Lew: Puerto Rico needs tested bankruptcy process to address challenges

By Caroline Salls

Pittsburgh, July 29 – Treasury secretary Jacob J. Lew stressed the importance of “the prompt passage of a tested, legal framework for Puerto Rico to address its financial challenges” in a letter to Senator Orrin Hatch that was released Wednesday.

Hatch is the chairman of the Senate’s committee on finance.

“As the administration has made clear, no one is contemplating a federal bailout for Puerto Rico,” Lew said. “I do believe that the federal government has a critical role to play to help Puerto Rico achieve the best possible outcome for its people.”

Lew told Hatch that Puerto Rico’s “fiscal situation is urgent” and requires the immediate attention of Congress.

Despite having taken many measures to address its financial challenges, Lew said Puerto Rico’s debt load now approaches $73 billion and is not payable.

According to Lew’s letter, any effort to return Puerto Rico to a sustainable economic path should begin with the development of a long-term comprehensive fiscal plan that addresses its financial challenges. For a plan to be most effective, Lew said it should include input from a range of stakeholders and have credible assumptions for long-run revenue collections, expense outlays and growth.

The fiscal plan should also be supplemented by a realistic and robust economic growth strategy that encourages new private investment, increases Puerto Rico’s competitiveness and strengthens its economic structure, Lew’s letter said.

“A central element of any federal response should include a tested legal bankruptcy regime that enables Puerto Rico to manage its financial challenges in an orderly way,” Lew wrote.

“Puerto Rico currently does not have access to the federal bankruptcy courts to restructure its financial obligations. Local officials tried to address this shortfall on their own by passing a law to provide a bankruptcy-like process.

“Under the status quo, without a tested legal regime in place, a resolution of Puerto Rico’s financial obligations would likely be chaotic, protracted and costly both for Puerto Rico and more broadly for the United States.

“Allowing Puerto Rico to resolve its liabilities under the supervision of a bankruptcy court involves no federal financial assistance and is in no way a federal bailout.”

Lew said an untested process would make it likely that more residents of Puerto Rico would seek assistance from federal employment, health, housing and temporary assistance programs, and the continued deterioration of Puerto Rico’s economic and financial conditions has the potential to further harm retiree investment portfolios across the country.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.