Natalie Jaresko, who restructured Ukraine’s debt before Puerto Rico’s, is resigning effective April 1

By Andrew Scurria and Ian Talley/WSJ

NEW YORK/WASHINGTON
EnergiesNet.com 02 07 2022

The executive director of Puerto Rico’s financial oversight board, Natalie Jaresko, is resigning from her position, having steered a historic debt restructuring that put the U.S. territory on firmer financial footing amid criticism from across the political spectrum.

Ms. Jaresko notified the oversight board she would resign effective April 1, five years after she was hired to carry out its mission of overhauling Puerto Rico’s finances and resolving the largest municipal-debt default in U.S. history.

Her resignation comes after a federal judge approved a debt-adjustment plan last month that writes down $30.5 billion in public debts, honors the pensions promised to retirees and restricts elected officials from resuming some of the fiscal practices that drove Puerto Rico to bankruptcy.

Ms. Jaresko, who served as Ukraine’s minister of finance before her hiring in Puerto Rico, was the public face of the seven-member board and took the job knowing she would be attacked for pushing painful cutbacks in the government’s financial commitments.

“I’m very proud of where we landed,” Ms. Jaresko said in an interview. “We reached a point where we reduced the debt, we broke the cycle of deficit spending, and we put Puerto Rico on a path for growth.”

Her successor will arrive with most of Puerto Rico’s prebankruptcy debt already restructured. The U.S. government has committed tens of billions of dollars in disaster aid, Medicaid funding, tax credits and other federal transfers to Puerto Rico in coming years, easing the debt deal and averting deficits until 2048, according to board projections. Yet there are persistent economic problems. Labor-force participation lags well behind U.S. states, and poverty is high. The population is expected to continue its long-term decline.

Ms. Jaresko said the restructuring process has been “heartbreaking” at times as Puerto Rico was convulsed by the devastation of Hurricane Maria in 2017, vast street protests and a political crisis in 2019, earthquakes that began later that year off the island’s southern coast and the arrival of Covid-19 in 2020.

Along the way, the board’s moves were debated on the airwaves in Puerto Rico, where critics decried the unelected body for thwarting the will of elected leaders. Created by Congress, the board was granted powers over budgets and spending, as well as access to bankruptcy protections to keep creditors at bay. But the board was unable to push through many of its proposed economic reforms as lawmakers in Puerto Rico snubbed overhauls of labor and welfare rules viewed by the board as impediments to growth.

Electricity service remains costly and prone to outages. The public power monopoly is still bankrupt and reliant on costly fossil fuels to generate electricity. Settling its debts will likely require rate increases, a deeply unpopular proposition. Private operators are now in charge of delivering power but have clashed with lawmakers over costs.

Puerto Rico has improved its cash management and ended the profligacy that landed it in bankruptcy, Ms. Jaresko said. Yet she acknowledged that only elected officials can drive other policy changes needed to improve quality of life and the education system, and maintain the government’s solvency. With the job of debt restructuring largely complete, political pressure is increasing to get rid of the board, referred to derisively by many of Puerto Rico’s nearly 3 million residents as “la junta.”

“At some point it is up to the people of Puerto Rico to make sure the elected leadership is doing the right thing,” Ms. Jaresko said.

Reworking Puerto Rico’s commitments earned her near-constant criticism. Bondholders insisted she was painting an overly pessimistic picture and understating federal support for the island. Progressive lawmakers, labor leaders and activists alleged she sacrificed public services in the name of debt repayment. She has denied imposing austerity, saying there were no widespread layoffs or agency closures, and argued that U.S. law prevented simply extinguishing the debt. Teachers, police officers and other civil servants are set for raises or benefit enhancements with the new fiscal breathing room, according to the board.

Ms. Jaresko was a natural hire to lead the restructuring efforts after her two-year tenure as Ukraine’s finance minister. Stepping into the role after Russia’s 2014 invasion plunged the economy into a free fall, she secured a $40 billion emergency bailout from Western governments that required fundamental economic overhauls meant to upend decades of systemic and institutionalized corruption.

While earthquakes and hurricanes added to Puerto Rico’s plight, Russia’s destruction of Ukraine’s industrial heartland made her job as finance minister in that country seem to many an impossible task. The high-wire act required cajoling politicians into approving energy-price reforms as well as securing a 20% write-down on nearly $20 billion in private debt.

At the center of those efforts, she bore regular threats of violence, and faced brawling parliamentarians. That prepared her for the lambasting and threats she received as the focal point of the ire of both Puerto Ricans and their creditors.

“I lived through a lot of it already,” Ms. Jaresko said. “I’ve done this through war and occupation and annexation and revolution and now, hurricanes, earthquakes and pandemics,” she said.

Like Ukraine, how Puerto Rico tackles corruption is critical to the success or failure of its economy, Ms. Jaresko said. After the territory was ranked 65th and Ukraine 64th in the World Bank’s 2020 Doing Business report—a now-defunct annual study that analysts used as a proxy index for corruption—the mayor of a Puerto Rico city pleaded guilty to charges of receiving kickbacks on $10 million in public contracts. Undefined pockets of spending in the budgets provide temptation for corruption, Ms. Jaresko said, which saddles taxpayers with extra costs and steals from other spending needs, according to economists.

“When we arrived…you could only guess where the money goes” in the budget, Ms. Jaresko said. “You can’t pull the wool over someone’s eyes when the numbers are there.”

Now, requirements for transparency and audits in public procurement hammered out by Ms. Jaresko are part of the board’s continuing mandate. The absence so far of timely audits, including to assure budgets are based on appropriate accounting standards, have spurred some skepticism about the future.

“Institutionalization of these practices in government, in the legislature, is the next stage,” she said.

Andrew Scurria at Andrew.Scurria@wsj.com and Ian Talley at ian.talley@wsj.com

Appeared in the February 4, 2022, of The Wall Street Journal-WSJ print edition as ‘Puerto Rico Finance Officer Resigns.’