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Business

Congress Moving Toward Relief for Financially Failing Puerto Rico

Puerto Rico has $70 billion in debt and has been in a recession for 10 years

Treasury Secretary Jacob Lew, joined by Sen. Ron Wyden, D-Ore., L, ranking member of the Senate Finance Committee, speaks to reporters on Capitol Hill as he warns of widespread consequences if the Senate fails to act before Friday on a rescue package for debt-stricken Puerto Rico, in Washington., Tuesday. Photo: AP/J. Scott Applewhite
1 year ago

WASHINGTON — Congress edged closer to delivering relief to debt-stricken Puerto Rico as the Senate on Wednesday cleared the way for passage of a last-minute financial rescue package for the territory of 3.5 million Americans.

Puerto Rico is in a decade-long recession and has $70 billion in debt. A $2 billion payment to creditors is due Friday. Thousands have fled the island and moved to the U.S. mainland as businesses have closed, schools have struggled with limited electricity and hospitals have asked for cash payment in advance for some medication.

The White House and Republican and Democratic leaders in Congress have warned that without help from Washington, Puerto Rico will descend into economic chaos, with signs already pointing to a humanitarian crisis.

Senate Majority Leader Mitch McConnell, a Republican from Kentucky, scheduled a final vote on the legislation for Wednesday evening. Earlier Wednesday, the Senate voted 68-32 to move forward on the bill, paving the way for passage. The House passed the bill earlier this month, so Senate passage would send the bill to President Barack Obama for his signature.

The legislation would create a control board to oversee the U.S. territory’s finances and supervise some debt restructuring. The legislation would not provide any direct financial aid to the territory, but leaders warned that a bailout could eventually become necessary if Congress doesn’t take this step.

“If we don’t act before the island misses a critical debt payment deadline this Friday, matters will only get worse — for Puerto Rico and for taxpayers,” said McConnell said.

The control board would be similar to one that oversaw the District of Columbia in the late 1990s. Its seven members would oversee negotiations with creditors and the courts over reducing some debt. In addition to creating the board, the bill would require the territory to create a fiscal plan and fund public pensions, which the Puerto Rico government has shorted by more than $40 billion.

Puerto Rico's governor unveiled a stark budget Monday, May 23, 2016, that sets aside more than $200 million for a critical bond payment as the U.S. territory sinks into a deep economic crisis. (AP Photo)

Puerto Rico’s Governor Alejandro Garcia Padilla unveiled a stark budget Monday, May 23, 2016, that sets aside more than $200 million for a critical bond payment as the U.S. territory sinks into a deep economic crisis. Photo: AP, File

Gov. Alejandro Garcia Padilla has warned the U.S. territory would face multiple lawsuits if the bill is not approved, especially following Friday’s anticipated default on $1 billion in general obligation bonds. Those bonds are backed by the island’s constitution, but Garcia has said the government has no money to honor that debt despite the implementation of new taxes and recent increases in utility rates.

“The emergency measures we have taken are unsustainable, harm our economy, reduce revenues and diminish our capacity to repay our debts,” he said in an editorial published Wednesday. “Puerto Rico cannot endure any more austerity.”

The legislation would temporarily block creditor lawsuits from being filed until February 2017.

Treasury Secretary Jacob Lew visited Capitol Hill on Tuesday in a bid to persuade some reluctant Democrats concerned that the board would be too powerful. Democrats have also opposed a provision that would allow the island’s government to lower the minimum wage for some younger workers.

Lew urged senators to vote for the bill even though it isn’t perfect, saying that if the island defaults, the government may be forced to shut public transit, close a hospital or send police officers home.

In a rare case of bipartisanship in an election year, the package had the support of Obama and top Republican and Democratic leaders in the House and Senate.

“This economic crisis is a humanitarian disaster,” said Senate Minority Leader Harry Reid, a Democrat from Nevada, who backed the bill despite frustration that Democrats were blocked from making changes. “Medical services have diminished. Hospitals are unable to pay their bills. Puerto Rico’s largest hospital has closed two of its wings, reduced the number of beds by nearly 25 percent, and cut pay for all employees.”

Others voted against it. Democratic Senator Bob Menendez of New Jersey monopolized the Senate floor for more than four hours Tuesday evening, arguing that the bill adopts a colonial approach. He said ordinary Puerto Ricans would have little say over the control board and the package favors hedge-fund creditors over island pensioners.

Senator Bernie Sanders, an independent from Vermont, agreed with Menendez.

In my view we need austerity not for the people of Puerto Rico, but for the billionaire Wall Street hedge fund managers who have exacerbated the crisis on the island.”

— Sen. Bernie Sanders, I-VT.

The legislation is needed because Puerto Rico cannot declare bankruptcy under federal law. Mainland municipalities and their utilities can, while municipalities and utilities in Puerto Rico cannot.

In the days before the vote, some bondholder groups worked to turn senators against the bill, arguing it doesn’t sufficiently protect creditors and is tantamount to a bailout for the territory. Several labor unions also lobbied against the measure, arguing that a lower minimum wage could take money out of the Puerto Rican economy.

MARY CLARE JALONICK
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