SAN JUAN, PUERTO RICO (LC)
Puerto Rico has until May 1st to restructure $70 billion in debt. Negotiations with the U.S. legislature re-opened Thursday, but there is a growing expectation of default.
Last year the U.S. Congress enacted a rescue law, the Puerto Rico Oversight, Management & Economic Stability Act (PROMESA), which froze creditor lawsuits until May 1st. The Act also started negotiations between a federally appointed oversight board and creditors for the largest debt restructuring in U.S. municipal history. Failure to reach an agreement will trigger PROMESA’s court-sanctioned restructuring process, which is equivalent to bankruptcy. Unlike the 50 states, Puerto Rico cannot seek to restructure any of its debt under U.S. bankruptcy law, Chapter 9, as the city of Detroit did.
The enactment of PROMESA was not without opposition. Sen. Robert Menéndez (D-NJ) had condemned it in a four hour filibuster, saying “PROMESA exacts a price far too high for relief that is far too uncertain.” Menéndez was the only Latino senator to vote against it.
When pro-U.S. statehood Puerto Rican Governor Ricardo Rosselló took office in January, he took a hard line against creditors, pushing for debt repayment cuts double that of his predecessor. Rosselló’s hard-line negotiation tactics created greater uncertainty among creditors, and his plan was criticized as unfeasible, that it ignored payment priorities, and did not go far enough towards tax reform.
As reported by Reuters, bankruptcy may be “the most likely outcome,” according to Height Securities analyst Ed Groshans.
Bloomberg reports a possible “bond war” could result.
Also approaching is a June 11 referendum on the political status of Puerto Rico. Citizens will vote whether they wish U.S. statehood or independence. Absent from the referendum is the option to maintain the status quo and remain a U.S. territory. Legislation approving the referendum was signed into law by Gov. Rosselló on February 3, 2017.
On Thursday, the Department of Justice said the referendum must include the third option to remain a U.S. territory. Gov. Rosselló tweeted that he still plans to hold the referendum on June 11.
El 11 de junio los puertorriqueños emitiremos en el plebiscito el voto más importante, validando la voluntad del Pueblo.
— Ricardo Rossello (@ricardorossello) April 13, 2017
Benefits of statehood include an additional $10 billion per year in federal funds, the right to vote in presidential elections, higher Social Security and Medicare benefits, and the right of government agencies and municipalities to file for bankruptcy.
Puerto Rico is in a growing crisis. It maintains a 45% poverty rate, it has been hit by severe drought in the last several years, and between 2003 and 2013 its population fell by 1.5 million. Today the island has around 3.5 million people.
The economic crisis is taking its toll, earlier in the week the capital city of San Juan’s trash service announced that it was reducing collection, citing that it had not been paid since October.
Puerto Rico is an unincorporated territory of the United States, and a former Spanish Colony. It was acquired in 1898 when the United States won the Spanish-American War and occupied the Island.
LIMA CHARLIE NEWS, NEW YORK BUREAU
1430 ZULU APR 13 2017
(REUTERS, AP, UNITED STATES DROUGHT MONITOR, AND NBC NEWS CONTRIBUTED WITH INFORMATION TO THIS REPORT)
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