Lew Says Puerto Rico's Future Hinges on Debt Deal in Congressby
Restructuring may be only way to avoid chaos, Lew warns
U.S. Congress may roll out a revised bill in the next week
U.S. Treasury Secretary Jacob J. Lew said the future of 3.5 million Americans in Puerto Rico was in the hands of Congress.
His department has done what it can to help the moribund economy weather the $70 billion debt crisis, and now it’s time for Congress to act, Lew said Monday during a trip to the island’s capital, San Juan. He took the Obama administration’s appeal to Puerto Rico the day before House lawmakers reconvene as the territory faces another bond payment on July 1.
The Treasury doesn’t “have the ability to accomplish what the legislation can accomplish,” Lew said during his second visit to the territory this year. While he concedes that lawmakers have made a “good faith effort” to pass a bill in Congress to restructure Puerto Rico’s debt, “the time for action is now.”
Lew spent the day visiting a school and a medical center, and holding talks with local government officials, business leaders and community organizers. He reiterated his stance that restructuring may be the only way to avoid chaos.
Infrastructure is crumbling and the fiscal crisis is taking a human toll, he said. The interests of pensioners must be balanced with those of bond holders, but a perfect solution for everyone isn’t possible, Lew said.
Puerto Rico ran up debt across more than a dozen issuers as it struggled to keep the economy afloat. This month, it missed a deadline for a $422 million bond payment for its Government Development Bank. Lew warned last week that the island faces a series of “cascading defaults” and may need a U.S. government bailout if Congress doesn’t act.
The economic woes are seen continuing as a local agency projects a fifth straight year of contraction. Schools and hospitals have started scaling back services because workers can no longer be paid. The cuts come as health officials warn that the mosquito-born Zika virus threatens to sweep through the commonwealth on its way from Brazil.
With no money left to have public schools and septic tanks cleaned, the island has become a breeding ground for the Zika virus and influenza, according to local media reports. Health-care professionals are fleeing in droves even as about 629 cases of Zika are confirmed, the reports say.
U.S. lawmakers are now faced with passing a bill that will allow Puerto Rico to reorganize its debt and implement a federal oversight board that would weigh in on its budgets. Republicans are seeking to produce a revised bill.
A new version of a bill to help Puerto Rico address its debt crisis may advance next week toward floor action, according to Representative Rob Bishop of Utah, chairman of the House Natural Resources Committee. The draft won’t have significant changes and the basic concepts of the bill, to get Puerto Rico out of its fiscal crisis, are the same, Bishop said Monday during an interview at Bloomberg News’ offices in Manhattan.
Speaking to reporters after the day’s events, Lew said he’s trying to get a “workable” bill that gives the island a sustainable path forward. Bishop’s core approach is sensible, and there’s “every reason to believe this can be solved,” Lew said.
The next key date is in July when $2 billion falls due, including so-called general obligation bonds that have the highest level of guarantees. Missing those payments would deepen the worst crisis to hit the $3.7 trillion U.S. municipal market.
While the U.S. slowly recovered from the recession that hit in 2008, Puerto Rico’s decline has been unrelenting with unemployment hovering near 12 percent and the population shrinking.
“Right now there is an ability to restructure but if Congress waits too long, that capacity will not be there forever,” Lew said.