Plan to Rescue Puerto Rico Advances, Led by House Republicans

This post by The New York Times’ DealBook blog exploded yesterday in Puerto Rican social media circles because of its revelations on what Congress’ proposal to help Puerto Rico might look like.

The plan, being drafted as legislation by House Republicans, would not grant Puerto Rico’s most fervent request: permission to restructure its entire $72 billion debt in bankruptcy. It would, however, give the island certain crucial tools that bankruptcy proceedings can offer — but only if it first comes under close federal oversight and meets other conditions.

The oversight would be provided by a five-member voting board, selected by the president of the United States from candidates with expertise in finance, law or other relevant fields; at least two would have their primary residence in Puerto Rico. The secretary of the Treasury and the governor of Puerto Rico would also serve on the board, but would not have a vote.

The board would have offices both in Washington and San Juan, and would have the power to subpoena documents from both governments. It would audit Puerto Rico’s government, improve operations, find savings and ultimately determine how much of the $72 billion debt really has to be restructured, if any. The creation of such a board has been highly controversial on the island, where some residents and officials have called it an act of “colonialism,” and expressed some concern about outsiders making financial decisions — like budget cuts — that could adversely affect island residents.

So Puerto Rico will likely end up without access to Chapter 9 bankruptcy protection, and with an unelected five-member board that will make most financial decisions to achieve balanced budgets and a path to economic stability and growth. In DC it took 4 years for its board to be phased out, but that was on a much smaller government. Expect this to last a while, and to be  painful.