Puerto Rico oversight sparks fears
Federal board seen as too powerful
Jule Pattison-Gordon | 6/1/2016, 10:13 a.m.
Puerto Ricans have been calling upon Congress for months to step in and help alleviate the island’s debt crisis. Last week an initial answer emerged, when the House Natural Resources Committee passed the Puerto Rico Oversight, Management and Economic Stability Act. The PROMESA bill made it through the committee with a 29-10 vote, while sparking fierce opposition from some Puerto Rican advocates.
Among the bills more contentious provisions is the creation of a seven-member federal control board, with members largely appointed by Congress (where Puerto Rico has no vote) and the power to overrule the Puerto Rican government in the course of promoting economic growth and reform.
While the bill provides for debt restructuring — a major request from many Puerto Rican advocates — it does not grant the long-requested Chapter 9 bankruptcy powers.
Angelo Falcón, president of the National Institute for Latino Policy, said that while the legislation takes the important step of officially acknowledging Puerto Rico’s plight, it seems unlikely to resolve the long-term economic situation and has generation opposition to the control board.
“This bill is a positive step at a certain level. At least it shows some recognition of the problem,” Falcón told the Banner in a phone interview. “[However] there’s a big pushback on the whole control board idea. A lot of people are putting out positions in the Puerto Rican community totally opposing that aspect of it.”
On the web
PROMESA legislative summary: http://naturalresources.house.gov/uploadedfiles/promesa_packet_-_5-18.pdf
The legislation provides for debt-restructuring, a move many consider crucial if Puerto Rico is to emerge from its current financial crisis.
Deepak Lamba-Nieves is the research director of the San Juan-based Center for a New Economy, which has been analyzing Congress’ efforts around Puerto Rico’s debt and, since 1998, has been studying the territory’s economy. While Lamba-Nieves told the Banner that the bill fails overall to resolve the problem, one valuable step it did make, he said, was to apply restructuring to the entirety of the island’s debt, including general obligation bonds.
Legislators chose to create a new form of territory-specific debt restructuring — as opposed to extending Chapter 9 powers to the island — in order to prevent setting a precedent for insolvent states, according to the bill’s legislative summary. Some legislators, including Rep. Tom McClintock (R-CA), previously expressed concerns that granting Puerto Rico the power to declare bankruptcy would cause investors to assume that states may take a similar course, prompting them to consider state bonds as more risky.
In the bill, legislators appeared to alleviate bondholders’ fears that allowing Puerto Rico to restructure its debt would harm their interests. The legislative summary states that “any proposed plan for [debt] adjustment by the board must be in the ‘best interest of the creditors.’”
The PROMESA bill establishes a seven-member federal control board with sweeping authority over the island. With its mission of promoting balanced budgets and government reform, it has the ability to override territorial laws and regulations related to its financial plan as well as compel Puerto Rico’s government to sell assets, consolidate agencies and reduce workforces. The board also may prevent the government from carrying out legislation, contracts or rule in order to “promote financial stability and economic growth,” according to its legislative summary. Its members would be appointed by the president and Congress.