Who’s the master of Puerto Rico? Governor Garcia-Padilla or the credit rating agencies?
via Jorge Banilla. Press closed captions for an English translation.
My Twitter thread was abuzz today with tweets about the comments made by Puerto Rico Governor, Alejandro García Padilla about the credit rating agencies (all of whom give PR the lowest investment grade rating of BBB- or Baa3):
— Antonio L. Pereira(@pnf_phytrade) April 2, 2013
— Edwin Rodriguez (@edwinpr51) April 2, 2013
Note to #muniland & beyond: Picking fights w/ credit rating agencies when you have massive debt load that needs to be rolled is ill advised.
— Cate Long (@cate_long) April 2, 2013
From the Puerto Rico paper Vocero, via a not-quite-perfect Google Translate translation, here’s an account of what Garcia Padilla said:
GUÁNICA-Governor Alejandro Garcia Padilla, lashed out today against the houses accrediting Moody’s, Standard & Poor’s and Fitch, on the ground that have been unfair to Puerto Rico.
García Padilla cited the famous song of the Mexican band rock Mana and said “I better what you think of me” accrediting houses.
The Governor went further and urged accreditors to run in the next election if they want to govern the country.
An audio recording of the governor’s comments in Spanish is available from NotiUno.com.
It’s exceptionally odd for any municipal official to publicly criticize rating agencies. I heard a little of it when raters downgraded European countries but have rarely heard it in the US. When I first read these comments it made me think that Garcia Padilla was perhaps lashing out ahead of a downgrade as a preemptive strike.
Meanwhile, the PR Legislature passed two versions of pension reform yesterday that need to be reconciled. Noticias 24/7 reported (again via Google Translate):
Senate Bill 421, authored by the PDP senators, introduced several amendments to the existing law on the retirement system for public employees, defines the Hybrid Defined Contribution Program, amends the definition of normal retirement date, increases the minimum pension to $500, establishes the rules governing when a pensioner re-enters the service, increases the retirement age, sets the treatment of accrued benefits of pensioners and participants.
Typically pension changes of this sort do little to change current payments in the pension system but do create savings in out years. Pension reform has been a big issue for all the rating agencies since the pension system is near broke. And it will be up to the Garcia Padilla administration to prove that these changes are enough to get the pension funding on solid footing.
Garcia Padilla knows in his heart that rating agencies direct the fate of his nation as much as he does. Many masters rule and in tough times all must work together.