Puerto Rico faces a difficult winter. It is not for the weather, but the economy, given the budget deal approved in Washington, which totally disregard the severe financial situation the island is going trough.
The federal Congress had in its hands the possibility of helping Puerto Rico as it faces a payment crisis of $72 billon and a bond maturity date of nearly one billion dollars by early next year. The situation is critical, and could cause significant harm for private, institutional and governmental investors in the U.S., which bought bonds taking advantage of tax benefits.
The approved budget, which exceeds one trillon dollars, did not ignore Puerto Rico completely. It allocated two measures rectifying Medicare payments received by the island, and additional expenses in the medical sector for adopting electronic health record-keeping. This is good, but is does not do anything to help solve the current lack of funds crisis.
The big problem is that Puerto Rico, unlike U.S. states and cities, cannot access Chapter 9 of the Bankruptcy Act, which would give it some protection against creditors as it reorganizes its debt. Up until 1984 the island had this option, because when the bankruptcy laws were established in 1898, they considered Alaska, Hawaii, Puerto Rico and the District of Columbia as “states.” In 1978, in what is attributed to a mistake, a bankruptcy measure – which was finally approved six years later – established that the definition of state remained except for the purpose of accessing Chapter 9.
Congress could have now corrected the definition of state, after failing to do so previously. This is what the Democrats want, but for Republicans there is no urgency because they see it as a problem caused by the Democrats’ permissive economical policies. The GOP-led Senate wants U.S. supervision of the Puerto Rican budget as a condition to give funds, and the House will not unveil any plan until the first quarter of 2016.
The goal is for Puerto Rico to make its payments. To do so, it needs a legal instrument like the Bankruptcy Act. The more this solution is delayed the worse will be the consequences for Puerto Rico and the U.S.