In a 297-127 vote, the U.S. House passed a bill that helps Puerto Rico manage its debt crisis, according to NPR. Puerto Rico is $70 billion in debt and is expected to miss a July 1 payment. Under federal law, Puerto Rico is prohibited from using bankruptcy to restructure its debt.
Puerto Rico remains in a crisis, as many citizens lack the essentials in the form of health services and electricity, and the island is running out of time, as the debt mountain grows insurmountable. The U.S. Senate will soon examine the bill and is expected to consider the House version. The proposal gives Puerto Rico the same bankruptcy rights as U.S. cities, but with certain provisions.
It creates a congressional-appointed control board that can restructure some of Puerto Rico’s debt, and the seven-member board has the authority to approve annual budgets. The board will also act as a mediator between creditors during restructuring negotiations, but no federal funds will be used to bailout Puerto Rico’s debt. Moreover, the contents of the bill have been muddied with the usual political wrangling.
For instance, Republicans instilled a provision that exempted employers from paying some of their workers minimum wage, much to the chagrin of democrats who tried to have the provision removed. In addition, liberals desired to see an expansion of Medicaid and other benefits under the bill.
Regardless of the politics, the bill has reached a bipartisan consensus, and is approved by the White House, but critics on both sides of the isle remain skeptical. Opponents cite that the bill is unfair to bondholders, while others do not enjoy the idea of an unelected board managing Puerto Rico’s financial affairs.
Others have called the bill a thinly disguised bailout, and Washington leaders face the most pressure from some creditors who wish to see the maximum amount owed at the end of negotiations. Certain hedge funds in particular bought the old debt from original bondholders and have opposed restructuring while demanding full payment, notes The Denver Post. However, full payment is out of the question for a commonwealth that does not have the economic might to pay its bills.
Puerto Rico has long suffered from decades of stagnant growth, resulting in high unemployment and a mass exodus from the island. The economy is not robust enough to produce goods and services to satisfy the debt. The government has raised taxes as an alternative, but authorities made little headway, as tax evasion is a major problem within the commonwealth.
Puerto Rico is further plagued with an overreliance on imports and the U.S., and inefficient management from local government has contributed to the island’s overall dysfunction. The circulating bill is Puerto Rico’s only hope, but it is a temporary fix that will not secure long-lasting growth in an economy that needs a severe overhaul.