, and National Public Finance Guarantee.
Background and Establishment
PROMESA emerged after fiscal distress linked to decades of borrowing from investors including mutual funds and hedge funds, and after fiscal reports by the Government Development Bank for Puerto Rico and statements from Puerto Rican governors such as Alejandro García Padilla and Ricardo Rosselló. The law followed negotiations involving the United States House of Representatives, the United States Senate, and hearings featuring testimony from scholars at Harvard University, Yale University, and the University of Puerto Rico. It was influenced by precedents including Chapter 9 bankruptcy, the Dawes Plan, the Municipal Bankruptcy Act, and restructurings in Argentina, Greece, and Detroit. Key actors included President Barack Obama, Speaker of the House Paul Ryan, Senate Majority Leader Mitch McConnell, and U.S. Representatives across committees such as the House Financial Services Committee and the Senate Banking Committee.
Structure and Powers
PROMESA established a seven-member board appointed by the President of the United States with advice from the Speaker of the House and the Senate Majority Leader; members have included figures connected to financial institutions and academia such as Carlos García and José Carrión. The board works with an Executive Director and legal counsel drawn from firms like Proskauer Rose and O’Melveny & Myers, and coordinates with agencies such as the United States Department of Justice, the Internal Revenue Service, and the Office of Management and Budget. Statutory powers include the authority to approve fiscal plans, certify budgets, and initiate debt restructuring processes analogous to bankruptcy proceedings under Chapter 9; the board's powers intersect with rulings from the United States District Court for the District of Puerto Rico and appeals to the United States Court of Appeals for the First Circuit.
Fiscal Plans and Debt Restructuring
Under PROMESA the board has reviewed and approved fiscal plans submitted by the Governor of Puerto Rico and cabinet officials including the Department of Treasury, the Puerto Rico Fiscal Agency and Financial Advisory Authority, and the Puerto Rico Electric Power Authority (PREPA). The board negotiated restructuring frameworks with creditor constituencies such as holders of Puerto Rico Sales Tax Financing Corporation (COFINA) bonds, general obligation bondholders, and unsecured creditors represented by law firms like Paul Hastings. Restructuring efforts referenced models from sovereign restructurings in Lebanon, Ecuador, and Cyprus, and involved negotiations with institutional investors including Blackstone, Oaktree Capital Management, and Elliott Management. Outcomes included authored fiscal plans, amended debt schedules, and contested plan confirmations reviewed by judges such as Judge Laura Taylor Swain and scrutinized by appellate courts and bankruptcy scholars at Columbia Law School and Stanford Law School.
Legal Challenges and Litigation
PROMESA’s authority and procedures generated litigation involving claimants such as pension funds, municipal bondholders, and labor unions including the American Federation of State, County and Municipal Employees and the National Education Association. Cases implicated constitutional questions heard before the United States Supreme Court, and procedural disputes adjudicated in the United States Court of Appeals for the First Circuit and the United States District Court for the District of Puerto Rico. Legal arguments invoked precedents like Puerto Rico v. Franklin California Tax-Free Trust, the Bankruptcy Code, the Supremacy Clause, and doctrines from cases such as Metropolitan Mortgage & Securities Co. v. Republic of Columbia. Litigation involved parties including the Puerto Rico Fiscal Oversight and Management Board, the Puerto Rico Department of Justice, bond trustee Wilmington Trust, and insurers like MBIA Inc.
Impact on Puerto Rico's Economy and Governance
PROMESA’s interventions affected sectors including the Puerto Rico Electric Power Authority, the Puerto Rico Aqueduct and Sewer Authority, and public pension systems administered by the Puerto Rico Department of the Treasury and the Puerto Rico State Insurance Fund. Fiscal consolidation measures influenced public services overseen by the Puerto Rico Department of Education, health systems including the Puerto Rico Department of Health, and infrastructure projects funded through the Federal Emergency Management Agency after Hurricane Maria. The board’s actions shaped interactions with rating agencies such as Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings, and influenced investment decisions by sovereign wealth funds, commercial banks like Banco Popular, and development institutions such as the Inter-American Development Bank.
Criticism and Political Debate
PROMESA drew criticism from Puerto Rican political leaders including Alejandro García Padilla, Pedro Rosselló, and Jenniffer González, civil society organizations such as the Center for Popular Democracy and the Institute for Justice & Democracy in Haiti, and academics at the University of Puerto Rico and Columbia University. Critics argued about democratic accountability, drawing comparisons to colonial-era governance, the Jones Act, and fiscal measures in countries like Greece and Iceland, and raised concerns regarding austerity affecting teachers represented by the Puerto Rico Teachers Federation and retirees dependent on the Puerto Rico Government Employees Retirement System. Supporters cited creditor protections endorsed by investment banks, lawyers from Cleary Gottlieb, and officials at the United States Department of the Treasury as necessary for market confidence and orderly restructuring.