NEW YORK, April 3 (Reuters) - Puerto Rico’s oversight board could cut the island’s budget as a “punitive” measure if it fails to impose much-needed structural reforms, an aide to the U.S. congressional committee that oversees the bankrupt territory said on Tuesday.
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. It has been collaborating on the plan with Governor Ricardo Rossello, but the two sides are far apart on key reforms demanded by the board, namely pension cuts and labor reform.
“The punitive way the board can enforce is through budget cuts under,” the U.S. House Committee on Natural Resources aide said, referring to the 2016 law that created the board. He requested anonymity in a call with reporters.
PROMESA requires the board to approve Puerto Rico’s budget, and lets it impose its own if it rejects the one approved by the island’s legislature.
Rossello rejected the aide’s comments, telling reporters that U.S. Representative Rob Bishop, the Utah Republican who chairs the committee, was treating the island unequally to U.S. states and that it would be a “mistake” for Bishop to think he can “exert brute power in this manner.”
The board can impose a plan unilaterally if it cannot agree on terms with the governor, but Rossello has stressed that the board cannot infringe on Puerto Rico’s sovereignty by imposing specific policy measures, such as pension cuts.
Bishop said last week the board should give Puerto Rico’s financial creditors - many of whom are U.S.-based hedge funds - more of a say in the plan’s formation, and that the board had a “duty to mandate” reforms if the island’s government does not budge.
Rossello called the chairman’s views “dictatorial” and “anti-democratic” in a 6,000-word letter to Bishop on Monday.
The committee aide said that the committee was not looking to cut Puerto Rico’s government out of its own restructuring process.
Reporting by Nick Brown Editing by Susan Thomas