By Matt Wirz
Natalie Jaresko has faced almost constant criticism since taking
the helm of Puerto Rico's federal oversight board 18 months ago.
Investors and politicians on the mainland attack her for pushing
reforms too slowly, while those on the island blast her austerity
measures and criticize her $625,000 annual salary. Lawyers and
bankers involved in the restructuring -- all men -- call her blunt
and brusque.
"I'm getting used to it," said Ms. Jaresko, who restructured
Ukraine's finances in 2016 as that country's finance minister and
now is looking to do the same in Puerto Rico. "With all due
respect, the challenges in this situation are as great, or greater
than, in Ukraine, which is much larger and has been attacked and
occupied by Russia."
The project to revamp Puerto Rico's economy is at a critical
juncture as the board shifts from fact finding and economic
forecasting to actually enacting the debt restructurings and
structural reforms needed to stabilize the island's financial
health. Ms. Jaresko aims to install policies she hopes will reverse
more than a decade of economic stagnation on the island, but such
measures are politically unpopular, especially after the
devastation caused by Hurricane Maria last year.
Ms. Jaresko scored much-needed wins in August when she won a key
legal ruling establishing her authority over the island and
brokered deals with bond funds who own 40% of the island's $73
billion in municipal bond debt accumulated through years of
borrowing.
Her efforts are closely watched by bond investors of all types.
Puerto Rico became the largest municipal bond restructuring ever
when the U.S territory entered a court-supervised restructuring
akin to a bankruptcy in May 2017. Its bonds are widely held by
individuals nationwide, mostly through mutual funds, and the
handling of the island's record default is widely seen as a
watershed event for the nearly $4 trillion market for U.S.
municipal bonds. The resolution could offer clues to how officials
could deal with other defaults all over the world, as concerns
mount that rising interest rates will hit other governments that
have borrowed extensively, from Argentina to Chicago.
The U.S. Congress kicked off the process in Puerto Rico when it
passed legislation allowing the commonwealth to seek bankruptcy
court protection last year. Bankruptcy was meant to allow Puerto
Rico to cut its debts, revamp its decrepit power utility known as
Prepa and balance a budget bloated by high public-sector
employment.
The oversight board tasked with these jobs chose Ms. Jaresko as
its director in March 2017. Supervising the process has been
difficult, Ms. Jaresko said, "like repeatedly hitting a wall." Her
job demands long days, frequent flights to New York and Washington,
D.C., and very little sleep.
"The health drink I like best is coffee," she said.
Born to Ukrainian-American parents in a Chicago suburb, Ms.
Jaresko became a U.S. diplomat in Ukraine after the Soviet Union
collapsed. Later, she managed investment funds there. She became
known as "the iron lady" when she took the job of finance minister
in 2014 and pushed fiscal conservatism and financial transparency
on the the country, while restructuring about $25 billion of
government debt, bringing the country back to financial
stability.
"She handled a very difficult situation extremely well," said
Kurt Volker, the U.S. Special Representative for Ukraine, of her
time as finance minister. "Like anyone in her position would, she
faced criticism, whether it was about her being too strict
financially or being too American."
The limelight has also been harsh since Ms. Jaresko moved to
Puerto Rico last year with her teenage daughter.
Puerto Rico's Senate President Thomas Rivera Schatz attacked her
salary as exorbitant as soon as it was disclosed and has frequently
pilloried her in the media since then. Walter Higgins, another
mainlander hired to reform Prepa, the power utility, resigned in
July citing pushback from Puerto Rico politicans about his pay.
U.S. members of Congress also upbraided her in private for not
pressuring Gov. Rossello harder on reforms, said a staffer on the
U.S. House of Representatives Committee on Natural Resources, which
has jurisdiction over Puerto Rico.
Bondholders lambasted her for being too slow to broker a deal
with them and for exacting as much debt reduction as possible
without forcing comparable budget cuts on Puerto Rico's government.
Ms. Jaresko spent much of her time this summer with advisors
hammering out restructurings of $17.5 billion of bonds issued by
its sales-tax authority and about $9 billion issue by Prepa. Prices
of the sales-tax bonds have risen about 40% since May to 85 cents
on the dollar, according to data form the Municipal Securities
Rulemaking Board, as investors began to anticipate progress in
restructuring talks and a faster-than-expected recovery from
Hurricane Maria.
Puerto Rico's government and the oversight board negotiated a
fiscal plan in April that calls for expense reductions through
healthcare and labor-law reforms, government staff cuts and subsidy
reductions, among other measures. The local Senate rejected the
labor reforms required by the plan in July and Ms. Jaresko is now
compelling the government to cut spending in other areas to make up
the difference and balance its budget.
Pushback to the plan reflects dread among Puerto Ricans towards
cuts to public-sector jobs and entitlement programs when
labor-force participation is 40% and youth unemployment stands at
24%.
Ms. Jaresko and the board have failed to communicate to the
electorate the need to stabilize the island's finances to revive
economic activity, says former Puerto Rico Senate President Eduardo
Bhatia. "She's a smart woman ... but they haven't been able to
communicate why we have to do certain things before something worse
comes," Mr. Bhatia said
On the mainland, Ms. Jaresko is finally winning some fans. Her
recent deals with bondholders and increasingly confrontational
approach with local politicians are hopeful signs, the House
staffer said.
"We're finally seeing what we had wanted to see for two years,"
the staffer said, while acknowledging her agenda is unpopular on
the island. "She's going to be one of the most vilified people on
the island if she pushes through these budget changes."
Puerto Rico Governor Ricardo Rosselló wants the budget cuts
proposed by Ms. Jaresko to come after growth policies like
infrastructure investment have time to boost economic activity,
said Christian Sobrino, the governor's representative to the
board.
"If the oversight board insists on its version of the budget,
it's going to lead to a government shutdown that's going to put
creditors and the public of Puerto Rico at risk," Mr. Sobrino
said.
This month, she says she will shift to working on reforms in
areas like the electricity sector, business regulation and welfare
with Gov. Rossello and the Puerto Rico Senate. Those talks may be
overshadowed by the ongoing fiscal fight between the oversight
board and Puerto Rico's government.
"Although the work I do is not pleasant, something has to
change," Ms. Jaresko says. Her role as lightning rod for public
fury about those change comes with the territory, she says, because
it gives politicians someone to blame "for making decisions that
might be difficult, or even impossible, otherwise."
(END) Dow Jones Newswires
September 14, 2018 09:15 ET (13:15 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.