NEW YORK, March 28 (Reuters) - Puerto Rico’s federally appointed financial oversight board on Wednesday insisted on pension cuts and other austerity measures as conditions for approving a turnaround plan for the bankrupt island still reeling after Hurricane Maria.
In a seven-page letter to Governor Ricardo Rossello, the board called for a revised plan with an average of 10 percent cuts to public employee pensions, provided that no one is pushed into poverty by the cuts.
The demand is part of a bankruptcy process under which Puerto Rico must submit a blueprint for regaining its financial footing. The plan must be approved by the oversight board, which may impose its own plan if both sides cannot agree.
The fiscal reform measures will determine how much money the U.S. commonwealth has left over to pay holders of $71.5 billion in bonds, who are expected to take huge cuts as part of a massive debt restructuring.
Puerto Rico’s benchmark general obligation bond, maturing in 2035, traded around 42.6 cents on the dollar on Wednesday .
Pension cuts have been a major sticking point as the board and Rossello try to reach a consensual plan. Rossello’s latest draft, published on Friday, includes labor reform and other austerity, but no pension cuts. He was expected to respond to the letter in a televised address on Wednesday evening.
Puerto Rico’s public employee retirement systems are $50 billion underfunded and have no assets, with payments coming out of the island’s general budget. It is one of only a few times in U.S. history a large-scale public pension has gone to a “pay-as-you-go” system.
Last September, Hurricane Maria compounded what was already the biggest-ever U.S. government insolvency, decimating infrastructure and sending hundreds of thousands of Puerto Rico’s 3.4 million residents, who are American citizens, fleeing to the U.S. mainland.
“Without change we face a future of poverty and outmigration as Puerto Rico residents move to the mainland,” the board’s letter said. “These are the changes we need to make to honor our pensioners.”
The board also called for paring a recovery fund for the island’s municipalities, instructing Rossello to budget for $78 million for just one year. Small, rural towns were hit hardest by Maria, with thousands of residents still without power six months later.
The board demanded more specificity on Rossello’s controversial plan to privatize prisons, saying the current plan “does not demonstrate a viable path for achieving its claimed savings.”
It also wants Rossello to remove hiring incentives for employers and set specific timelines for labor reforms. The abolition of mandatory Christmas bonuses should begin on January 1, 2019, while a work requirement for food stamps should go into effect by January 1, 2021, the board said.
Plans to raise the minimum wage, meanwhile, should be conditioned on the island meeting those and other labor reform benchmarks, it said. (Reporting by Nick Brown Editing by Leslie Adler)