- House panel holds third hearing on fix aiding U.S. territory
- Republicans have been skeptical of bankruptcy for Puerto Rico
A top U.S. Treasury Department official urged Congress to give Puerto Rico the legal authority to restructure its $70 billion of debt, saying its the only way to avoid a series of bond defaults that would trigger a years-long legal battle.
Treasury Counselor Antonio Weiss said in testimony Thursday before a House panel that lawmakers need to act quickly to give Puerto Rico the power to cut its debt along with greater federal oversight. He said the law should be tailored specifically for the U.S. territory, which would prevent it from undermining investors’ faith in the security of the $3.7 trillion municipal-bond market.
“The best thing for municipal bond markets is for this crisis to be brought to an orderly resolution,” Weiss told the House Natural Resources Committee.
Congress is considering whether to inject the federal government into a more central role in a crisis that’s been steadily escalating since Governor Alejandro Garcia Padilla in June said the government can’t afford to pay its debt. Puerto Rico has already defaulted on some securities and has warned that it may declare a moratorium on debt payments as soon as May if it no solution is found. In addition to its bonds, its retirement system has $46 billion of liabilities and just about $2 billion of assets.
House Speaker Paul Ryan directed Republican committee chiefs to come up with a plan by the end of March to address Puerto Rico’s strains. Representative Rob Bishop, the chairman of the Natural Resources committee, said such a bill will be introduced soon.
With Puerto Rico locked out of the capital markets, Weiss said Puerto Rico is likely to default on bond payments due in May and July, including those on $800 million of constitutionally guaranteed debt. Without action, he said the island is facing a “cascading series of defaults and litigation” that could take a decade to resolve.
He said the island also needs to protect the retirement benefits for 330,000 current and future workers, saying the failure to pay them would put further strain on an already struggling economy.
“We are deeply concerned about the pensions in Puerto Rico,” he said.
Democrats have insisted on giving Puerto Rico legal powers to cut its debt, a step that’s been met with skepticism by Republicans who control the House and the Senate. Weiss said the restructuring bill should allow the island to turn to the courts if it fails to persuade all of its investors to agree on terms for reducing its debt and be tailored to allow for different treatment of various creditors.
“This is not a one-size-fits-all approach,” he said.
Republican Representative Jeff Duncan said the measures advocated by the Obama administration would close its access to financial markets. He said Congress should delay taking any action until the island issues audited financial statements.
“I don’t think we should take any action until we truly know the audited
financial picture,” he said at the hearing.