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Why PROMESA Is Not a “Bailout”

In the midst of recent, unfounded accusations that H.R. 4900 is a bailout, it is time to set the record straight.  The Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA/H.R. 4900) is not a bailout.

No taxpayer money is going to Puerto Rico as part of the bill.  The key provisions of the bill include:

  • A strong fiscal oversight board, modeled after the successful board appointed for Washington, D.C., in the 1990s, that is tasked with overseeing and guiding Puerto Rico’s efforts to put its fiscal house in order. Despite the colonial implications of such a board, it is generally recognized that it is a crucial piece of the legislative puzzle.
  • Restructuring ability, if the oversight board determines it is necessary and appropriate, and only after creditor negotiations out of court. Absent this authority, it is virtually certain that creditors’ recoveries will be reduced.
  • A brief stay of litigation, for a period sufficient to permit creditors to negotiate with each other and prevent a “race to the courthouse”—an outcome that would benefit neither Puerto Rico nor its creditors.

A “bailout” would involve using taxpayer funds to satisfy the claims of creditors.  PROMESA does not do that.  PROMESA would not cost the federal government any money.  It would not provide for taxpayer funds to pay creditor claims, and instead would compromise those claims if creditors are unable to reach an out-of-court agreement after good faith negotiations led by the oversight board.

Prominent conservative groups, such as Council for Citizens Against Government Waste, Americans for Tax Reform, and Americans for Limited Government, recognize that H.R. 4900 is not a bailout and support the bill, as does National Review.  As J. Robert McClure of The James Madison Institute noted recently, H.R. 4900 “has a chance to thread the needle between providing much-needed assistance for the commonwealth, respecting the rule of law, and offering a path forward to mitigate the possibility of future mismanagement.  Moreover, it avoids a taxpayer bailout.”

Frankly, unless the powerful combination of oversight and restructuring in H.R. 4900 is put in place, Puerto Rico’s situation will continue to deteriorate and a federal bailout may become inevitable.  Congress must take timely action and address the fiscal and humanitarian crises facing Puerto Rico now.  House Speaker Rep. Paul Ryan echoed this sentiment today, noting that:  “We need to do something to help our fellow citizens in Puerto Rico to bring order to the chaos, to give them the tools they need to get their budget balanced, to [restructure] their debt, and to keep the taxpayer out of this. There will not be a taxpayer bailout for Puerto Rico.”


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