Puerto Rico, with more than $70 billion of bonds at stake, has become the latest testing ground of austerity as the right prescription for an economy in decline, according to a commentary in The Bond Buyer. The Oversight Board has embarked on a strategy that leans toward conservative prescriptions to restore fiscal discipline and economic growth as the territory undergoes its historic debt restructuring. After nearly two years of economic growth following Hurricane Maria’s devastation, reports from the Economic Development Bank for Puerto Rico signal that the economy may have resumed the decline experienced from 2006 to Hurricane Maria’s arrival in September 2017. The bank’s economic activity index has declined four out of the last five months on a year-over-year basis. The negative economic readings have raised concern that the austerity measures may undercut the island’s recovery, putting bondholders on a path for a second round of restructuring in a few years, regardless of any deal they work out in Puerto Rico’s bankruptcy court. In its fiscal plan, the Oversight Board outlined a schedule requiring $12.78 billion in spending cuts and revenue-increasing measures from fiscal year 2018 to fiscal year 2024. Most of these adjustments are scheduled to be carried out in coming years. The Oversight Board, which the Puerto Rico Oversight, Management and Economic Stability Act established in 2016, also set out to reform governmental policies.
