Congress Weighs Options For Puerto Rico

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<h3>James A. Klotz</h3>

James A. Klotz

The chairman of a U.S. House committee said legislators will be able to come up with a plan by next month to address Puerto Rico’s fiscal problems.

In December, U.S. House Speaker Paul Ryan directed lawmakers involved in Puerto Rico’s affairs to come up with proposals by March 31 that would help the commonwealth deal with $73 billion in debt and an ailing economy.

“We can get it done, especially if people don’t take off and try to make it into some kind of partisan endeavor,” said Rep. Rob Bishop, chairman of the House Natural Resources Committee.

He said the proposals must be drawn up with the participation of Puerto Rico’s representative in Congress, Pedro Pierluisi, and address long- and short-term problems facing the commonwealth.

Establishing an oversight authority

In a subcommittee hearing Tuesday, there was support for  establishing a federal oversight authority in Puerto Rico, though there was no agreement on its specific powers.

A key issue surrounding the discussions is Puerto Rico’s aim to restructure its debts under Chapter 9, which creditors strongly oppose.

Thomas Moers Mayer, an attorney representing Franklin Advisers and OppenheimerFunds, which hold billions in Puerto Rico debt, spoke during the hearing against granting Puerto Rico the ability to declare Chapter 9 bankruptcy, saying the commonwealth needs to implement internal reforms.

“A substantial amount of the problem is found in government mismanagement and not in investment,” he said.

Lawmakers have introduced several bills in Congress addressing Puerto Rico’s woes. A Senate bill proposed at the end of last year would give the commonwealth up to $3 billion in federal aid and subject its finances to federal oversight, though it did not provide a bankruptcy option.

As yet, there is no House and Senate consensus on a set of plans, and the U.S. Treasury Department formulated its own proposals last November.

“It’s not going to be simplistic, and it’s not going to be that easy,” Bishop said of crafting a plan for Puerto Rico. “But it can be done and it needs to be done in the right way.”

Government proposal deemed a negotiation ploy

Meantime, Puerto Rico’s proposal announced Monday that would cut its debt to about $23 billion was immediately denounced by creditors and widely viewed as a negotiation ploy. The plan would treat various creditor groups differently, based on seniority.

“We do not view this proposal as a serious effort,” said Nader Tavakoli, of the bond insurer Ambac.

Ambac, along with insurer Assured Guaranty, sued the commonwealth last month. They contend it was illegal for the government to divert revenue from the Puerto Rico Highways and Transportation Authority, the Puerto Rico Convention Center District Authority and the Puerto Rico Infrastructure Financing Authority (PRIFA) to pay its general-obligation debt.

Puerto Rico’s plight is garnering significant attention with both Congress and the White House. Earlier this week, President Barack Obama met with Ryan and Senate Majority Leader Mitch McConnell in the Oval Office. They discussed the president’s key priorities this year, which included Puerto Rico’s debt.

James A. Klotz is the President of FMSbonds, Inc.
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Feb 5, 2016

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