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Other short titles | PROMESA |
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Long title | To establish an Oversight Board to assist the Government of Puerto Rico, including instrumentalities, in managing its public finances, and for other purposes. |
Enacted by | the 114th United States Congress |
Citations | |
Public law | Pub. L. 114–187 (text) (PDF) |
Legislative history | |
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United States Supreme Court cases | |
The Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) is a U.S. federal law enacted in 2016 that serves as a custom-made Bankruptcy law for Puerto Rico. It establishes a process for restructuring debt, and expedited procedures for approving critical infrastructure projects in order to combat the Puerto Rican government-debt crisis. [1] [2] [3] [4] Through PROMESA, the US Congress established a Financial Oversight and Management Board, known colloquially in Puerto Rico as "la junta," to oversee the debt restructuring. [2] [3] [4] With this protection the then-governor of Puerto Rico, Alejandro García Padilla, suspended payments due on July 1, 2016. [4] The FCB's approved fiscal austerity plan for 2017-2026 cut deeply into Puerto Rico's public service budget, including cuts to health care, pensions, and education, in order to repay creditors. [5] By May 2017, with $123 billion in debt owed by the Puerto Rican government and its corporations, the FCB requested the "immediate" appointment of a federal judge to resolve the "largest bankruptcy case in the history of the American public bond market." [6]
In response to legal challenges by creditors trying to reverse the debt recovery actions, the Supreme Court ruled in June 2020 that the Board's appointment, performed by the President only, was consistent with the Appointments Clause. [7]
The Foraker Act of 1900 prevented the government of Puerto Rico and all of its municipalities from entering into debt in excess of seven percent of the aggregate tax value of its property. [8] [9]
PROMESA enables the island's government to enter a bankruptcy-like restructuring process and halt litigation in case of default. Specifically, the establishment of the Financial Oversight and Management Board of Puerto Rico [10] known colloquially as "La Junta" (a short form of "La Junta de Control Fiscal"), operates as an automatic stay of creditor actions to enforce claims against the government of Puerto Rico. [11] The oversight board is to facilitate negotiations, or, if these fail, bring about a court-supervised process akin to a bankruptcy. The board is also responsible for overseeing and monitoring sustainable budgets. [4] The President appointed all seven members of the board, six of whom were chosen from a list of individuals recommended by Congressional leaders and had previous ties to profitable industries in Puerto Rico. [12] The Governor of Puerto Rico (or a designee) serves ex officio as an eighth member without voting rights. [2] PROMESA authorizes the oversight board to designate a territory or territorial instrumentality as a "covered entity." [13] Once designated, the covered entity is subject to the terms of PROMESA. [13] On September 30, 2016, the oversight board designated the Commonwealth of Puerto Rico and certain other territorial instrumentalities as covered entities under PROMESA. [14] As a covered entity, Puerto Rico is required to submit a fiscal plan. [15] A fiscal plan must provide a method to achieve fiscal responsibility and access to the capital markets, and:
On October 14, 2016, Puerto Rico submitted a proposed fiscal plan to the oversight board. [16] On November 23, 2016, the oversight board released its initial assessment of the fiscal plan submitted by Puerto Rico. [17] The oversight board requested that the fiscal plan be amended to incorporate the following:
On November 29, 2016, the Governor of Puerto Rico responded to the oversight board's assessment of the Commonwealth's proposed fiscal plan, asking for Medicaid parity in Puerto Rico, the extension of Obamacare funds, and requesting for further federal intervention and support. [18]
With basic services risking privatization, and funding for pensions, education and healthcare already scarce, PROMESA strives to reallocate more public funding to restructure the $72 billion in debt. In late January 2017, the board created under PROMESA gave the government of Puerto Rico until February 28 to present a fiscal plan (including negotiations with creditors) to solve the problems. It is essential for the Commonwealth to reach restructuring deals to avoid a bankruptcy-like process under PROMESA. [19] A moratorium on lawsuits by debtors was extended to May 31. [20]
In January 2017 governor Ricardo Rosselló replaced Millstein and co with investment expert Rothschild & Co to assist in leading the restructuring process of Puerto Rico's debts. [21] The company was also exploring the possibility of convincing insurers that had guaranteed some of the bonds against default, to contribute more to the restructuring, according to reliable sources. The governor also planned to negotiate restructuring of about $9 billion of electric utility debt, a plan that could result "in a showdown with insurers." Political observers suggest that his negotiation of the electrical utility debt indicated Rosselló's intention to take a harder line with creditors. Puerto Rico has received authority from the federal government to reduce its debt with legal action and this may make creditors more willing to negotiate instead of becoming embroiled in a long and costly legal battle.
