After a long public debate over what Congress should do to address the current debt and financial crisis in Puerto Rico, free market oriented reforms have won the day. While the government of the Commonwealth requested, and our Obama Administration supported, Chapter 9 bankruptcy, many Republicans in Congress and grass-roots citizen groups opposed that and argued for reforms in Puerto Rico instead. The legislation released in Congress clearly is on the side of reform and doesn’t include or enable bankruptcy.
The Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), introduced by Rep. Sean Duffy (R-WI) as well as Reps. Rob Bishop (R-UT) and Jim Sensenbrenner (R-WI) will create an Oversight Board to assist the Commonwealth in enacting reforms and reign in their out of control welfare state as well as managing their debts. The legislation does not contain any bailout provision nor does it provide for or allow Chapter 9 bankruptcy. PROMESA will bring order to the chaos in Puerto Rico, prevent a catastrophic humanitarian crisis, and will build a foundation for prosperity in the Commonwealth, and ensure its access to capital markets.
Puerto Rico has accumulated more than $118 billion in debt from bonds and unfunded pension liabilities. The government has been unable to manage this debt and has already begun defaulting on its repayment. On July 1, the Commonwealth is likely to default on an additional $2 billion in debt that includes $800 million of constitutionally backed debt.