March 28, 2018 / 6:36 PM / a year ago

Puerto Rico governor withdraws labor reform proposal

NEW YORK (Reuters) - Puerto Rico’s governor on Wednesday withdrew his labor reform proposal after the island’s oversight board demanded additional measures, deepening a divide in the parties’ efforts to reach a consensual turnaround plan for the bankrupt, storm-ravaged island.

The flags of the U.S. and Puerto Rico fly outside the Capitol building in San Juan, Puerto Rico May 4, 2017. REUTERS/ Alvin Baez

Governor Ricardo Rossello said demands made by the federally appointed board earlier on Wednesday would have made his labor reform plan “impossible.”

“The board pretends to dictate the public policy of the government, and that, aside from being illegal, is unacceptable,” Rossello said in a statement on Wednesday evening.

Puerto Rico is navigating both the biggest bankruptcy in U.S. government history, with $120 billion in combined bond and pension debt, and its worst natural disaster in 90 years caused by September’s Hurricane Maria.

The oversight board, appointed by the U.S. Congress in 2016, must approve a blueprint for Puerto Rico’s fiscal turnaround, a document whose economic projections will dictate how much money the island has to repay its bondholders.

The board can impose a plan unilaterally if it cannot reach an accord with Rossello.

The governor’s draft plan, which forecasts just $6 billion for debt service over the next five years, sought to attract private employers by eliminating mandatory Christmas bonuses for private-sector employees, reducing vacation and sick days, and creating an at-will employment system on the island. Rossello also proposed raising the minimum wage.

In a letter to the governor earlier on Wednesday, the board instructed Rossello to impose tight timelines on putting those measures in place, and made the wage hike conditional on meeting those benchmarks.

The board made other demands, most notably reiterating its call for 10 percent across-the-board cuts to public pensions.

Rossello on Wednesday called the pension cuts an “unfair and abusive measure” that “will have my tenacious opposition.”

His hard-line position heightens tension with the board at a time when Rossello’s administration is struggling to find allies. U.S. lawmakers and financial creditors have accused Puerto Rico of overstating its financial straits, while previous austerity moves have angered unions.

A unilateral turnaround plan by the board might provide Rossello political cover, but could spur public discontent on an island where many view the board’s existence as an encroachment on sovereignty.

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.

Reporting by Nick Brown and Luis Valentin Ortiz; Editing by Leslie Adler and Daniel Bases

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