Treasury secretary eyes legislation to address Puerto Rico debt crisis

By Caroline Salls

Pittsburgh, Jan. 15 – In a letter to congress on Puerto Rico’s debt crisis, Treasury secretary Jacob J. Lew said congress must pass legislation for the president to sign into law before the end of March “in order to assist the 3.5 million Americans living in Puerto Rico.”

Lew said a $400 million debt payment is due on May 1, and more payments are due at the end of June.

Lew said he will meet with community and business leaders in Puerto Rico on the challenges the commonwealth faces, “and at the Treasury we will continue to bring our full capabilities to bear in the provision and delivery of assistance to Puerto Rico. But our existing tools are not sufficient for a comprehensive solution.”

Lew said Puerto Rico is already in default, is shifting funds from one creditor to pay another and has stopped payment altogether on several of its debts. The secretary said several creditors are filing lawsuits against the commonwealth.

In addition, Lew said Puerto Rico’s Government Development Bank, which provides critical banking and fiscal services to the central government, “only avoided depleting its liquidity by halting lending activity and sweeping in additional deposits from other Puerto Rico governmental entities.”

According to the letter, Puerto Rico has been shut out of the municipal bond market for more than two years and ran out of the funding sources traditionally used to finance government operations more than six months ago.

The secretary said Puerto Rico has recently “resorted to a series of onerous and unsustainable emergency liquidity measures,” including selling assets from already depleted pension funds; borrowing from the workers compensation and other insurance funds; and withholding hundreds of millions of dollars in tax refunds owed to its citizens.”

“Not only do these actions affect the most vulnerable citizens in Puerto Rico, the unpaid obligations do not go away; they simply accumulate and make long-term recovery even harder to achieve,” Lew said.

“To address the crisis, Puerto Rico needs federal legislation that pairs an orderly process to restructure its debts with strong, independent fiscal oversight to remedy its history of fiscal mismanagement.”

Lew said federally legislated restructuring and oversight “would cost taxpayers nothing and is essential to put Puerto Rico on a sustainable path forward.”

Only congress can enact the legislative measures necessary to fully resolve this problem, according to the letter. A seventh committee hearing on the issue is scheduled for later this month.

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