Treasury Secretary visits Puerto Rico as debate over crisis continues

by May 9, 2016Economy, Headlines0 comments

Puerto Rico’s crisis continues to worsen and its effects are being felt in unconventional ways that have added distractions to the debate over how to address the crisis. In the midst of it all, United States Department of the Treasury Secretary Jack Lew is visiting the territory after sending a letter to members of Congress urging action. In his letter, Lew outlined the steps the administration has taken, detailing how things have worsened since they introduced their proposal, while outlining the requirements for the eventual bill the should come from the Congress:

Congress must work quickly to resolve the few outstanding issues on the proposed legislation to help Puerto Rico.  For example, the legislation must provide a functional and seamless debt restructuring process that initially allows for voluntary negotiations while ensuring a timely and fair resolution.  The bill also must balance important policy priorities more evenly, most significantly by offering a responsible process to ensure the retirement security of the 330,000 citizens in Puerto Rico who depend on their pension benefits.  Other troubling labor and federal land transfer provisions also should be addressed.  Small changes in text would address these issues in a fair and acceptable way.  

The issue is not being ignored in Washington, DC, but it has become a lightning rod issue for controversy, with so many different sides and positions it has become difficult to figure out who stands where, let alone how to come up with a compromise that can reach The White House before the deadline of June 1, when close to $2 billion are due.

Trump weighs in

The crisis has also made its way into the presidential race, with several news outlets asking presumptive Republican presidential nominee Donald Trump about his stance. While his positions remains somewhat unclear, we now know he remains opposed to a bailout, but presumably open to allowing the US territory to restructure its debt, something conservatives in Congress influenced by lobbying from hedge funds strenuously oppose.

Both democratic candidates have previously expressed their support for debt restructuring for Puerto Rico.

Divergent debates

As the debate in DC continues, back in the islands a different part of the proposed HR 4900 or PROMESA bill has become the focus of discussion: the oversight board. While in DC it is essentially taken as fact that there will be a board overseeing Puerto Rico’s finances, in the territory many are criticizing its implementation, calling it the return to colonialism by the US.

The opposition to the board is such, that memes and social media posts have started to circulate attributing proposals for cuts and austerity to the as-of-yet non-existent board.

Some officials in the islands seem to be resigned to its implementation, but the debate rages on with little attention paid to the debate in Washington, where the only changes to the HR 4900 bill are likely to be regarding the extent of debt restructuring and the prioritization of certain class of bondholders over others in a restructuring process. Opposition in Puerto Rico to the oversight board is likely to have no effect or consequence, since the territory lacks voting representation in Congress.

Expect a revised HR 4900 to be available later this week, with changes that might make it easier to get support from House Republicans, and perhaps, though not certainly, from Democrats in the House and the Senate. With any luck (or lack of, depending on who you ask), the bill could be approved in the House Natural Resources Committee by next week.