On August 31, 2016, President Obama appointed the seven members of the board. [22] [23]
Name [24] | Began service | Party |
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Andrew G. Biggs | August 31, 2016 [25] | Republican |
Betty A. Rosa | December 8, 2020 [26] | Democratic |
John E. Nixon | December 8, 2020 [27] | Democratic |
Arthur Gonzalez | August 31, 2016 [28] | Democratic |
David Skeel | August 31, 2016 [29] | Democratic |
Name | Position |
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David Skeel | Chairman |
Robert Mujica | Executive Director |
Jaime El Koury | Legal Counsel |
José R. Pérez-Riera | Revitalization Coordinator |
Omar Marrero | Representative of the government of Puerto Rico |
In March 2017, Natalie Jaresko, former Minister of Finance in Ukraine, was appointed as the board's executive director. [30] Her chairmanship was accompanied by multiple protests against the FOMBPR in Puerto Rico, the largest being a protest of 100,000 people in San Juan in the summer of 2019, before announcing her resignation in February 2022 effective on 1 April 2022. [31] [32] In 2019, Christian Sobrino, PROMESA's Representative of the Puerto Rican government, resigned in the wake of the Telegramgate scandal effective immediately on July 13, 2019. [33] Robert Mujica became the Oversight Board’s executive director on January 1, 2023. [34]
The law gives immunity to these board members in the face of any potential future lawsuits, stipulating that “The Oversight Board, its members, and its employees shall not be liable for any obligation of or claim against the Oversight Board or its members or employees or the territorial government resulting from actions taken to carry out this to carry out this Act” (PROMESA, 561). The board also has the power to ensure “the prompt enforcement of any applicable laws of Puerto Rico prohibiting public sector employees from participating in a strike or lockout” (PROMESA, 559). [35]
Critics suggest that the law continues to treat the island as an "anomaly", remarking on Puerto Rico's somewhat unique status as a populous unincorporated territory of the United States, while also alleging that PROMESA does not do enough to deal with the problems that Puerto Rico's economy was facing when the bill was signed into law: high unemployment, welfare issues, and brain drain. [36] Critics also claim that the United States Congress is granting unnecessarily broad powers to the new Fiscal Control Board, hindering Puerto Rico's development of democracy by allowing a federal body to effectively overrule all local authorities, and justifying such decisions through the Necessary and Proper Clause. According to Nelson Denis, the political and economic activities of the United States in Puerto Rico have created structural dependency, economic stagnation, and a growing debt problem that led to the creation of this fiscal plan in an attempt to resolve the situation. [37] Some critics have accused the Fiscal Control Board of failing to look into the legitimacy of the lending-scheme debt. [38]
In 2017, after the Board presented its plan, Joseph E. Stiglitz and Martin Guzman claimed that the Act and the Board that came with it "[are] bringing more problems than solutions" and that the appointed Board lacks "any understanding of basic economics and democratic accountability". [39] As the Board's plan predicts a 16.2% decline in GNP for the next fiscal year with a further decline to follow and prioritizes payment to creditors, "a social [and] economic catastrophe" is "all but guarantee[d]". [39] Stieglitz and Guzman proposed instead that steps to enhance economic growth and not debt repayments should be at center of a plan to solve the crisis. Similar critics have argued that the United States is attempting to enforce neoliberal economics on the island without its consent through the Board. [40]
In 2017, Barry Sheppard wrote in Green Left Weekly that by 2014 when "the island's debt to US financial lenders hit US$73 billion," vulture capitalists bought the debt cheaply, demanded it be paid in full and that this law "created an un-elected seven-person financial board with sweeping powers over the island's economy". [41]
