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2016 contenders, lawmakers mull bankruptcy for Puerto Rican debt crisis

Officials from the island territory are asking that Puerto Rico be afforded bankruptcy protections

WASHINGTON — The economic future of millions of Puerto Ricans hangs in the balance as officials of the territory ask for the federal government’s help in crawling out from under a crippling $72 billion debt that Gov. Alejandro García Padilla said the island cannot pay back. 

Padilla, a Democrat, and other Puerto Rican government officials have urged Congress to pass legislation that would allow cities, towns and other financial entities in Puerto Rico to access the same bankruptcy process afforded to municipalities in the 50 states.

But the prognosis for any such legislation is murky in Congress. Puerto Rico’s nonvoting representative, Resident Commissioner Pedro Pierluisi, has sponsored a bill in the House that has yet to clear the Judiciary Committee. Sens. Chuck Schumer of New York and Richard Blumenthal of Connecticut, both Democrats, are reported to be working on a similar bill in the Senate and hoping to build support in the coming weeks. 

Such a provision, currently missing from U.S. bankruptcy law, would allow Puerto Rico to restructure its debt in court and work out a way to back at least part of what is owed to creditors, in a process similar to Detroit’s 2013 bankruptcy.

If Puerto Rico is not afforded bankruptcy protections, it is likely that the territory will miss payments and enter into litigation with its debt holders — a process that could take years to work out while critical government services are cut for Puerto Ricans and its economy is thrown into further chaos.

There is, however, at least one prominent advantage for the island territory as it presses its case to lawmakers: the increasing weight of Puerto Rican voters on the mainland. An estimated 4.7 million U.S. citizens of Puerto Rican descent reside in the 50 states, according to an analysis by the Pew Research Center of 2010 census figures. An estimated 744,000 live in the swing state of Florida, a key electoral battleground in the 2016 presidential contest.

Padilla indicated that Puerto Rican immigrants are watching the situation closely and evaluating which candidates are on their side. “Those who want the support of Puerto Ricans must help Puerto Rico now, not later,” he said in an interview on Telemundo. “Puerto Ricans decide the elections in Florida. That’s very important. By deciding the election in Florida, we can decide [who is the next] president of the United States.”

Many of the 2016 contenders who have weighed in on the issue have backed extending bankruptcy protections to Puerto Rico.

“The challenge is multifaceted and will ultimately require Puerto Rico to find a way to pay back its debtors in an orderly fashion,” Democratic front-runner Hillary Clinton said in a statement on Tuesday. “We're not talking about a bailout. We're talking about a fair shot at success.”

Former Maryland Gov. Martin O’Malley and Vermont Sen. Bernie Sanders, both Democratic challengers, also came out strongly in favor of allowing the territory to restructure its debt, as did former Florida Gov. Jeb Bush, a 2016 GOP candidate who is strongly courting the Hispanic vote.

Sanders said he believes the current crisis was precipitated by wrong-headed policies. “We need to do everything we can to allow Puerto Rico to restructure its debt in a rational way that does not harm its people, ordinary investors or pension funds in the United States,” he said in a statement. “But we also should recognize that the reason Puerto Rico has such unsustainable debt has everything to do with the policies of austerity and the greed of large financial institutions.”

The Wall Street Journal reported in 2013 that Wall Street firms profited handsomely from selling Puerto Rico’s debts to investors, many of whom are middle-class Americans who put their money into municipal bond funds. In the process of selling $61 billion worth of bonds from 2006 to 2013 on behalf of the territory, financial firms and lawyers were paid approximately $1.4 billion in fees, according to the paper’s analysis.

Despite some bipartisan support, some conservatives are wary of forgiving what they say has been decades of financial mismanagement on Puerto Rico’s part and shortchanging the investors who hold Puerto Rican bonds and who would have to accept reduced repayments under the bankruptcy process. 

“It is truly dismaying that a Republican-controlled Congress is entertaining the idea of a financial bailout of Puerto Rico,” Mario H. Lopez, the president of the Hispanic Leadership Fund, a conservative advocacy group, wrote in March in a column for The Daily Caller, a conservative website. “Doing so would fly in the face of conservative principles and betray the taxpayers who elected candidates who were supposedly committed to standing up to government excess and incompetence.”

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