In a White House briefing, Josh Earnest, the spokesperson revealed that the United States will not bail our Puerto Rico. Oh really? In March of 2009, the White House created one of ‘those’ task forces, this one dedicated to Puerto Rico. 4 years later….financial crisis is worse.
On October 30, 2009, President Obama signed Executive Order 13517, which directed the Task Force to maintain its focus on the status question, but added to the Task Force’s responsibilities by seeking advice and recommendations on policies that promote job creation, education, health care, clean energy, and economic development on the Island.
The current Task Force was convened in December 2009 with members from every Cabinet agency. It organized two public hearings in San Juan, Puerto Rico and Washington, D.C. to hear directly from a broad cross section of voices on the issues of status and economic development. Furthermore, hundreds of citizens from Puerto Rico and the mainland offered input by sending materials through the mail and electronically through a White House public comment e-mail address. Members of the Task Force and White House staff also met with congressional leaders, Puerto Rican elected officials, and other interested parties to hear their views.
From the WSJ:
As Puerto Rico sinks under the weight of $73 billion in government and agency debt—not to mention billions more in unfunded pension and health-care liabilities—its political class is looking for an escape hatch.
This isn’t about wiping the slate clean. But if a bankruptcy judge approved the write-down of, say, half the municipal debt, it would reduce the fiscal pressure.
There’s an app for that. The trouble for Puerto Rico is that getting it requires a retroactive change in U.S. law. If Congress cares about the future of Puerto Rico or the hundreds of thousands of Americans who hold Puerto Rican debt, it will just say no.
More than half of the outstanding Puerto Rico debt is triple tax-exempt revenue bonds issued by government-owned corporations. Unlike public corporations and municipalities in the 50 states, these enterprises do not have access to Chapter 9 bankruptcy protection under the U.S. code. If they fail to meet their loan obligations, they face receivership.
Last June Puerto Rico enacted a law to allow its government corporations to declare bankruptcy. But in February, a U.S. federal judge in San Juan struck down that law on grounds that the federal bankruptcy code supersedes it.
Greece vs. Puerto Rico
SAN JUAN, Puerto Rico – The governor warned that Puerto Rico can’t pay its $72 billion public debt on the eve of a private Monday meeting with legislators, delivering another jolt to the recession-gripped U.S. island as well as a world financial system already worrying over Greece’s collapsing finances.
Gov. Alejandro Garcia Padilla is hoping to defer debt payments while negotiating with creditors, spokesman Jesus Manuel Ortiz said Sunday night.
Garcia is expected to air a pre-recorded televised address after meeting with legislators, who are still debating a $9.8 billion budget that calls for $674 million in cuts and sets aside $1.5 billion to help pay off the debt. The budget has to be approved by Tuesday.
Ortiz confirmed comments by Padilla that appeared in a report in The New York Times published late Sunday, less than a day before Garcia planned to meet with legislators.
“There is no other option. I would love to have an easier option. This is not politics, this is math,” Garcia is quoted as saying in the Times.
Puerto Rico’s bonds were popular with U.S. mutual funds because they were tax-free, but hedge funds and distressed-debt buyers began stepping in to buy up debt as the island’s economy worsened and its credit rating dropped.
Garcia’s comments will likely not have much impact on Wall Street, said economist Jose Villamil, a former U.N. consultant and CEO of an economic and planning consulting firm.
“The markets are clear that Puerto Rico is heading to a direction of a restructuring or default,” said the economist, adding that a voluntary restructuring by bondholders might be the best option.
“The last four administrations have kicked the can down the road,” said Villamil. “At this point, there is no more can to kick. So we’re going to take some very strict measures and some very profound measures. It’s going to hurt, but there’s no way out.”
Some legislators were taken aback by Garcia’s comments, including Rep. Jenniffer Gonzalez, spokeswoman for the main opposition party.
“I think it’s irresponsible,” Gonzalez said. “He met privately with The New York Times last week, but he hasn’t met with the leaders of this island.”
Puerto Rico’s constitution dictates that the debt has to be paid before any other financial obligation is met. If Garcia seeks to not pay the debt at all, it will require a referendum and a vote on a constitutional amendment, she said in a phone interview.
Puerto Rico’s situation has drawn comparisons to Greece, where the government decreed this weekend that banks would be shuttered for six business days and restrictions imposed on cash withdrawals. The country’s five-year financial crisis has sparked questions about its continued membership in the 19-nation shared euro currency and the European Union.
Puerto Rico’s governor recently confirmed that he had considered having his government seek permission from the U.S. Congress to declare bankruptcy amid a nearly decade-long economic slump. His administration is currently pushing for the right for Puerto Rico’s public agencies to file for bankruptcy under Chapter 9. Neither the agencies nor the island’s government can file for bankruptcy under current U.S. rules.
Puerto Rico’s public agencies owe a large portion of the debt, with the power company alone owing some $9 billion. The company is facing a restructuring as the government continues to negotiate with creditors as the deadline for a roughly $400 million payment nears.
Garcia has taken several measures to help generate more government revenue, including signing legislation raising the sales tax to 11.5 percent and creating a 4 percent tax on professional services. The sales tax increase goes into effect Wednesday and the new services tax on Oct. 1, to be followed by a transition to a value-added tax by April 1.