On the Ropes: Fiscal Austerity Coming to Puerto Rico
EspañolLast Friday, the House of Representatives of Puerto Rico approved the controversial Fiscal Sustainability Act, also known as the Fiscal Emergency Law. It mandates that the island’s government reduce expenses, freeze hiring in the public sector, and reexamine collective agreements.
The bill achieved approval with the votes of 26 representatives, while 19 legislators were in opposition and supported by labor unions.
The Fiscal Sustainability Act eliminates cash payments for sick leave, caps Christmas bonus at US$600, reduces extra payments in the summer, freezes salaries, and limits the coverage of retirement plans, among other measures.
With more than US$73 billion in debt, Puerto Rico is hard pressed to pay the interest alone, especially since credit-rating agencies downgraded the island’s bonds to “junk status” in February.
The legislation will be in effect until Puerto Rico’s debt recovers to a level above junk-bond status, achieves annual economic growth of at least 1.5 percent, or closes a fiscal year without having incurred a deficit.