Puerto Rico Gov. Alejandro Garcia Padilla on Monday portrayed his territory’s economic condition as even more dire than previously revealed, and in a televised address appealed to Washington to make unprecedented “concrete” changes in bankruptcy rules to help rescue the island’s finances.
Groaning under at least $73 billion in debt, Puerto Rico – which is being called “America’s Greece” – is staggering down a path toward default, a scenario that could ripple across cities and states that depend on bonds for building everything from schools to stadiums.
“This is not about politics,” Garcia Padilla said. “It’s about math.”
The territory’s plight is also a potentially explosive issue in Washington, where congressional Republicans mostly oppose any step that would allow Puerto Rico to seek bankruptcy protection to restructure its debts and clean up its fiscal mess. Meanwhile, the White House has offered only modest assistance in the roughly three years of crisis talks and has avoided taking any position on whether Puerto Rico could resort to bankruptcy for itself or its government-owned corporations.
With pressure mounting to avoid a default by the government of Puerto Rico, White House spokesman Josh Earnest urged for the first time Monday that Congress “take a look at” whether to give the territory’s financially-strapped government-owned corporations – most importantly its electric utility – the option of bankruptcy protection to restructure their budget and debts.
“We cannot permit that they force us to choose between paying our police, our teachers, our nurses or paying the debt,” Padilla said.
U.S. states and Puerto Rico are barred from seeking bankruptcy protection, but cities and other municipalities can. Chapter 9 of the bankruptcy code allows a company or municipality to get new financing from markets while continuing to function as old debts are restructured or written down. It was used recently by Detroit, for example.
The Treasury Department issued a cautious statement saying only that it supported a “long-term economic and fiscal plan,” “a sustainable path,” and “an agenda for economic revitalization.” It said it would “continue to share its expertise with the local officials.”
“That’s great but it’s not addressing the fundamental issue,” said one person involved in negotiations between Puerto Rico and its creditors who spoke on condition of anonymity to preserve working relationships. “The right answer, if you were a rational policy maker looking at a territory you acquired in 1898, would be to give a federal judge supervision through extending chapter 9 and then Puerto Rico would have acess to financial markets again.”
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