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Fierce Debate on Debt Relief for Puerto Rico

Oct. 6, 2017 (EIRNS)—In the aftermath of President Trump’s statement earlier this week that Puerto Rico’s huge $72 billion debt should be written off, there have been several attempts to explain what he meant, or claim that he "didn’t really mean it."

In yesterday’s White House briefing, Press Secretary Sarah Sanders told reporters that what Trump meant was that Puerto Rico should follow the "process" laid out in Barack Obama’s 2016 PROMESA bill, allowing for bankruptcy under the bill’s Title III mechanism, which the island’s financial control board in fact activated last May 3, when it filed in federal court to place the government in bankruptcy protection. This mechanism exists only for Puerto Rico, as it is prohibited by a 1984 federal law from seeking Chapter 9 bankruptcy protection.

Sanders insisted that Puerto Rico "will have to go through that process to have a lasting recovery and growth," adding that it is the "board of advisors" (the financial control board) that deals with issues of debt.

Despite Sanders’s statements, however, there is intense debate taking place on this issue, based on the stark reality that Puerto Rico is in no position to pay anything—there will be no revenue generated or tax collection for a very long time—as even the control board has recognized. According to The Intercept today, if anything, the board is even more skeptical than prior to hurricane Maria "that the island can pay back any sizable chunk of its debt." It met a week ago for the first time since Maria to "reconsider" its current fiscal plan, in light of storm damage and absence of revenue, but no details are available as to any conclusions reached.

The bankruptcy proceedings initiated in May are stuck in Federal Judge Laura Swain’s district court in New York and have gone nowhere, while bondholders have sued the control board itself for invoking Title III bankruptcy. Even if there were debt forgiveness, the control board still expects to play a big role on the island, forcing the government to stick to a balanced budget, which implies continued austerity. But as The Intercept notes correctly, hurricane Maria

"may well have altered the politics around austerity, too, as calls for investment in rebuilding infrastructure could overwhelm the demand for cuts."

Washington, D.C. sources told EIR that efforts are already underway in Congress to "revise" the hated PROMESA bill.