Friday, July 10, 2015

Puerto Rico's Problem: How the Politics Breaks

The Wall Street Journal reported yesterday that the "Puerto Rico problem" has U.S. politicians, particularly GOP presidential hopefuls, stumped.  Hillary Clinton, Bernie Sanders and Martin O'Malley have all issued statements backing the pending federal legislation that would open chapter 9 bankruptcy to Puerto Rico's utilities and other public debt issuers.  The legislation is stuck in the House.  Democrats Charles Schumer of New York and Richard Blumenthal of Connecticut may introduce similar legislation in the Senate.

For Republicans, the next step is tricky.  Mutual and hedge fund creditors hold Puerto Rican debt and they want to avoid any write down of their debt-- a likely outcome if Puerto Rican debt issuers can use chapter 9.  On the other hand, about 1 million Puerto Ricans who reside in Florida and many want some federal action.  29 electoral votes are on the table.  Republicans running for president need to be seen as pro Puerto Rico, with compassion for Puerto Rican people and their economic future.  But that is hard to do without appearing to support a "bailout" for Puerto Rico.

Republican Congressman Tom Marino (R. PA) is head of the judiciary panel considering the chapter 9 relief bill in the House.  WSJ reports that he said the fate of the bill depends on whether Puerto Rico first puts together an "austerity plan" for the future.

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