(Bloomberg) -- Puerto Rico Governor Ricardo Rossello called for an extraordinary session of the island’s legislature in a bid to pass a controversial labor reform bill that would peel back worker protections to make the island more attractive for investment.
The commonwealth’s federal oversight board has long demanded such a reform, and Rossello -- as part of a larger compromise over how to overhaul the territory -- promised that his government would deliver. But the legislature has balked, including leaders from Rossello’s own political party, and refused to meet the board’s demands.
Without the reform, the compromise appeared dead as of Monday, and basic assumptions about Puerto Rico’s future hung in the balance, including its budget for the fiscal year starting July 1. But Rossello, in a televised address to the commonwealth, called for a last-ditch meeting of lawmakers to approve a version of the reform.
"I’m confident that this call for an extraordinary session will serve to revert the damage that the failure to fulfill the agreement with the board causes to the island’s economy, as well as important sectors of our society," Rossello said.
Previously, both Rossello and the board acknowledged reluctantly that critical questions for the island’s future may have to be settled by a judge, including the budget.
In what some called an act of political brinksmanship, the legislature approved its own version of the budget, without the labor reform, knowing that it wouldn’t be considered compliant with the federal law that gives the oversight board power over the budget.
In remarks to the media earlier Monday, Rossello seemed to think little of Puerto Rico’s chances of winning such a court battle, saying that the federal law called Promesa -- under which the oversight board was created -- made clear the board’s power in matters of the budget. He said compromise was critical to create a sense of predictability around the island’s future.
But he also said that he had signed the legislature’s budget, as opposed to an alternate version advocated by the board, and that, for the time being, that was the version that was in effect. The board’s budget was unacceptable, he said.
Puerto Rico has defaulted on its bonds and is faced with $120 billion in debt and pension obligations that it can’t pay after muddling through a decade of recession and then being pummeled by Hurricane Maria. But the oversight board installed as part of that process has repeatedly drawn the ire of residents and local politicians, due to its proposed program of austerity, such as ending Christmas bonuses, and business-friendly changes.
It wasn’t immediately clear if Rossello’s overtures would be enough to revert the crisis. In his remarks, he advocated a version of the reform with amendments put forward by local Senator Miguel Romero, who wanted to repeal Law 80, as the board has called for, but add back in certain protections through another law.
“The board continues to believe that comprehensive labor reform, including the repeal of Law 80 to make Puerto Rico an at-will-employment jurisdiction, is an essential component of the reforms needed to improve the island’s economy and make the business environment more competitive,” said Natalie Jaresko, the board’s executive director, according to a text message via a board spokesman, Jose Luis Cedeno
She didn’t specify her view on the Romero amendments.
At a press conference Friday, oversight board members said they viewed the labor reform as essential to the island’s transformation. After adjusting its expectations because of the legislature’s rejection of its recommendation, the body expects a $14 billion cumulative primary surplus over 30 years, compared with a $39 billion projected surplus under the previous scenario.
Defaulted Puerto Rico bonds due 2035 fell 3 cents to about 38 cents on the dollar Monday.
©2018 Bloomberg L.P.