Yesterday, Puerto Rico defaulted on a $422 million loan, exacerbating the financial crisis in the U.S. territory. Without congressional action, things in Puerto Rico are going to go from bad to worse. The House bill, the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), prevents a federal bailout by taxpayers and is needed to stop the bleeding. Right now, it’s being finalized by the Natural Resources Committee after negotiations with the Treasury Department and additional input from House Republicans. PROMESA is the best hope for Puerto Rico to get to a place where it can pay its debts and get on a path to fiscal health.
And every day, more respected conservatives are stepping up to support the legislation. As Robert J. McClure of the James Madison Institute said, “Of critical importance, PROMESA would prohibit retroactive Chapter 9 bankruptcy — a clear victory for the rule of law and for long-term stability in bond markets (which hold Puerto Rico debt). . . . It’s the responsible action to aid in the economic growth, strategic development and future success of Puerto Rico.”
Conservative columnist George Will agreed that ignoring the problem is not an option: “Because the island is a U.S. territory, what happens there will not stay there: America needs to prevent, or minimize, a humanitarian crisis, some of which would be exported to America. But ameliorative measures must be made conditional on fiscal, labor and other reforms on the island.”
Here are the latest news articles outlining the state of play in Puerto Rico. The stories underscore the need to pass PROMESA, as well as the indisputable fact that this is not a bailout.
“Supporters of a congressional rescue plan got a boost on Tuesday, when Pimco, which manages $40 billion of municipal bonds, supported the current House bill. ‘It would be incorrect to classify [the bill] as a bailout,’ said a blog posting on the Pimco website. ‘No incremental federal tax dollars are allocated to the Territory under the bill. In fact, if this legislation does not advance, the probability of future federal tax dollars flowing to the Territory or bondholders may actually increase.’” (Washington Post)
“Puerto Rico on Monday made good on its threat to miss a payment on Government Development Bank debt. While the default has so far been contained, chaos will ensue if Congress doesn’t provide federal supervision and a legal framework for restructuring the island’s debt. . . . But doing nothing, as some have proposed, will result in anarchy and a back-door bailout as tens of thousands of Puerto Ricans flee to the mainland where they will land on the U.S. public dole.” (Wall Street Journal)
“[G]roups have spent hundreds of thousands of dollars in untraceable ‘dark money’ on an advertising campaign that targets legislators in Washington and attempts to portray the bill as a ‘bailout’ of Puerto Rico. It’s widely believed that the campaign is financed by so-called ‘vulture funds,’ which have bought up a significant portion of Puerto Rico’s debt on the cheap in the expectation that it will eventually pay back the full amount, even it means cutting worker pensions and social services. The current bill does not include provisions that would use taxpayer money to pay Puerto Rican debt. . . .’We do not want a bailout. We haven’t asked for a bailout. We haven’t been offered a bailout,’ said Garcia Padilla on Sunday.’ A restructuring process will cost nothing to American taxpayers.’” (VICE)
“Monday’s default pales in comparison to the expected default on July 1, when $2 billion worth of debt service payments come due. The House Natural Resources Committee is drafting legislation that, in its latest form, would give public borrowers on the island the ability to petition a judge to restructure their debts in a process akin to bankruptcy in conjunction with the imposition of a fiscal control board that would oversee the territory’s revenue collection and spending. . . . Advocates of a restructuring bill have had to combat the perception that any congressional action would constitute a ‘bailout,’ even though there would be no taxpayer funds expended under the current proposals.” (Washington Post)
“Both parties in Congress say whatever rescue package emerges won’t be a ‘bailout.’ They’re still discussing key details: how debt restructuring will work, and what kind of external oversight will be imposed on the island’s finances. Republicans have called for a reduction in the minimum wage to below the national level, to reflect the fact that median household incomes in Puerto Rico are about half those of Mississippi, the poorest state.” (Bloomberg)