WASHINGTON – Treasury Secretary Jacob Lew is calling attention to the effect Puerto Rico’s $70 billion debt crisis is having on the millions of Americans who live there and on the Republican-led Congress’ struggle to come up with a solution.
Lew is making a one-day trip to Puerto Rico on Monday, part of the Obama administration’s campaign to pressure Congress to act. House Republicans are expected to announce new legislation this week to create a control board to help manage the U.S. territory’s debt and oversee some debt restructuring. It will be the third draft of the House bill, which has come under fire from some conservatives who worry it would set a precedent for financially ailing states.
The Treasury Department said Lew’s trip would highlight how the decade-long debt crisis “has already harmed the health, safety and welfare of the 3.5 million Americans living in Puerto Rico.” Lew planned to visit an elementary school and a hospital while on the island.
The territory missed a nearly $370 million bond payment May 1. The default was the largest in a series of missed payments by the struggling U.S. territory since last year, and Gov. Alejandro Garcia Padilla warned there would be more.
Puerto Rico has payments totalling nearly $2 billion due on July 1, including about $700 million in general obligation bonds that are supposed to be guaranteed under the island’s constitution. In an ominous warning directed at Congress and creditors that include U.S. hedge funds, Garcia said the outlook for the next payment is bleak.
“We don’t anticipate having the money,” he said last week.
Garcia said he had no choice but to suspend the debt payment to avoid cutting essential public services, such as schools and medical care.
Natural Resources Committee Chairman Rob Bishop, R-Utah, has led negotiations in the House. In addition to disagreement among conservatives, Bishop has also faced objections from Democrats and Puerto Rican officials who say they are concerned the oversight board would be too powerful and the restructuring plan would be too difficult.
Bishop has worked closely with Lew and Treasury officials as he has rewritten the latest version of the bill over the terms of the debt restructuring. He’s said the negotiations with administration officials are one of the things holding the bill up.
While in Puerto Rico, Lew will “reiterate his call for congressional action that provides Puerto Rico with access to an orderly restructuring regime and independent oversight while respecting the commonwealth’s self-governance,” the Treasury Department said.
The effort has been particularly complicated by disagreement among creditors. While some support the bill, others are fighting it in hopes of preserving larger payouts. Some creditors’ groups lobbying against the legislation have said that it amounts to a financial bailout, even though the bill has no direct financial aid.
Speaker Paul Ryan, R-Wis., has strongly backed the bill. He has said he is strongly opposed to a bailout but that one may become necessary if Congress doesn’t pass the legislation soon and Puerto Rico’s economy collapses.
Following last week’s default, Lew sent a letter to Ryan in which he urged him to work quickly to resolve the “few outstanding issues” on the legislation to help Puerto Rico. He noted that hospitals have laid off workers and the island has struggled to find enough money to effectively combat the Zika virus.
“Absent enactment of a workable framework for restructuring Puerto Rico’s debts, bondholders will experience a lengthy, disorderly and chaotic unwinding, with nonpayment for many a real possibility,” Lew wrote. “The people of Puerto Rico will be forced to endure additional suffering.”
The Senate has yet to weigh in on Puerto Rico while waiting for the House to act.
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