Lawmakers grill officials on severity of Puerto Rico’s debt crisis

Lawmakers grilled experts and former officials on the impact of Puerto Rico’s debt crisis at a hearing Thursday, as Congress faces a March deadline to propose a legislative fix.

The House Financial Services Committee subpanel on oversight largely agreed that Puerto Rico needed some combination of debt restructuring and financial reform. But they differed on how much of Puerto Rico’s debt should be included and how to implement the reforms.

{mosads}The hearing highlighted the persistent divisions between the two parties, with Republicans warning against any bailout for the island territory.

“I’m sympathetic to what the island is going through,” said Rep. Mick Mulvaney (R-S.C.), adding he’d support an approach that imposed more fiscal controls on Puerto Rico.

“Those are all positive things that don’t cost my folks any money. But everything else sounds to me like bailout.”

Democrats pushed for Puerto Rico to be allowed to declare bankruptcy on some of its debt and warning against tougher restrictions on the island.

“If the control board takes the people’s power away, it will just be viewed as another colonial power grab by the government,” said Rep. Nydia Velázquez (D-N.Y.), who was born in Puerto Rico. “What they need is not only bankruptcy protection, but economic growth.”

Bankruptcy protection, though, is a nonstarter for Republicans.

House Speaker Paul Ryan (R-Wis.) has given lawmakers until the end of March to find a fix for Puerto Rico.

Puerto Rico’s crisis has broad implications for the rest of the country. Roughly 20 percent of U.S. bond funds hold Puerto Rican debt, according to Forbes, leaving thousands of stateside retirees and investors on the hook.

Lawmakers questioned what the debt crisis would mean for bondholders and pension funds.

“I’m afraid that the situation is so dire that the question is not whether the bondholders will lose, but whether they will lose a little or lose a lot,” said Anne Krueger, an international economics professor at Johns Hopkins University. “Somehow or another, Puerto Rico can’t make all those payments … The very basic things of that government have to continue.”

Puerto Rico is saddled with $72 billion in debt across 18 different issuers, exceeding its gross national product. The commonwealth government defaulted on $174 million in payments due in January, with more than $2.4 billion due this year, much of it backed by its constitution.

Roughly 12 percent of Puerto Ricans are unemployed, and its labor force has lost 300,000 workers since the mid-2000s. The commonwealth’s funds have also been depleted by subsidized electricity, government inefficiency and a dysfunctional tax collection system.

Lawmakers expressed frustration with the extent of the crisis.

“Now you folks come to us, asking for what?” said Rep. Bruce Poliquin (R-Maine). “Any solution has to include a governmental fix so this doesn’t happen again. This is just not fair.”

Republicans and Democrats agree on financial oversight through a control board but differ on the extent of its powers.

”We all are unhappy with the responsible parties to our problems,” Juan Carlos Batlle, former president of Puerto Rico’s Government Development Bank, told lawmakers. “The situation we face today gives us a unique chance to shape our future.”

Batlle faulted the island’s woes on rampant partisanship, “a lack of execution and follow-through on economic development initiatives,” a failure to adapt to modern conditions, fragmented technology, insufficient financial oversight and an insular private sector.

“We don’t need new plans; we need the will to compromise and execute for the greater good,” said Batlle.

“What we have missed so far is a genuine good-faith sit down with creditors, the government … a truthful discussion with real numbers.”