PROMESA (Puerto Rico Oversight, Management, and Economic Stability Act), the House bill designed to help Puerto Rico get past the current debt crisis, has been widely criticized. From Puerto Rico’s leaders, who are concerned about the amount of control the proposed fiscal oversight board could have, to conservative Republicans who fear the bill could “reward” financial irresponsibility within the Island’s government over the years, to the Hispanic Federation which objects to the land transfer in Vieques included in the bill, interested parties from all across the political spectrum have expressed concern.
Last week, House Speaker Paul Ryan (R-WI) released a statement clarifying some of the issues.
First, the statement explains, PROMESA is not a bailout. Discussion during last week’s hearing and social media surrounding it repeatedly referred to this plan as a “bailout,” but the Speaker’s statement clarrifies that this is not the case. Rather than providing taxpayer funds for Puerto Rico to use to pay off debts, the statement says, “the financial control board appointed by Congress will address the root causes of Puerto Rico’s financial crisis by auditing the financial records and making the necessary structural changes to Puerto Rico’s budgetary and spending policies.” Restructuring has no costs for taxpayers, and could prevent the kind of humanitarian crisis in Puerto Rico that would lead to a bailout in the future.
One possible source of the “bailout” confusion is the debtors themselves, according to the Ryan statement. “Many big-money interest groups on Wall Street know this and have put a lot of money toward sabotaging this legislation in order to force a last-minute bailout upon Puerto Rico, putting U.S. taxpayers on the hook for their bad loans. They call this a bailout, because they know it is not. And a bailout is what they want.” Taxpayer money paying off debts would be a bailout — for the hedge funds that have bet on a disaster for Puerto Rico, not for the people of Puerto Rico.
The statement also puts to bed concerns that PROMESA may not be constitutional. “Puerto Rico is a U.S. territory and the Constitution explicitly gives Congress the power to ‘make all needful Rules and Regulations respecting the Territory or other Property belonging to the U.S.’ Need we say more?” This concern has sometimes been brought up as a fear that debt restructuring for Puerto Rico would make it possible for California to declare bankruptcy. The Constitution draws distinctions between States and territories.
Next, the Ryan statement emphasizes that PROMESA holds the right people accountable. “Rather than getting a handout from taxpayers, both Puerto Rico and Wall Street will have to make amends for their involvement with this mess. The Puerto Rican government paved the way for this disaster with decades of irresponsible policies like overspending and fiscal mismanagement. Wall Street didn’t help by giving the government loans that it was clear it couldn’t pay back.”
Finally, the Republican leader’s statement points out that “debt restructuring will happen, with or without Congress. The Puerto Rican government has already broken its fiscal obligations when it passed a moratorium on repaying any of its debt. This legislation gives Congress a chance to bring order to debt restructuring.” Experts have been saying that a refusal to allow orderly debt restructuring will lead to chaos as multiple creditors sue Puerto Rico’s government. PROMESA offers an orderly process.