U.S. Treasury Calls for Immediate Congress Action Over Puerto Rico Fiscal Crisis
SAN JUAN — On Thursday, the U.S. Treasury Department’s lead adviser on Puerto Rico matters, Antonio Weiss, urged Congress once again for immediate action to provide the commonwealth with a broad debt-restructuring regime, paired with strong federal fiscal oversight that respects the island’s self-governance.
During a House Natural Resources Committee hearing Thursday, Weiss said “inevitable defaults and litigation have already begun,” with the crisis about to escalate even further if the island’s unsustainable, complex debt is not tackled.
The Treasury official further noted the dire economic situation, including rampant outmigration, more than $1 billion in “onerous” emergency liquidity measures, the selling of pension assets to fund government operations and a government bank dangerously undercapitalized, among many other challenges affecting the island. Moreover, Weiss conceded that Treasury is “very concerned” with the island’s severely underfunded pension systems, which have $46 billion in liabilities funded only by $2 billion in net assets.
Rep. Rob Bishop (R-Utah), the committee chairman, asked the Treasury official to describe the commonwealth’s complex debt structure. “Very creative,” Weiss answered.
“Well, then we will be very creative when we come up with something here,” Bishop replied, in reference to how they would tackle the Puerto Rico issue. The Utah representative said during the beginning of the hearing that legislation is about to be introduced.
“Puerto Rico and its creditors are on the same ship. We are going to sail safely to shore together, or we are going to sink together. Our common fate depends on whether leaders in Washington and San Juan rise to the occasion,” Resident Commissioner Pedro Pierluisi said.
The commonwealth government continues to lobby for immediate congressional action over the Puerto Rico debt crisis, particularly over access to a broad restructuring regime. While House Speaker Paul Ryan (R-Wis.) has said the lower chamber aims to come up with a solution before the end of March, Congress remains divided over how exactly it should deal with the problem.
“Debt payments in May and July, including nearly $800 million of constitutionally prioritized debt, are unlikely to be made. Mounting litigation will flood the courts. And the central government itself could be forced to shut down entirely,” Weiss warned committee members during his testimony.
The administration of President Obama is proposing a debt-restructuring authority paired with fiscal oversight, a “tried and true combination to resolve debt crises,” Weiss said, adding it would cost U.S. taxpayers nothing. It also calls for increased healthcare funding and federal tax incentives to reward work.
During Thursday’s hearing, Weiss explained that instead of including Puerto Rico under the U.S. Bankruptcy Code, the administration is proposing a debt-restructuring regime under the U.S. Constitution’s territorial clause, covering all Puerto Rico debt obligations. Moreover, the proposed framework calls for a temporary stay on litigation as well as a voting mechanism to prevent holdout creditors from blocking any restructuring agreement.
“We are not advocating a ‘one size fits all’ approach; restructuring legislation can be designed to consider existing priorities and claims. We would also favor allowing for an initial period of voluntary negotiations with creditors, facilitated by a stay on litigation,” Weiss said, adding that if voluntary negotiations fail, a court would then assure an orderly resolution under their proposal.
Meanwhile, Weiss believes a strong, independent oversight board could be established, while simultaneously preserving Puerto Rico’s self-governance. This board should provide revenue projections and recommend improvements to fiscal practices, while having the tools to ensure that the necessary adjustments are made if the government falls short, he said.
As for the board’s role in negotiations between Puerto Rico and its creditors, Weiss said it should not be responsible for direct negotiations but rather certify that any voluntary restructuring agreement reached meets certain criteria. Moreover, it should authorize Puerto Rico to access the proposed territorial restructuring regime, if the commonwealth government decides to do so.
In addition to the Natural Resources committee hearing, the House Subcommittee on Oversight & Investigation also held a hearing Thursday on the Puerto Rico debt crisis and its potential impact on the municipal bond market.
“An orderly restructuring framework paired with effective oversight would help remove legal uncertainties, improve fiscal governance and return Puerto Rico to the kind of economic growth that attracts market capital,” Weiss stated.
For the Treasury official, an orderly restructuring under clear federal guidelines is the surest way to restore much-needed market access. “And, it is the best outcome for municipal markets,” he added.
“We don’t agree on every one of your solutions, everything that you have said. But I can tell that the [Obama] administration, and this is a Republican speaking here, at least is acting in good faith,” said Puerto Rican Rep. Raúl Labrador (R-Idaho). “I don’t know you, but it sounds to me you are at least trying to find a solution to this problem.”