US Treasury Secretary Lew: Puerto Rico Crisis is Real
SAN JUAN – A day after Puerto Rico defaulted on roughly $370 million due on Government Development Bank (GDB) debt, U.S. Treasury Secretary Jacob Lew urged once again for prompt congressional action, stating that “the crisis is real,” and fastly approaching a complete unwinding that could increase the risk of spilling over to the rest of the municipal bond market.
The Treasury secretary spoke on the matter during an event held by the Milken Institute on Tuesday afternoon.
By listing the wide range of hardships he says the island has been facing lately as it maneuvers through its fiscal and economic woes, Lew conceded it is a challenge having Congress members acting fast enough before the crisis goes up a couple of notches this summer, when more than $1.5 billion in debt payments hit.
Lew reiterated his call to Congress to move forward on legislation that would establish strong, independent fiscal oversight, paired with access to a debt-restructuring mechanism. House Natural Resources Committee Chairman Rob Bishop (R-Utah) recently said a markup hearing on the Puerto Rico Oversight, Management & Economic Stability Act (Promesa) is not expected until at least mid-May, as the bill keeps struggling to achieve enough support from both sides of the aisle.
Lew said the proposed federal legislation is not a bailout, but warned that if it gets to a point where “there is nothing to restructure,” a federal bailout could be possible to avoid further chaos.
“I think all stakeholders, creditors and others, have an interest in there being a strong oversight function,” said the Treasury secretary, who wrote to Congress leaders warning that further inaction only gives oppositors to the Puerto Rico bill more time to continue making inaccurate and misleading claims about the proposed legislation.
When asked who are those seeking to deter Congress from acting on the commonwealth issue, he noted that although there are many creditors who believe the proposed oversight board and restructuring mechanism provide a “useful function,” that is not the case with others.
“I believe there are others who want to maximize their chance of getting a dollar on the dollar, even if everyone else gets nothing and even if the whole system collapses,” Lew said, noting that is why a restructuring mechanism is necessary.
As for debt restructuring, he said it can’t be a mechanism that requires all creditors to buy in, while warning about having holdout creditors dragging the process for years. “If this goes into litigation and the different classes of bondholders are fighting in court for 10 to 15 years, there won’t be anything left of Puerto Rico.”