Sen. Warren: Obama ‘Passing the Buck’ On Puerto Rican Debt Crisis
Puerto Rico remains deadlocked, with hundreds of millions of dollars in bond payments due in the coming months to its hedge fund creditors. Now, the White House is asking Congress to change the U.S bankruptcy code to allow the commonwealth to let its bond holders recoup at least some of what they lent. But on Thursday, skeptical lawmakers told Puerto Rican officials and a high-ranking Treasury aide that such a haircut is easier said than done, and accused the White House of abdicating its responsibility to help Puerto Rico.
Speaking at a Senate Committee on Energy and Natural Resources hearing Thursday, Antonio Weiss, counsellor to U.S. Treasury Secretary Jack Lew, warned lawmakers that unless U.S. bankruptcy law is changed to allow the island to file for a new version of Chapter 9 bankruptcy protection, the island would be economically doomed. (Puerto Rico can’t currently do that, because it is a U.S. commonwealth, not a state municipality.) Weiss said if Congress did not act, Puerto Rican officials would be faced with “impossible choices” between paying debt and cutting public services.
“The Commonwealth of Puerto Rico is in the midst of an economic and fiscal crisis, and, without federal action, the situation could become a humanitarian crisis as well. Puerto Rico’s government is out of cash and running out of options,” Weiss said.
Puerto Rico’s financial situation is a dire one. Their economy is crippled by decades of stagnant growth, and some 300,000 island residents have left the island in the last decade. This past summer, the commonwealth’s governor, Alejandro García Padilla, admitted he has no way to service $72 billion in debt, taken out initially to keep the government and public services running.
Some lawmakers, including Sen. Bernie Sanders of Vermont, who is also running for the Democratic presidential nomination, were sympathetic. “Let us be clear about the extent of the human tragedy,” Sanders said. “Wall Street should not be believing they can get blood from a stone.”
Puerto Rican debt is popular with municipal bond fund managers because they pay interest exempt from federal taxes. If these loans aren’t paid back, the impact could bleed into the pockets of Americans who own these kind of securities.
Others, including Sen. Elizabeth Warren, a Democrat from Massachusetts, accused the administration of failing Puerto Rico by asking Congress to clean up its fiscal mess. Warren blasted Weiss and the White House for what she characterized as a weak reaction from the president, compared to the speed at which banks received bailouts at the start of the Great Recession.
“Treasury needs to step up and show more leadership here,” she said, before taking a swipe at the kind of quick, deep-pocketed action that Washington showed to bail out the financial sector. Puerto Rican officials, she said, “understand there is no bailout on the table. After all, they aren’t a giant bank.”
The clock is ticking for Puerto Rico to pay the piper, but it doesn’t have the cash — or, perhaps, the time– to do it. It owes $720 million in bond payments in December and January. Padilla told the committee Puerto Rico will have a negative cash balance of $29.8 million next month. Puerto Rico already defaulted on some of its debt in August.
But Sen. Mazie K. Hirono, a Democrat from Hawaii, warned it could take awhile for Congress to act. Twin bills granting Puerto Rico Chapter 9 status are stalled in the House and Senate. Many Republicans oppose any kind of bailout or debt restructuring, because they say it fails to punish Puerto Rico for decades of financial mismanagement.
“It’s going to take Congress some time to work through these proposals,” said Sen. Lisa Murkowski (R-Alaska), the committee’s chair.
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