Last week we talked about the rapidly approaching collapse of Puerto Rico’s economy and the fact that they might be in need of some sort of a bailout. Unfortunately for them, they are not eligible under law to reorganize via Chapter 9 bankruptcy and their options for some sort of foreign intervention (by way of the IMF, for example) are cloudy at best. The IMF is saying they’re willing to look at some options, but would insist on austerity measures similar to what we saw in Greece.
If there’s going to be any help on the home front, the bankruptcy laws would need to be amended, but that’s already turning into a hot potato in Washington. (From The Hill)
Congress, where lawmakers are debating a statutory fix that could allow the island territory to declare bankruptcy.
Advocates of the change say it would resolve a technical oversight from a decades-old bankruptcy law, while skeptics warn that it could throw into question billions of dollars in debt now owned by investors across the country.
Earlier this week, Puerto Rico’s governor declared that the nation’s $72 billion pile of debt was too much for it to handle. To avoid a “death spiral,” Gov. Alejandro Garcia Padilla said the commonwealth would have to break its promise to pay back some money owed.
But a quirk in the nation’s bankruptcy code is throwing Congress into the middle of the matter, as lawmakers will need to quickly pass a new law if Puerto Rico is going to gain access to the nation’s bankruptcy courts.
This is rapidly becoming a mess in Congress. The Democrats – specifically Chuck Schumer thus far – find it easy enough to throw them a lifeline by changing the law but this isn’t a slam dunk by any means. The prevailing Democrat opinion seems to be that the “tweak” required to the law is the result of what amounts to “a typo.” Others believe it was intentional, and it was never meant for the commonwealth to be treated like a state. A similar bill was making the rounds last winter but it went basically nowhere. And now that we’re into full blown campaign season (with multiple Republicans in the Senate running for the nomination) things aren’t getting any easier. Every GOP contender is already being asked to weigh in on the issue.
As the WaPo reports, Jeb Bush has already signaled that he’d be supportive of amending the bankruptcy laws. Others seem a lot more hesitant because the market will take something of a beating if this goes through. (Allowing them to file under Chapter 9 would basically mean that holders of a lot of high quality bonds might wind up with relatively worthless paper.) But Jeb is counting heavily on his claims that he’ll do better with Latino voters in the general election and this might be a way to hedge his bets. But what will Marco Rubio do then? The linked Washington Post analysis predicts that Rubio will stay on the sidelines as long as he can.
The Governor of Puerto Rico, however, is wasting no time and has been flexing his election year muscles.
In an interview on Telemundo yesterday, Puerto Rico Gov. Alejandro García Padilla threatened negative consequences for politicians in either party who are “passive” about giving them the privilege to declare Chapter 9. “Those who want the support of Puerto Ricans must help Puerto Rico now, not later,” he said. “Puerto Ricans decide the elections in Florida. That’s very important. By deciding the election in Florida, we can decide [who is the next] president of the United States.”
That’s some bold talk which, were it happening anywhere but the political arena, would nearly amount to blackmail. But he’s probably right, at least to a certain extent. The Latino vote is a lot more diverse than just this one element, but there’s no denying their influence and this one may hit home for many voters in Florida.