In July 2019, Puerto Rican singers such as Bad Bunny, La India, Ricky Martin, and Residente led massive protests in Old San Juan demanding end of the Governor's reign and La Junta. [42] Hundreds of thousands of people rallied for then-Governor Ricardo Rosello to “resign and take La Junta with you," and "cancel the debt." [43] Many argue PROMESA amounts to the return of colonial rule over Puerto Rico. Filmmaker Francis Negrón-Muntaner stated that the Board is "composed of individuals with deep ties to the banking and investment world—including some involved in producing the debt crisis—and granted them broad powers over Puerto Rico’s elected government to assure that creditors will be paid.” [44] In September 2019, thirteen members of the United States Congress included Alexandria Ocasio-Cortez and Bernie Sanders signed a letter that demanded that La junta disclose its conflicts of interest. [45]
On February 22, 2021, U.S. Representative Nydia Velázquez (D–NY) introduced the first amendment to PROMESA, the Puerto Rico Recovery Accuracy in Disclosures Act of 2021 or PRRADA to combat conflicts of interest related to debt recovery. The bill “requires professionals employed in debt adjustment cases involving Puerto Rico to file verified statements disclosing their connections with the debtor, creditors, and other interested parties before seeking compensation for their services.” On February 24, 2021, the amendment passed unanimously. [46]
As the Board began to agree to bankruptcy agreements, several of Puerto Rico's creditors sought legal action to challenge the foundation of PROMESA. They challenged the appointment of members to the Board by the President without Senate approval as a violation of the Appointments Clause which requires that any appointment of public officers be made with Senate approval. Initial claims at the District Courts to the creditors were denied, but in a combined case at the First Circuit Court of Appeals, the Circuit Court ruled in February 2019 that PROMESA did violate the Appointments Clause, but also ruled that all prior transactions to nullify Puerto Rico's debts were still valid. Parties on both sides petitioned to the Supreme Court: Puerto Rico and the Board seeking to challenge the determination that the Board's appointment violated the Appointments Clause, while the creditors sought to have all former decisions of the Board reversed. The Supreme Court accepted the petitions, consolidating the case under Financial Oversight and Management Board for Puerto Rico v. Aurelius Investment, LLC (590 U.S. ___ (2020), Docket 18–1334). Oral arguments were heard on October 15, 2019. [47] The Court issued its unanimous decision on June 1, 2020, reversing the First Circuit's decision and declaring that the appointment of the Board members was constitutional since their duties were, as established by Congress, at a nonfederal level and thus were not officers of the United States as demanded by the Appointments Clause. As such, this further reversed the claims on subsequent Board decisions as well, allowing these to stand. [48] [49]
In May 2023, the United States Supreme Court ruled against a Puerto Rican media organization in its quest to obtain documents from the Federal Council to oversee the island's financial restructuring. The judges said that Congress has not been clear enough about lifting the Board of Financial Supervision and Management's sovereign immunity, which would allow Centro de Periodismo Investigativo Inc. to subpoena the board over documents related to the restructuring of the economy of Puerto Rico..
Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor.
The government of the Commonwealth of Puerto Rico is a republican form of government with separation of powers, subject to the jurisdiction and sovereignty of the United States. Article I of the Constitution of Puerto Rico defines the government and its political power and authority. The powers of the government of Puerto Rico are all delegated by the United States Congress and lack full protection under the U.S. Constitution. Because of this, the head of state of Puerto Rico is the President of the United States.
Debt restructuring is a process that allows a private or public company or a sovereign entity facing cash flow problems and financial distress to reduce and renegotiate its delinquent debts to improve or restore liquidity so that it can continue its operations.
