Puerto Rico’s debt crisis continues. The island has taken measures to control spending and boost revenues, but that is insufficient to cover its $70 billion debt. The Obama administration is trying to send funds for infrastructure on the island, but Congress’s support is needed to give it relief from its creditors.
The problem is that Puerto Rico, unlike the cities and states of the union, was unfairly barred in the 1980s from seeking Chapter 9 bankruptcy protection, allowing the debtor to hold back creditors while it reorganizes its debt. Such action would require Congress to take a hand in the matter to create a legislative path enabling the island’s recovery so it can meet its obligations.
However, there is no sympathy whatsoever in the Republican majority in Congress for what Puerto Rico and the Puerto Ricans are going through. The island is considered a Democratic enclave that got itself into this crisis through deficit-based social policies. Another reason for the rejection of a plan to protect Puerto Rico is the lawmakers’ proximity to Wall Street, which wants to get paid at any cost.
This ignores the fact that Puerto Rico has been taking measures to improve its finances for some time. For example, the island is home to the country’s highest sales tax, the gas tax was increased, tens of thousands of jobs were eliminated, and hundreds of millions of dollars were cut from education. But that is not enough. Puerto Rico is twice as poor as the state of Mississippi in per capita income and has one of the highest costs of living in the United States. That has caused an emigration of the population that has reduced the tax base, making it harder to generate revenues.
It is estimated that three out of every four U.S.-based municipal bond funds contain Puerto Rican debt due to the high yield driven by its tax exempt status. So far, the White House plans to invest $400 million in roads to inject funds into the island, but more is needed. Congress must act before the crisis is felt in the funds. Allowing bankruptcy will help the island, but in particular,it will protect the solidity of a sector of the national financial system.