As a non-state, Puerto Rico faces a unique set of laws exacerbating its $72 billion debt crisis. But Congress won’t even consider reforms or a rescue package for the troubled territory until just weeks before it looks set to miss significant debt payments.
Treasury Secretary Jack Lew warned on Tuesday that Puerto Rico will likely miss “big payments due in May and July.” The same day, House Speaker Paul Ryan (R-Wis.) said that a bill to assist the island will not even be taken up by a committee “until Mid-April at the earliest,” according to Reuters.
“There’s an immediate crisis in Puerto Rico. It’s not a future crisis,” Lew said Tuesday before the House Financial Services Committee. “For all practical purposes, they’re in default because they’re not paying some of their bond issues.”
Lew described the legislative work referenced by Ryan as “very important” and “very time sensitive.” He said that missteps in this process could exacerbate whatever impact the ongoing crisis has beyond the island’s shores.
“I believe that the worst thing for the municipal bond market would be a disorderly unwinding in Puerto Rico, which is what will happen if Congress doesn’t act,” Lew stated. He also said that “the need for action is immediate.”
Legislation is currently being hashed out in the House Natural Resources Committee. The administration wants that deal to include oversight authority and restructuring for all of Puerto Rico’s debt, according to Lew’s testimony. Republicans’ plan would “likely hand some of the thorniest creditor issues to a new independent oversight board which does not yet exist,” Reuters noted.
Lew had been questioned about the situation in Puerto Rico by Rep. Carolyn Maloney (D-N.Y.). The congresswoman said the territory’s financial woes “could really explode into a humanitarian crisis.” Migration to the United States was up by 38 percent from 2010-2014, almost half of Puerto Ricans live below the poverty line, and the territory suffers the highest unemployment rate in the US, according to The Guardian.
In addition to its $72 billion in outstanding debt, Puerto Rico also faces $43 billion in unfunded pension liabilities.
Puerto Rico does not have access to Chapter Nine bankruptcy, unlike state governments, thanks to legislation passed by Congress in 1984. It also lacks the authority to enact its own municipal bankruptcy code.
On Tuesday, the Supreme Court heard oral arguments in a lawsuit seeking to upend that prohibition. The body seems likely to rule in favor of Puerto Rico, according to ABC News, with four liberal justices seeming in favor of its arguments. Only three conservatives presided over the case, due to Samuel Alito’s recusal and the Feb. 13 death of Antonin Scalia. Reuters said that SCOTUS should have a ruling on the case in June.