The Government Development Bank for Puerto Rico (GDB) —Spanish: Banco Gubernamental de Fomento para Puerto Rico (BGF)— is the government bond issuer, intragovernmental bank, fiscal agent, and financial advisor of the government of Puerto Rico. The bank, along with its subsidiaries and affiliates, serves as the principal entity through which Puerto Rico channels its issuance of bonds. As an overview, the different executive agencies of the government of Puerto Rico and its government-owned corporations either issue bonds with the bank as a proxy, or owe debt to the bank itself.
José Ramón González is a Puerto Rican financial executive. He is the President and chief executive officer of the Federal Home Loan Bank of New York since 2014. He formerly served as Senior Executive Vice President of Oriental Financial Group and former president and CEO of Santander Puerto Rico, Puerto Rico's second largest financial institution. González also served from 1986 to 1989 as president of the Puerto Rico Government Development Bank during the administration of Governor Rafael Hernández Colón. In 2016 he was named to the PROMESA oversight board in charge of resolving the Puerto Rican government-debt crisis Where he served until August 2020
The economy of Puerto Rico is classified as a high income economy by the World Bank and as the most competitive economy in Latin America by the World Economic Forum. The main drivers of Puerto Rico's economy are manufacturing, primarily pharmaceuticals, textiles, petrochemicals, and electronics; followed by the service industry, notably finance, insurance, real estate, and tourism. The geography of Puerto Rico and its political status are both determining factors on its economic prosperity, primarily due to its relatively small size as an island; its lack of natural resources used to produce raw materials, and, consequently, its dependence on imports; as well as its relationship with the United States federal government, which controls its foreign policies while exerting trading restrictions, particularly in its shipping industry.
Ricardo Antonio Rosselló Nevares is a former governor of Puerto Rico who served from 2017 until his resignation in 2019 after overwhelming protests related to the Telegramgate scandal. He is the son of former governor of Puerto Rico and pediatric surgeon Pedro Rosselló.
Antonio Francesco Weiss is a policymaker, financier, and former publisher. He is currently a senior fellow at the Mossavar-Rahmani Center for Business and Government at Harvard's Kennedy School.
The public debt of Puerto Rico is the money borrowed by the government of Puerto Rico through the issue of securities by the Government Development Bank and other government agencies.
The political status of Puerto Rico has ramifications into many spheres of Puerto Rican life, and there are limits to the level of autonomy the Puerto Rican government has. For example, the Island's government is not fully autonomous, and the level of federal presence in the Island is common place, including a branch of the United States Federal District Court. There are also implications relative to the American citizenship carried by people born in Puerto Rico. Specifically, although people born in the Commonwealth of Puerto Rico are natural born U.S. citizens, their citizenship is not protected by the Citizenship Clause of the 14th Amendment to the U.S. Constitution. As such, the American citizenship of Puerto Ricans can be taken away by the U.S. Congress unilaterally. Puerto Ricans are also covered by a group of "fundamental civil rights" but, since Puerto Rico is not a state, Puerto Ricans are not covered by the full American Bill of Rights. As for taxation, Puerto Ricans pay U.S. federal taxes, but most residents of the island are not required to file federal income tax returns. Representation-wise, Puerto Ricans have no voting representative in the U.S. Congress, but do have a Resident Commissioner who has a voice in Congress. Puerto Ricans must also serve in the United States military anytime conscription is ordered, with the same duties as a US citizen residing in the 50 states.
The Puerto Rican government-debt crisis was a financial crisis affecting the government of Puerto Rico. The crisis began in 2014 when three major credit agencies downgraded several bond issues by Puerto Rico to "junk status" after the government was unable to demonstrate that it could pay its debt. The downgrading, in turn, prevented the government from selling more bonds in the open market. Unable to obtain the funding to cover its budget imbalance, the government began using its savings to pay its debt while warning that those savings would eventually be exhausted. To prevent such a scenario, the United States Congress enacted a law known as PROMESA, which appointed an oversight board with ultimate control over the Commonwealth's budget. As the PROMESA board began to exert that control, the Puerto Rican government sought to increase revenues and reduce its expenses by increasing taxes while curtailing public services and reducing government pensions. These measures provoked social distrust and unrest, further compounding the crisis. In August 2018, a debt investigation report of the Financial Oversight and management board for Puerto Rico reported the Commonwealth had $74 billion in bond debt and $49 billion in unfunded pension liabilities as of May 2017. Puerto Rico officially exited bankruptcy on March 15, 2022.
