As Puerto Rico’s debt saga unfolds, the rights of individual investors must be recognized. To that end, we have forwarded the following letter to U.S. Speaker of the House Paul Ryan and Senate Majority Leader Mitch McConnell, two key people who will likely play a prominent role in finding a solution.
We urge you to contact them as well, along with representatives and senators from your state. The mischaracterization of investors who heeded Puerto Rico’s call for help must stop, and they must be made whole.
Honorable Paul Ryan
Speaker of the House of Representatives
Washington, DC 20515
https://paulryan.house.gov/contact/
Honorable Mitch McConnell
Majority Leader
United States Senate
Washington, DC 20510
http://www.mcconnell.senate.gov/public/index.cfm?p=ContactForm
Dear Mr. Speaker and Mr. Leader:
The creditors who loaned money to Puerto Rico are widely portrayed as greedy Wall Streeters who fleeced the naive leaders of a U.S. outpost.
However, in the impulsive drive to demonize those involved in Puerto Rico’s debt saga, an important point is lost: rather than predatory villains, the people behind those loans are primarily individual investors who in good faith answered the commonwealth’s request for funds.
In other words, they’re not nameless and faceless institutions. They are your neighbors.
Why people invest in Puerto Rico
Puerto Rico’s bonds have drawn investors for years – and were designed to do so.
Through an act of Congress intended to spur investment, the commonwealth’s bonds have the rare advantage of being free from local, state and federal taxes anywhere in the United States.
As Puerto Rico’s Government Development Bank, which plays a key role in helping finance its economic infrastructure projects, says on its Web site:
“Tax-exempt public bonds of Puerto Rico are available at attractive yields in many maturities. New bonds are frequently issued and are actively traded in the secondary market.”
What’s more, their credit is solid, according to the GDB:
“In the history of the commonwealth of Puerto Rico, its public corporations and political subdivisions, there has been no instance of default in the timely payment of principal of, or interest on, any publicly held debt.”
Unfortunately, that’s not true anymore.
Puerto Rico defaulted on debt last summer, and earlier this month, it took money earmarked to pay interest on its Infrastructure Finance Authority bonds and used it to pay general obligation debt.
Predictably, bond insurers sued, saying the governor’s clawback of funds from PRIFA payments was unconstitutional.
They wonder, reasonably, why the governor lobbies Congress for the power to declare bankruptcy and set a legal framework to restructure its debts while at the same time it confiscates revenues.
They fear, as we do, that rather than fixing the commonwealth’s problems, Chapter 9 would simply erase Puerto Rico’s obligations to its long-term investors and partners and incentivize the continued over-spending, corruption and contempt of law without any accountability.
Next steps
Puerto Rico has serious fiscal, economic and structural problems. Its credibility wasn’t helped by the recent revelation that the government paid $120 million in Christmas bonuses to public employees, one of several curious moves by a government that claims to have run out of funds.
We urge Congress to immediately ensure a proper accounting of Puerto Rico’s finances, challenges and prospects.
Not on behalf of what some have depicted as predatory capitalists, but for the benefit of a legion of individual investors who simply expect to be repaid for their loans to Puerto Rico.
For years they trusted the U.S. territory’s leaders and ratings agencies, which consistently gave the commonwealth investment-grade ratings.
Their concerns deserve to be addressed, not by derision but through the good-faith dealings of those who asked for their help.
Sincerely,
James A. Klotz
President, FMSbonds, Inc.
