June 28, 2016
Congress is facing a difficult challenge: what is the best way to help the island of Puerto Rico through its massive debt debacle?
The island—$72 billion in debt, not including another $44 billion in unfunded pension obligations—has defaulted on multiple debt payments over the past year and is set for a major default on July 1.
Secretary of the Treasury Jack Lew is pressuring the Senate to pass a House bill, without any changes. According to a report in The LA Times, Lew explained that “Puerto Rico could face the unraveling of ‘what we know of as normal life in an American community.”
Heritage expert Rachel Greszler says, “rushing a bill prior to Puerto Rico’s July 1 debt payment will have very little impact because Puerto Rico’s governor has already declared a moratorium on debt payments. Moreover, passing a flawed bill such as PROMESA will not solve Puerto Rico’s long-term debt problem because it fails to address the root of Puerto Rico’s problems—its lack of economic growth. On the contrary, upending the legal structure could make it harder for Puerto Rico to access credit markets in the future, making it harder for the island to recover.”
She contends, “the appropriate way to help the island-nation is to promote pro-growth reforms like an exemption from the maritime Jones Act and the federal minimum wage. Those two policies alone are responsible for killing numerous jobs on the island and robbing the people of opportunity.”
“Congress should amend the current PROMESA bill to produce a piece of legislation that allows the economy to grow, protects the rights of creditors, and prevents a future taxpayer bailout.”
For more our Heritage's analysis of Puerto Rico's debt problem see below: