Federal Reserve Bank of New York President William C. Dudley urged Congress to pass a bill that would allow some agencies of Puerto Rico to file for Chapter 9 bankruptcy.
“I think that would be helpful, because it could help facilitate an orderly restructuring of their debt,” something that is “probably going to turn out to be necessary,” Dudley, whose district includes Puerto Rico, said at a press briefing in New York Wednesday.
While such restructuring might not be easy, the risk of Puerto Rico’s troubles spreading to the rest of the country is “pretty low,” because the problems are unique to the island and already reflected in the prices of the commonwealth’s securities, Dudley said.
Puerto Rico is in a deep slump and its economic outlook remains uncertain, though employment appears to have steadied in recent months, Dudley said in his prepared remarks Wednesday.
“Puerto Rico’s weak economy coupled with a fiscal crisis means its economic outlook remains uncertain as it struggles to address its unique set of problems,” he said.
Puerto Rico officials are working on a proposal that would reduce its $72 billion debt load after Governor Alejandro Garcia Padilla in June said the commonwealth was unable to repay all of its obligations on time and in full. The Public Finance Corp. Aug. 3 failed to make a full $58 million debt-service payment to investors, the first default for a Puerto Rico entity.
Puerto Rico’s non-voting member of Congress Pedro Pierluisi and Democratic Senators Chuck Schumer and Richard Blumenthal introduced bills extending Chapter 9 bankruptcy protection to the commonwealth. The Republican leadership in control of both chambers of Congress didn’t advance the measure. Lawmakers won’t be able to act on the legislation until they return from recess on Sept. 8.
Puerto Rico’s economy has struggled to grow since 2006. Its population has shrunk by 7 percent in the past decade as residents look for work on the U.S. mainland.