US Congress denies Puerto Rico bankruptcy bailout
Share this on

US Congress denies Puerto Rico bankruptcy bailout

The U.S. Congress was busy last Friday, clearing up last-minute business before the Christmas holidays. It passed a 2016 budget plan that exceeded $1 trillion, but for Puerto Ricans anxiously awaiting news about the possibility of a federal bailout, there was nothing but disappointment from Washington as Congress chose not to pass a bill that would allow the island to declare bankruptcy in the face of a profound fiscal crisis. 

Puerto Rico’s governor, Alejandro García Padilla, responded to Congress’s failure to act with a dire warning, issuing a press release in which he said “This fiscal crisis will soon become a humanitarian crisis,” adding, “the Commonwealth (of Puerto Rico) will be dragged into massive, costly litigation, which will prevent (it) from providing essential services to its citizens.” 

Republicans Sean Duffy of Wisconsin and Orrin Hatch of Utah presented bail-out bills to the House and Senate, respectively. While the bills proposed were comprehensive, outlining specific steps the island would be required to take in order to receive federal assistance and protection, they were also paternalistic, requiring the governor to submit a “financial plan and budget for a fiscal year” that would be subject to congressional approval and supervision.

Beyond its significance with respect to the current, acute crisis, the proposed bills seemed to speak–even if that was not their conscious intention–to the federal government’s continued position with respect to Puerto Rico vis-a-vis its colonial status. 

From bad to worse…

Governor García wasn’t the only person to frame the denial of bail-out as a potential humanitarian crisis; even before Congress announced its decision, The Economist used the same language to address the federal government’s intervention (or lack thereof) in Puerto Rico’s economic woes. 

What no one has articulated–at least not openly–is how, exactly, that humanitarian crisis might manifest itself. While it is well-known that the number of Puerto Ricans moving to the mainland has reached unprecedented proportions, with more than 200 islanders moving to the U.S. daily, the other consequences of such a massive debt default remain to be seen. 

The White House issued a statement prior to the congressional decision in which it warned that only Congress had the power to help Puerto Rico navigate its way beyond the acute crisis. “Puerto Rico can not solve this crisis alone,” the White House indicated, adding, “Only Congress can provide the critical tools Puerto Rico needs to restructure its debt, enhance its fiscal governance, fix its healthcare system, and help jumpstart its economy.”

The executive branch warned of crisis escalation, adding, “Without a comprehensive solution, which requires Congressional action, Puerto Rico and its creditors risk a long, difficult, and disorderly crisis. In the interim, delaying action will result in continued uncertainty, which will drive additional economic contraction, outmigration, and suffering. This will inevitably lead Puerto Rico’s government to an impossible choice between fulfilling its financial obligations and providing essential services to the 3.5 million Americans living in Puerto Rico.”

An economic nightmare

One effect of the denial of bankruptcy protection was infighting among Puerto Rico’s top politicians. Governor García accused resident commissioner Pedro Pierluisi, who is charged with the responsibility of representing the island’s interests in Washington, D.C., of not doing his job, saying, “I’m doing everything in my power to avoid the closure of the government. Congress decided not to be just with Puerto Rico, and that must be said. The resident commissioner abandoned his post and that must be said as well. Pedro Pierluisi abandoned his post to go and seek endorsements while I was (in Washington seeking congressional support for bankruptcy with Puerto Rican representatives) Nydia Velázquez, Luis Gutiérrez, and José Serrano,” the governor said

García and Pieriluisi are among the most visible candidates in the next gubernatorial election, though it’s hard to imagine anyone wanting the job of governor at this particular moment. The fiscal crisis confronting Puerto Rico is the most acute one ever, amidst massive recurring financial problems over more than a decade. 

For now, García has indicated he cannot guarantee that the Puerto Rican government will not close in the first quarter of 2016, and he has all but assured openly that the government will default on its significant debts. 

See also:

Puerto Rico’s Governor calls on U.S. to allow bankruptcy of island