Eric LeCompte is an American commentator on politics, finance and religion. He serves on a working group with the UN Conference on Trade and Development. He is the current executive director of Jubilee USA Network. Prior to working with Jubilee USA, he served as the event coordinator at School of the Americas Watch.
Natalie Ann Jaresko also known as Natalia Ivanivna Yaresko is an American-born former U.S. State Department official and Ukrainian investment banker who served as Ukraine's Minister of Finance from December 2014 until April 2016. On 20 March 2017, she was appointed as executive director of the Financial Oversight & Management Board for Puerto Rico. Jaresko announced her resignation from the PROMESA board effective April 1, 2022. Since April 2022 she has been working as chairman of the Aspen Institute Kyiv and advisor for the non-profit Stronger Than Ever.
Julio A. Cabral Corrada is an entrepreneur, social advocate and policy advisor from Puerto Rico. He focuses on Latin America and Puerto Rico's fiscal, economic, and political affairs.
David Arthur Skeel, Jr. is an American law professor specializing in bankruptcy law and corporate law. He is the S. Samuel Arsht Professor of Corporate Law at the University of Pennsylvania Law School, a position he has held since 2004.
Carlos José Saavedra-Gutiérrez is a Puerto Rican lawyer and current counsel at Jackson Lewis. Saavedra served in several high profile positions within the Government of Puerto Rico, including Secretary of Labor and Human Resources. Saavedra also served as Chief Legal Officer of the Fiscal Agency and Financial Advisory Authority of Puerto Rico, where he supervised and coordinated Puerto Rico's legal strategy as part of the largest bankruptcy-like municipal restructuring in the history of the United States.
Christian Sobrino Vega is a Puerto Rican attorney and former public executive who held numerous high-level posts within the Administration of former Governor of Puerto Rico, Ricardo Rosselló. Sobrino holds a B.A. in English from Boston College and a J.D. from the University of Puerto Rico School of Law. Prior to entering public service, Sobrino practiced corporate law in various leading firms in Puerto Rico.
An oversight board is a governance structure, responsible for ensuring compliance with the law or other standards.
Financial Oversight and Management Bd. for Puerto Rico v. Aurelius Investment, LLC, 590 U.S. ___ (2020), was a United States Supreme Court case in which the Court held that appointments to the Financial Oversight and Management Board for Puerto Rico are not subject to the restrictions in the Appointments Clause of the U.S. Constitution. The Court held that all officers of the United States are subject to the Appointments Clause even if their duties relate to Puerto Rico. However, the power they exercise must be primarily federal in nature for the Clause to apply. If the officer exercises powers primarily of a local nature, even if created by federal law, then the officer is not "of the United States" and is exempt from compliance with the Clause. As members of the Board are primarily concerned with the governance of Puerto Rico, even though their decisions have potentially nationwide consequences, their powers are primarily local in nature and need not be appointed in compliance with the Clause.
Financial Oversight and Management Board for Puerto Rico (FOMBPR), colloquially known as La Junta de Control/Supervisión Fiscal is a government entity whose role to revise and approve the budget and obligations of the government of Puerto Rico was created by federal law PROMESA.
The bipartisan, seven-member oversight board was created under the federal Puerto Rico rescue law known as PROMESA, passed by the U.S. Congress last year. It is charged with helping the island manage its finances and navigate its way out of the economic jam, including by negotiating restructuring deals with creditors.
Negrón-Muntaner thoughtfully situates the recent upheaval...within a much longer history of colonialist aggression.