A revised bill to address the intertwined debt, fiscal and economic crises of Puerto Rico has just been introduced in the U.S. House. H.R. 5278 proposes “to establish an Oversight Board, to assist the Government of Puerto Rico…in managing its public finances.”
This “assistance” (read, “supervision”) is needed intensely. If all goes well, the House Natural Resources Committee will report the bill out promptly and it will proceed to enactment.
As is well-known, the government of Puerto Rico is broke and defaulting on its debt. At $118 billion, by the committee’s reckoning (which rightly includes unfunded government pensions), that debt is six times the total debt and unfunded pensions of the City of Detroit as it entered bankruptcy. This is a truly big insolvency, which reflects long years of constant fiscal deficits filled in by excess borrowing. Moreover, as the committee points out, Puerto Rico’s “state-run economy is hopelessly inefficient.”
There are three fundamental tasks involved in the complex and massive problems, and the bill addresses all three. These are:
- To establish an emergency financial control board to determine the extent of the insolvency, develop fiscal and operational reforms and put the government of Puerto Rico on a sound financial basis. The bill uses the more politic title of “Oversight Board,” but the tasks are the same. They will not be easy and are sure to be contentious, but are necessary.
- To restructure the unpayable debt and settle how the inevitable losses to creditors are shared among the parties. The bill gives the Oversight Board the authority, if necessary, to put forth a plan of debt reorganization and the legal framework to reach settlement.
- To move Puerto Rico toward economic success – that, is toward a market economy and away from its failed government-centric economy – and thus to give it the potential for future growth. These reforms will not be easy, either, but the bill sets out a process to start the required evolution.
The discussion of the necessary steps has been long and full. Now it’s time for Congress to vote in the new bill.