SAN JUAN, Puerto Rico — The Puerto Rican government's fiscal reform plan is coming under increased scrutiny amid growing concerns that it does not have legislative support and that some measures are too austere and could push the U.S. territory into a deeper economic crisis.
Gov. Alejandro Garcia Padilla met Wednesday with members of President Barack Obama's Cabinet while his administration prepares to negotiate with bondholders over a $72 billion debt that he has said is unpayable and needs restructuring. Other top Puerto Rico officials traveled to New York and met with restructuring experts to prepare for the negotiations.
Economists say that if no agreements are reached and if some of the plan's measures are not implemented, the island's government could face a severe liquidity crunch in the next three months that could force it to either partially close or default on major bond payments.
"The hurricane is upon us," said Mike Soto, founder of the Center for the New Economy, a Puerto Rico-based think tank that released an analysis of the plan Wednesday. "This is going to hit us now, and in a very severe way soon."
Among provisions in the five-year plan released last week are salary freezes for government employees, creation of a fiscal control board and deep budget cuts for municipalities and the University of Puerto Rico. The plan's authors warned that even if it was fully implemented, the government would still face a $14 billion financing gap and be unable to meet debt payments as scheduled.
But opposition has risen.
Representatives of bondholders have questioned the validity of the government's numbers, saying officials are presenting a worst-case scenario that they believe will not materialize. A Virginia-based group called Main Street Bondholders accused the governor on Wednesday of distorting the island's financial situation. "Central to (his) debt avoidance strategy is the very suspect claim that Puerto Rico very simply cannot pay its debts," the group said in a statement.
Hundreds of government workers held a protest late last week to denounce the proposal.
And legislators from both the opposition and the governor's own party said this week that the plan does not have the votes needed to be adopted, especially provisions that call for slashing the budget of the island's largest public university by one-third and imposing a 10-year waiver from future minimum wage increases for young workers.
"This is an austerity plan, not one of growth," said Sergio Marxuach, policy director at the Center for the New Economy. "All the options come at a terrible cost."
Investors are waiting to see whether the government will honor a $355 million payment due in December from the Puerto Rico Government Development Bank and a $332 million general obligation bond payment due in January.
Some financial experts say bond-issuing firms are in part to blame for the island's economic crisis.
"Irresponsible lenders made money available to irresponsible politicians who spent the island into bankruptcy — so we shouldn't be unduly sympathetic to the bondholders who were the architects of their own misery," Maurice McTigue, a former New Zealand Cabinet minister who is now with George Mason University, wrote in a report released earlier this month.
The White House has repeatedly said a federal bailout is not planned, but a growing number of U.S. politicians are pushing for Puerto Rico to have access to Chapter 9 bankruptcy.