House Passes Puerto Rico ‘Rescue’ Bill, But Only Creditors Will Be Rescued
June 10, 2016 (EIRNS)—In a vote of 297-127, the House yesterday passed the misnamed PROMESA (Spanish for "promise"), the Puerto Rico Oversight, Management and Economic Stability Act, purporting to rescue the island from economic catastrophe by providing a mechanism for restructuring the island’s $70 billion in debt, and halting, at least for the moment, creditor litigation. If passed by July 1, when Puerto Rico’s $2 billion debt payment is due, the bill will establish an eight-month moratorium, by which the government will only have to pay interest on the debt, if it can.
Passage of the bill is being praised as a great bipartisan compromise, and will now go to the Senate.
Raul Grijalva (D-Ariz.), ranking Democrat on the House Natural Resources Committee that drafted the bill, yesterday called it a "bitter compromise," one he accepted because of the bill’s provisions addressing Puerto Rico’s debt crisis. Nonetheless, he said the bill represented an "infringement on the sovereignty of the Puerto Rican people," referring to the bill’s creation of a draconian financial control board, whose members will be appointed by Barack Obama, and will have complete control of the island’s finances, to the exclusion of the Governor and elected officials. The board will have the ability to enact and enforce policy "reforms," sell off public assets and fire state workers.
In reality, the bill offers more protection to creditors than to the Puerto Rican people, as seen in the report by Pensions&Investmentsonline today that the bill establishes a "firewall" between constitutionally-protected creditors (holding General Obligation bonds), and the $2 billion Puerto Rican pension system. That is, payment to retirees will not take precedence over holders of general obligation bonds. Moreover, the bill calls for an independent analysis of the island’s pension system, implying that pensions will be on the chopping block. Democrats failed to pass amendments to eliminate the provision that youth aged 18-24 can be paid below the federal minimum wage, or to increase Medicaid benefits and add the Earned Income Tax Credit.
As for debt restructuring, the process is described as "voluntary;" the board will intervene, but only as a last resort CNN Money reported. Pensions & Investments notes that when the board does intervene, it will have "additional authority to adjust debts in the best interests of creditors."