Alice Stewart: Puerto Rico needs a common sense and transparent restructuring and repayment plan
That is best achieved through negotiations with creditors, she says
Editor’s Note: Alice Stewart is a CNN political commentator and former communications director for Ted Cruz for President. The views expressed in this commentary are solely her own.
The perils of progressive policies are on full display in Puerto Rico. On the brink of economic collapse, bankruptcy proceedings began Wednesday after Gov. Ricardo Rossello filed for Title III Bankruptcy protection in the biggest municipal bankruptcy filing in US history. This is what happens when a bloated government is left unchecked. Economic uncertainty has caused the population in the island territory to plummet from more than 5 million people to 3.4 million.
Here’s an idea of the out-of-control big-government policies that have brought about financial ruin in Puerto Rico: Public employees get 30 vacation days a year, the minimum wage is 77% of the median wage, and bondholders suffer for the benefit of big labor. Puerto Rico’s Democratic delegate Pedro Pierluisi admitted to Congress that, “Part of this overspending is definitely the result of mismanagement. I admit it. And it’s embarrassing.” Keep in mind, Puerto Rico is a US territory, and if this debt-fueled nightmare can happen there, it can happen in any state across the country.
Ultimately, the commonwealth needs economic growth. However, to have access to the credit it needs to rebuild, Puerto Rico needs a comprehensive, common sense, and transparent restructuring and repayment plan that is best achieved through negotiations with creditors. Title III proceedings could last for years and will delay any chance at economic recovery Puerto Rico can have. The best outcome is a court-driven restructuring process to protect creditors’ rights and maintain essential services for residents.
The scale of the crisis is staggering. Puerto Rico has a 45% poverty rate and unemployment more than double the US average. The island territory has a total indebtedness of $74 billion in bond debt and $49 billion in unfunded pension obligations. That’s a total of $123 billion in debt. For context, the city of Detroit failed to pay its massive debt in 2013 and it became due; the city’s restructuring totaled $18 billion.
Last year, Puerto Rican leaders went to Congress with hat in hand, asking for a bailout; Congress declined. Instead, it created the Puerto Rico Oversight, Management and Economic Stability Act, called PROMESA, aimed at compelling the island commonwealth to solve its own self-inflicted fiscal mess.
Historically, states and territories cannot file for bankruptcy; however PROMESA allowed Puerto Rico to file for Title III bankruptcy and leverage cuts on Wall Street firms and other investors. In other words, Congress enabled the Puerto Rican government to change the rules midcrisis.
Under the provisions of PROMESA, President Barack Obama appointed a seven-member board to oversee a financial restructuring for Puerto Rico. The board did not make the hard decisions, nor push Rossello to make deeper cuts or create a reasonable, transparent and comprehensive debt restructuring plan.
The recent omnibus spending bill allocated the Puerto Rican government $295 million in taxpayer money to cover the first six months of 2018. This is just a drop in the bucket to cover the tab that has accumulated as a result of Puerto Rico’s government mismanagement.
Rosello found himself not only facing economic collapse, but also facing lawsuits from creditors. Instead of taking responsibility and finding a viable solution to pay off the debt, the governor sought Title III bankruptcy protection.
US Supreme Court Justice John Roberts has appointed US District Court Judge Laura Taylor Swain to lead the case. She will rule on whether pensions can be cut, creditors are being treated fairly and whether Puerto Rico has a viable route to restore fiscal order. Ultimately, however, that won’t change the fact that the governor’s move is a cop-out that will not, in the end, save Puerto Rico from itself.
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What happened in Puerto Rico is what happens when leaders make and defend poor policy decisions for decades; eventually you have to pay the tab for unchecked borrowing and spending. In addition, the bloated government workforce has been a disaster for the economy of Puerto Rico and investors are left holding the bag.