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Puerto Rico’s next governor and congressional representative will be individuals who oppose the bill to address territorial fiscal issues passed by the U.S. House of Representatives Committee on Natural Resources May 25th, a primary election in the islands’ New Progressive Party (NPP) determined yesterday.
Support of the bill is believed to have been the deciding factor in the defeat of Pedro Pierluisi, the territory’s Resident Commissioner in the House, in the gubernatorial primary. The bill’s Federally-appointed board within the Government of Puerto Rico that would be able to overrule the Legislative Assembly and the governor on matters affecting finances became the major issue of the campaign after the Committee vote.
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Primary victor Ricardo Rossello, son of the governor from 1993 until 2001, stepped up his opposition to H.R. 5278, which carries the acronym “PROMESA.” With 90.1% of polling stations reporting as of this morning, his margin of victory was 2.1%.
The primary for the nominee to replace Pierluisi in Congress was also won by a PROMESA critic, Puerto Rico House of Representatives Minority Leader and Republican Party Chair Jenniffer Gonzalez. She overwhelmed the only candidate on the ballot other than Pierluisi to have supported the bill drafted by the U.S. Treasury Department with Republican U.S. House leaders and acceptance by House Democratic leaders. Her victory with a whopping 70.6% of the vote over the PNP’s 2000 gubernatorial candidate who ran with Pierluisi, however, was due to a number of factors.
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Both candidates for the Popular Democratic Party (PDP) nomination for Congress opposed H.R. 5278. The nod was taken by former PDP President and House Minority leader Hector Ferrer, the party’s first noteworthy critic of Governor Alejandro Garcia Padilla (PDP). Ferrer was the favorite of the nationalist (“sovereigntist”) wing of the PDP, although he is not clearly a member of that faction. With 57.7% of the vote in 92.5% of polling paces, he bested Senator Angel Rosa, whose support came primarily from the “commonwealth” wing of the party.
PDP President David Bernier was unopposed for their party’s nomination. He, too, rejects H.R. 5278.
All four nominees said at the end of last week that they would travel to Washington, DC to lobby against the bill this week.
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In addition to rejecting the authority of the bill’s board, they also want Puerto Rico to place a greater emphasis on consensual debt restructuring with creditors than on forced reduction in the nominal value of bonds. They also hope that Federal legislation to address Puerto Rico’s fiscal problems will provide greater equality for the territory in Federal programs and include other measures that would ease strains on the insular budget and boost the islands’ economy.
Rossello has, additionally, stressed that he would bring about substantial economies in government spending, minimizing the need for debt restructuring.
U.S. House Republican leaders have planned for the full House to consider PROMESA Thursday and/or Friday. Rules Committee Chairman Pete Sessions (R-TX) has notified House Members returning to session tomorrow that proposed amendments must be filed by 10:00 a.m. Tuesday.
How House leaders of both parties and representatives of States of Puerto Rican origin will react to the rejection of PROMESA in the results of the primaries is unclear. Representative Nydia Velazquez (D-NY), who played a key role in enlisting House Minority Leader Nancy Pelosi (D-CA) to be an aggressive advocate for Puerto Rico debt reduction legislation, wavered in her support for the bill recently because of insular opposition but reportedly left a meeting between the Treasury Department’s lead official on the legislation, Antonio Weiss, and New York elected officials of Puerto Rican origin Friday afternoon recommitted to the legislation.
It is also unclear whether Pierluisi will continue to support the bill in light of its rejection in the primary. His support has been seen as critical to the measure, particularly because Gov. Garcia Padilla says that he cannot support it because of its fiscal control board. Last night, Pierluisi closed ranks behind Rossello but said that he would continue to fight for Federal legislation to address Puerto Rico’s fiscal situation. A key advisor, however, said that this might not include urging the House to pass H.R. 5278.
Even if the House passes PROMESA, it faces an uncertain future in the Senate, with several senators of both parties harboring reservations or expressing opposition before the primaries. Democratic presidential candidate Bernie Sanders (D-VT) has pledged to block passage and sponsor an alternative.
With 69.25% of polling places reporting as of this morning, Sanders had received 37.5% of the vote in the Puerto Rico Democratic presidential primary with Hillary Clinton having 59.4%. The bill was also the major issue in their contest with Clinton expressing concerns about the power of the control board and provisions concerning pensions, retirement accounts of individual bondholders, and pay of workers in Puerto Rico. Clinton won 68.5% of the vote in Puerto Rico against a much stronger campaign by fellow Senator Barack Obama in 2008.
Puerto Rico Economy Continues to Weaken
Puerto Rico’s economy was 1.9% smaller in April than it was a year before, according to the territorial Government Development Bank’s Economic Activity Index. The measure, which has a high correlation with the islands’ Gross National Product, edged down 0.1% from March to April. The slide since last July’s beginning of the territory’s fiscal year was 1.3%.
Cement sales were the major drag on the economy, falling 13.3% over the year. Cement is used is most construction in the islands. Gasoline consumption was the only economic indicator that registered an increase. It grew 2.9% during the year.
Leading economist Joaquin Villamil also pointed out this weekend that the manufacturing Purchasing Managers Index fell 5% during the first quarter of this year from the same period the year before, while government revenue increased 5.4% because of greater taxation.
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The U.S. dollar has been acting like a biotech stock in and around incoming jobs data. Central bankers have far too many asset managers trying to create alpha (returns) around their speeches and incoming data. The result? Capital destroying volatility in and around news flow. Each time we see far to many people on once side of the boat, listing her closer to capsizing.
Over the last year, the global wrecking ball that is the U.S. dollar index has ripped apart the global economy. The pull back from February – April in the greenback was a breath of fresh air for markets. Last year, U.S. ISM Manufacturing was hammered by the dollar’s surge, today it surprised to the upside.
