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Puerto Rico oversight board rejects governor’s fiscal turnaround plan

In a letter seen by Reuters, the board told Rossello the plan to put the U.S. Commonwealth on a sustainable fiscal path was insufficient.

“The Board has determined that the Proposed Plan does not comply with the requirements set forth in PROMESA,” Thursday’s letter said.

A deadline for submitting a revised proposed fiscal plan was set by the board for Saturday March 11 at 0900 AST (1300 GMT). A turnaround plan must be approved by the oversight board, which is in charge of managing the island’s finances.

Sources earlier in the week told Reuters the oversight board was concerned about key financial projections not being based upon sound data and would likely reject the plan.

Representatives of the board said it was not making the letter public, and Rossello’s office said it could therefore not make the letter public either as a matter of protocol.

“The Proposed Plan does not provide a path to restructuring debt and pension obligations to reach a sustainable level, and ensuring funding of essential services for the people of Puerto Rico,” the letter said.

Rossello last week unveiled a draft turnaround plan for the U.S. territory struggling with $70 billion in debt that needs to be restructured, a 45 percent poverty rate and shrinking population as residents move away seeking better economic conditions.

The draft plan calls for $33.8 billion in fiscal reforms, including $12.9 billion in new revenues, and forecasts the Puerto Rican government to have $1.2 billion a year available to service debt – just 30 percent of what comes due next fiscal year.

Thursday’s letter comes a day after the two sides traded correspondence that included the board recommending emergency measures while the government called the measures unnecessary. The board’s said Puerto Rico faced a possible cash deficit of about $190 million by July.

“Debt restructuring is necessary, but it alone is neither sufficient nor a sustainable solution,” Thursday’s board letter said.

Matt Rodrigue, an adviser to some senior creditors holding debt backed by sales tax receipts, known as COFINA, told a panel in San Juan on Thursday that his group stood ready to provide the government with bridge financing to address the island’s short-term liquidity issues. The board, however, has said Puerto Rico should not be borrowing money given its fiscal straits.

The board said revenue projections used by the government to calculate structural deficits are “overly optimistic,” specifically citing projections for economic growth rates and return to nominal economic growth.

In addition it said the projections failed “to reflect near-certain declines in baseline revenues associated with corporate taxes and non-resident withholding taxes.

The rejection letter was first reported by El Nuevo Dia.