Lew Urges Congress to Act on Puerto Rico to Avoid Bailoutby
Island misses deadline for $422 million debt payment
Treasury chief warns of `cascading defaults' without action
U.S. Treasury Secretary Jacob J. Lew warned that Puerto Rico may need a U.S. government bailout if Congress doesn’t pass a bill that helps the island restructure its debt and prevents a series of “cascading defaults.”
“Unless Congress passes legislation that includes appropriate restructuring and oversight tools, a taxpayer‑funded bailout may become the only legislative course available to address an escalating crisis,” Lew said in a letter to Congress posted Monday on the Treasury department’s website. “Congress must work quickly to resolve the few outstanding issues on the proposed legislation to help Puerto Rico.”
His comments come as Puerto Rico missed a deadline for a $422 million bond payment for its Government Development Bank. That has escalated the pressure on investors to negotiate broad debt restructuring and on Congress to act on legislation to help reduce the island’s financial crisis.
Puerto Rico racked up $70 billion of debt across more than a dozen issuers as it borrowed to paper over budget deficits.
U.S. House Majority leader Kevin McCarthy said last week he is “hopeful” to have a bill to address Puerto Rico pass by July 1. That’s when a $2 billion payment by Puerto Rico is due, including $805 million for its generation-obligation bonds, which are seen as the island’s most sacrosanct debt.
“With no orderly restructuring framework to address its debts, Puerto Rico will face a series of cascading defaults,” while litigation already under way will intensify and potentially take years to resolve, Lew wrote in the letter to House and Senate leaders.
Rob Bishop, who as U.S. House Natural Resources chairman has been charged with forging a plan for the debt crisis, has said he won’t release a new version of his bill until the House is back in session next week. Senator Bob Menendez, a Democrat from New Jersey, said that Republicans seem “content to watch the island burn,” while Democratic presidential candidate Hillary Clinton tweeted that Congress’ inaction “is irresponsible.”
Pedro Pierluisi, Puerto Rico’s non-voting delegate to the House and the island’s resident commissioner in Washington, said Congress should establish an temporary independent oversight board to monitor its financial management.