Federal Legislation for Puerto Rico Hangs In the Balance

SAN JUAN — Following the enactment of legislation that authorizes Puerto Rico Governor Alejandro García Padilla to declare a moratorium on the island’s looming debt service payments, Congress is reportedly considering the elimination of debt-restructuring tools from a draft bill presented two weeks ago that seeks to tackle the commonwealth’s fiscal crisis, Caribbean Business has learned.

National Capitol building in Washington, D.C.

The U.S. House Committee on Natural Resources recently released a discussion draft of the Puerto Rico Oversight, Management & Economic Stability Act, or PROMESA, which would establish strong, independent fiscal oversight through a five-member board, with debt-restructuring tools that although not immediately available, would give the commonwealth access to a federal court process if it fails to reach a deal with its creditors. Moreover, it would also establish a temporary stay on creditor lawsuits against the island.

The committee will hold on Wednesday, April 13, a hearing on the discussion draft of PROMESA. Initial plans called for the bill to be filed April 11, quickly followed by two hearings, including markup, through which the House could further amend the bill. A final vote in the lower chamber is expected to take place before the end of the month.

Although it remains uncertain whether he would testify at the hearing, the governor is expected to travel to the nation’s capital next week, along with a coalition from both private and public sectors, in a renewed lobbying effort to achieve favorable federal action for the island. García Padilla has sought consensus on four elements: that Congress approves a debt-restructuring mechanism, a stay on creditor litigation against the commonwealth, economic development tools, and that any claims to the people of Puerto Rico should come from locally elected officials.

While urging for amendments to the language concerning the fiscal board, the García Padilla administration has said it would accept a federal oversight entity that respects the island’s self-governance, although conditioned to achieving debt-restructuring tools. An impasse over how to deal with the island’s fiscal woes could result in no legislation being passed by the summer, when the island is due for roughly $1.5 billion in debt payments.

Various GOP members in the lower chamber would be mulling whether to eliminate debt-restructuring provisions from the bill, while keeping the establishment of the federal fiscal oversight entity. What’s more, lobbyists for different creditor groups are strongly pushing to introduce these changes to the bill, particularly after the latest developments on the island with respect to the moratorium law, one source with knowledge of the situation told this newspaper.

While noting that Puerto Rico people and politicians have been the only ones to have stepped up to the occasion, the governor took a shot on Wednesday at certain creditor groups that “have engaged in public relations efforts containing falsehoods about their proposed ‘fixes’ – all of which are aimed at misinforming the public and dissuading Congress from doing what is right.”

In the U.S. Senate, some Republican leaders, including Sen. Orrin Hatch (R-Utah), expressed concerns over the commonwealth government’s latest fiscal maneuvers, as GOP members in the upper chamber continue to wait for the House to pass legislation before moving forward on the matter.

“This legislation [moratorium law] provides us with the tools to address the highest priority of needs — providing essential services to our people — without fear of retribution,” García Padilla stated Wednesday, while announcing the enactment of the Puerto Rico Emergency Moratorium & Financial Rehabilitation Act.

The proposed fiscal oversight board would take charge in approving and overseeing budgets and fiscal plans as well as the commonwealth’s debt-restructuring process. The latter would take place through a mechanism to be established under the Constitution’s territorial clause, and would apply to all types of Puerto Rico debt. The board would seek an out-of-court agreement between Puerto Rico and its creditors, but if such a consensus can’t be achieved, it could authorize the commonwealth to file for debt-restructuring protection in federal court.

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