10/2018: The Making of the Next Crisis at COFINA

A weak economy may make the recent agreement unviable
Two recent events have rattled the prospects for a sustainable solution to PR´s debt restructuring process. First, the Fiscal Oversight Board (FOB) filed three key documents to legally enshrine the debt restructuring agreement with COFINA bond holders. A few days later, the same entity published a new version of its Fiscal Plan (the sixth in 2018). What emerged, however, was an indirect confirmation of the risks that await PR. On the one hand, the agreement establishes a haircut of 7% for senior debt and 44% for junior debt (where most local bond holders fall). The new Fiscal Plan, on the other hand, bluntly stated that the economy is expected to run out of growth by 2023—with negative or near-zero growth from then on. In other words, according to the FOB, the economy will be severely constrained to meet its obligations under the debt restructuring agreement in five years-time. What it did not say was that, as it stands, it sets the way to a new default.