Yesterday, Mary Williams Walsh (The New York Times) published the latest news on Puerto Rico’s economic woes and the trials, tribulations and general weird, between-a-rock-and-a-hard-spotness of being a territory, in limbo.
Politicians in Washington are coalescing around a financial plan to rescue Puerto Rico, just weeks before an expected major default on bond payments that would spread more turmoil through the island’s shaky economy.
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.
The rescue package is primarily the work of House Republicans under the direction of Paul Ryan, the House speaker, in consultation with the Treasury Department and Democratic leaders, including Representative Nancy Pelosi, the minority leader.
Like Puerto Rico, the Treasury Department has been calling for all of the island’s debts to be eligible for restructuring, no matter which part of the government issued them.
But while the House Republicans drafting the rescue package have worked closely with Treasury, they remain skeptical of Puerto Rico’s financial disclosures and want the oversight board to first audit each unit of government, allowing restructurings only “in certain areas” and “where necessary,” according to a legislative summary reviewed by The New York Times.
The plan would also require Puerto Rico to provide fair-value measurements of all pension assets and liabilities, instead of the numbers now provided by actuaries, which tend to understate the amounts promised. Puerto Rico currently reports a pension shortfall of around $43 billion, but at fair value the shortfall could be twice that amount or even more. Telling the truth about the cost of its pension plan would make it harder for Puerto Rico to mismanage the plan in the future. [. . .]
On the other hand, House Republicans agreed with the Treasury that any restructuring would best take place outside of bankruptcy. Giving Puerto Rico access to the bankruptcy courts threatened to become a constitutional minefield. Instead of working through the bankruptcy code, the lawmakers devised a restructuring framework under the Territorial Clause of the United States Constitution, which gives Congress broad authority to write “all needful rules and regulations” for territories. The legislative summary states that giving Puerto Rico access to Chapter 9 “is ill conceived and would undermine the rule of law.” [. . .]
[Photo: CreditRicardo Arduengo/Associated Press]