Puerto Rico on the Brink
After Hurricane Maria devastated the US commonwealth in 2017, President Donald Trump made a show of delivering aid, but the reality was that the island received too little assistance to make a difference for many people. And now a new disaster – one that Trump could easily prevent – is bearing down on them.
WASHINGTON, DC – More than three million Americans, residents of the US commonwealth of Puerto Rico, could be plunged into economic turmoil unless President Donald Trump’s administration acts quickly. Unfortunately, there is no sign that Trump is paying attention to the problem; he is distracted by other matters. And, because no one else has the authority or will to take action, a tragedy looms.
Puerto Rico borrowed too much money in the boom years and has struggled with an overwhelming debt burden over the past decade. When a company is in this situation, the outcome is some form of bankruptcy: the debt is restructured or the company is wound down. The same logic applies at some levels of government in the United States, with court supervision of debt restructuring ensuring relatively orderly outcomes – invariably after a great deal of argument about debt levels and how to reduce payments to an affordable level.
But, because of Puerto Rico’s particular legal status as a US territory, it is not eligible for any kind of standard court-run debt restructuring process. Recognizing this, in 2016 Congress passed the PROMESA Act, which enabled a form of court-supervised bankruptcy, along with an oversight board in charge of monitoring and approving fiscal plans in Puerto Rico. This was a pragmatic political compromise worked out by the US Treasury and congressional Republicans and Democrats. (I supported PROMESA at the time, including in congressional testimony.)
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