Top PR officials tout fiscal improvement
La Fortaleza Chief of Staff Miguel Romero said that government was in far stronger financial shape now than four years ago, spending just $1.03 for every dollar it earns, versus $1.44 for every dollar it earned back in 2008, which adds up to a 90% reduction in the deficit.
Office of Management & Budget Director Juan Carlos Pavía said the government was en route to completely eliminate the annual budget deficit next year and spend less than it earns for the first time in more than a decade.
“The financial situation is definitely much better than it was in 2009,” Pavia said. “We have been able to maintain fiscal discipline and will continue to do so.”
Two agencies along – the Education Department and the Health Insurance Administration – have run surpluses over the last two fiscal years, when historically they were among the biggest budget breakers , and would typically generate a combined deficit of $500 million or more, he added.
Romero also said that Puerto Rico’s public corporations “were all completely bankrupt” when the administration took power, but that cost-cutting controls and increasing administrative efficiency has helped strengthen the financial situation of many.
A big factor has also been public-private partnership (P3) program enacted by this administration, which has helped reduce the outstanding debt at some public corporations while providing the government with the ability to undertake necessary public works and infrastructure investment, officials said
“Neither the Ports Authority nor the Public Building Authority nor the Highways & Transportation had the funds to undertake the improvements that we are seeing today,” Romero said.
Meanwhile, Treasury Secretary Jesús Méndez said the increase in the government’s accumulated deficit, which hit $33.6 billion in 2011, is the result of years of government spending more than it had budgeted for, another practice he said was halted during this administration.
Méndez said that during the last three fiscal years, the administration has surpassed revenue expectations while keeping spending in check. However, under the four years of former Gov. Aníbal Acevedo Vilá the government overspent estimates by $1.107 billion in 2006, $822 million in 2007 and $718 million in 2008.
“This is a snapshot of accumulated debt, and what needs to be done to resolve the situation,” Méndez said. “If we did not take action, this would have continued snowballing.”
Government Development Bank President Juan Carlos Batlle said it was important to look at the evolution of the government’s long-term debt, which today stands at $65 billion. He said it grew 48% during the administration of former Gov. Sila Calderón from 2000-2004, 47% during the Acevddo Vilá administration, while Gov. Fortuño inherited a deficit that increased long-term debt by 17% and then increased it by 5%.
He said that every major credit rating agency, as well as every Wall Street report on Puerto Rico, have lauded the steps taken by the administration, even when cautioning about the high level of Puerto Rico debt. He said that Puerto Rico still had the ability to borrow more than $5 billion in bond issues, but has no plans to do so.
“Many have also warned that this is not the time to be changing strategy,” Batlle said. “Thanks to fiscal discipline, we have reduced the deficit in 90% and will completely eliminate it next year and begin to pay the debt that has accumulated for decades.”
Officials said they inherited an accumulated deficit of $26.4 billion.
Romero also said that the government has already taken action to extend the life of the government’s retirement systems and that further steps would be taken by year’s end.
While the pension system was set to run out of money in 2014, administration action has extended its life to 2022.
Ten years ago, the government employees pension fund had about 23¢ for every $1 it needed to pay out, and this year it has 8.5¢. Likewise, the teachers pension fund had 91¢ for every $1 it needed in 2000. Today, it has just 24¢ for every $1 it pays out.
“In a decade, the pension system really lost its footing, and people need to understand that,” Fortuño told CARIBBEAN BUSINESS in an exclusive interview. “We averted a major crisis. The fund was set to run out of money in 2014 and, with what we did over the summer, we have extended that to 2022.”
The GDB crafted a $162.5 billion investment vehicle that is expected to grow to $1.5 billion by 2043. Also, the government is increasing its contribution to the plan for each of the next 10 years. It also closed “a loan faucet” that tied up about 25% of the government’s main pension fund assets in loans to pensioners.
Romero underlined that the increased contribution has only been possible through the administration’s fiscal discipline.