PROMESA, the Puerto Rico Oversight, Management, and Economic Stability Act proposed by the House of Representatives, has been questioned and criticized from all sides since it was released. Creditors object to the prospect of taking less than full repayment, Puerto Rico’s leadership objects to the power the proposed fiscal oversight board will have to act without the consent of Puerto Rico’s local government, Democrats question the possibility of a lower minimum wage or the sale of public lands, and Republicans fear that helping Puerto Rico will send the wrong message to States.
During a speech in the Bronx, former president Bill Clinton spoke out against the groups focusing on their own interests and called for a primary concern for Puerto Rico:
We owe them a responsible way of working their way out of all this debt, neither giving in to all the hedge fund guys who bought their debt for pennies on the dollar and now don’t want to take a small haircut, or the members of Congress who want to impose a new form of colonialism and use it as an excuse basically to remove self-government from the island.
In the most recent hearing on the bill, witnesses pointed out that the bonds making up much of Puerto Rico’s public debt are still changing hands. While some of the creditors may be ordinary individuals or retirement funds investing on behalf of those ordinary individuals, many of the creditors are groups of high-wealth investors who choose to invest in risky options in hopes of gaining strong returns. They can buy up this debt at low prices — and many have already done so — and gamble that Puerto Rico’s economy will collapse and the U.S. will have to bail Puerto Rico out. If this happens, those creditors may be able to get a payoff that is many times higher than the amount they invested.
Clinton had this type of investor in mind when he spoke of “hedge fund guys.”
As for the “new form of colonialism,” under PROMESA the fiscal control board would have the power to impose their recommendations over the objections of Puerto Rico’s government, and to overlook the Island’s laws in certain cases. Two members of the board must, according to the draft of the bill, live or work in Puerto Rico, but no members of the government would be able to take seats on the board.
While Clinton was speaking of Puerto Rico rather than of PROMESA, it appears likely that he had that bill in mind. Americans for Tax Reform, a conservative organization, has recently come out in favor of the bill, as has The Council for Citizens Against Government Waste.
May 1 is the next payment deadline looming for Puerto Rico; without assistance from Congress, the local government is expected to default.