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."