Puerto Rico Needs Up to $21 Billion of Aid, Overseer Says

(Bloomberg) -- Puerto Rico will need an unprecedented rescue from the U.S. government to recover from the hurricane that ravaged it in September, deepening a financial crisis that had already pushed it into a record-setting bankruptcy, the executive director of the island’s federal oversight board said.

The territory will need from $13 billion to $21 billion over the next two years to keep the government operating and cover the salaries of police officers, teachers and other employees, Natalie Jaresko said in testimony prepared for the House Natural Resources committee Tuesday.

"The hard truth is that the island now needs help -- emergency and restoration funds and assistance on an unprecedented scale," she said. “Before the hurricanes, the board was determined that Puerto Rico and its instrumentalities could achieve balanced budgets, work its way through its debt problems, and develop a sustainable economy without federal aid. That is simply no longer possible.”

The devastating blow dealt by Hurricane Maria has upended Puerto Rico’s initial plans for pulling itself out of a fiscal crisis that built over years as it remained mired in a recession and borrowed to keep the government afloat. The damage crippled the economy and left investors wagering that it will be able to repay even less of its $74 billion of debt, causing the price of its most frequently traded bonds to tumble to about 28 cents on the dollar, about half what they were worth before the storm.

Jaresko said it’s difficult to determine whether the island will need deeper debt forgiveness because of the damage, given that the recovery will depend heavily on the federal government’s response.

"It is very difficult for anyone in Puerto Rico to see the future at this stage. So much depends on you the Congress, the administration and how much funding that will be appropriated for Puerto Rico," she said. "In the short term, there’s no question that this will be very difficult for creditors. In terms of the future, much depends on your response."

The House panel’s hearing is the first to delve into Puerto Rico’s finances since Maria, which so badly damaged the government’s electricity system that half of the island is still without power. Given the urgency, Jaresko asked Congress to underscore the board’s role during the recovery to eliminate any uncertainty about the scope of its authority and head off legal fights.

Before the storm, the federal government limited its role in the territory’s crisis to giving it the power to file for bankruptcy and installing the federal board to help it find a way to balance the budget. Congress has since approved $4.9 billion in low interest loans for the island and the U.S. Virgin Islands as a part of the $36.5 billion storm aid package.

Puerto Rico board is currently revising its fiscal plans to account for the hurricane, which has dampened its tax collections and threatened to derail the island’s longer-term economic recovery. Puerto Rico’s economy has shrank in part because its population kept shrinking as residents left for work on the U.S. mainland, a trend that has at least temporarily been exaggerated by the storm.

Jaresko said an estimated 100,000 Puerto Ricans have left since the storm. She said her board has estimated that the territory’s population could drop by 170,000, or 5 percent, this year.

"We know that Puerto Rico is experiencing a massive population exodus, but the exact amount of that exodus is unknowable," she said in her prepared remarks.

To contact the reporters on this story: Rebecca Spalding in New York at rspalding@bloomberg.net, Michelle Kaske in New York at mkaske@bloomberg.net.

To contact the editors responsible for this story: Christopher Maloney at cmaloney16@bloomberg.net, William Selway

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