Puerto Rican Default Looms

“The Puerto Rican crisis is real, and no one can seriously argue otherwise. We’ve done everything possible to keep the country afloat and not shut down the government,” said Puerto Rican Gov. Alejandro García Padilla during a visit to Washington last week. But, “we’re out of cash, and there are no more fiscal gymnastics we can perform.” It’s very likely, he said, that his government will not be able to pay the $1 billion debt payment that comes due Jan. 1.

Vulture funds, which hold between one-third and one-half of the island’s $72 billion in debt, are squeezing U.S. Congressmen and Senators, not to pass legislation which would provide Puerto Rico some relief through Chapter 9 bankruptcy protection, through which it could restructure its debt.

Instead, last week, Sen. Orrin Hatch (R-UT), Chuck Grassley (R-IA), and Lisa Murkowski (R-AK), cosponsored the Puerto Rico Assistance Act (S.2381), includes no legal framework for restructuring, offering $3 billion in “new” liquidity which won’t go far. Worse, it would create a federally-appointed financial control board to oversee every aspect of the island’s finances, arguing that the “corrupt” Puerto Ricans created this problem for themselves, and will now have to own up. It also suggests that pension “benefit reductions” may be necessary, USA Today reported Dec. 10. Puerto Rico’s impoverished population cannot withstand further austerity. The poverty rate stands at 45%, and 1,500 people leave the island every day for the U.S. mainland.

A Dec. 11 Mother Jones article quotes former New York State Assemblyman Nelson Denis, who warns that the control board would have the power to make all of Puerto Rico’s financial decisions, conduct its own investigations, subpoena witnesses, file administrative or criminal charges against island officials who don’t comply and take out loans for which island taxpayers, not the federal government, would be liable. This, he said, would be “a dictatorship in the Caribbean, created in Washington, operated from Wall Street, all disguised as a `management assistance authority.'”