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Puerto Rico oversight board fears progress stalling on economic fix

NEW YORK (Reuters) - Puerto Rico’s federal oversight board on Friday indicated it may be losing confidence in the local government’s resolve in turning the ailing island around, and intimated that employee furloughs could be in the offing.

Chairman of Puerto Rico's fiscal control board Jose Carrion III attends a meeting of the Financial Oversight and Management Board for Puerto Rico at the Convention Center in San Juan, Puerto Rico March 31, 2017. REUTERS/Alvin Baez

In a letter to Governor Ricardo Rossello and leaders of Puerto Rico’s house and senate, oversight board Chairman Jose Carrion said the government’s resolve to steer the U.S. territory out of bankruptcy “may be waning,” and voiced concern that “positive collaboration between the board and the administration ... may be receding.”

The board, a creation of the 2016 federal Puerto Rico rescue law known as PROMESA, is tasked with managing the island’s finances. Earlier this year it helped Puerto Rico develop a 10-year fiscal turnaround plan, and is in charge of making sure it follows through.

Tensions between the board and Rossello have run high at times, as the governor has tried to balance carrying out the board’s cost-cutting objectives with trying to please the mostly-poor constituency that elected him last November.

One of his top advisers, Elias Sanchez, responded to Carrion’s concerns in a statement on Friday, saying, “This administration has shown an unwavering commitment to face this inherited crisis with the seriousness it deserves.”

Puerto Rico, a U.S. territory facing $70 billion in debt, a 45 percent poverty rate and pension and healthcare systems that are virtually out of money, last month filed the largest municipal bankruptcy in U.S. history.

Carrion’s letter lamented comments by government officials he viewed as downplaying “the truly dire fiscal situation” in Puerto Rico.

Carrion cited what he called a false narrative that, under the board-approved 10-year turnaround plan, Puerto Rico can avoid employee furloughs and cuts to Christmas bonuses if it creates an extra $200 million in liquidity by June 30.

In fact, Carrion said, the extra liquidity is just a piece of the puzzle. To avoid the furloughs and bonus cuts, Puerto Rico must also produce implementation plans that show it can meet a host of other cost-saving measures outlined in the turnaround plan.

“We have yet to achieve confidence in the ability of Puerto Rico to fund essential services,” Carrion said, adding that a “casual reference to a particular” liquidity level is “deceptive” and “bound to generate confusion.”

Sanchez said the government has “held almost daily meetings with the board’s advisory team” which have detailed “the implementation plans to achieve the objectives.”

Reporting by Nick Brown; Editing by Daniel Bases and David Gregorio