Puerto Rico’s Government Development Bank recently defaulted on hundreds of millions of dollars in payments due to its bondholders, marking the third default by Puerto Rico in the last several months.
No doubt this will increase the urgency with which observers are calling on Congress to address the crisis. Yet, the so-called “Puerto Rico Oversight, Management, and Economic Stability Act,” or “PROMESA,” contradicts the most basic principles conservatives believe in. It then begs the question: Why is Speaker Paul Ryan trying to impose another Washington-concocted boondoggle to address the island’s fiscal crisis on the U.S. citizens of Puerto Rico?
One cannot help but wonder if the speaker is falling victim to duplicitous efforts by Treasury’s Antonio Weiss, which was reportedly urging Puerto Rico to default on its Government Development Bank debt last week rather than negotiate or try to pay. Weiss and others at Treasury think that they can pressure Congress into hastily passing the PROMESA legislation if Puerto Rico simply refuses to address its debt without congressional intervention.
PROMESA is not your typical bailout. It doesn’t involve direct money, but that also doesn’t matter. Rather, it involves Washington stepping into the affairs of a self-governing jurisdiction to rescue its government from having to make tough political decisions and deal with the fiscal problems it created in the first place. The result will force the bondholders from whom Puerto Rico borrowed money, many of whom are Puerto Ricans themselves like myself or others in communities across America, to bear the brunt of the cost of this intervention. Aren’t conservatives supposed to be for limited interference from Washington and for local rule?
PROMESA would undermine the self-governance of the over 3.5 million U.S. citizens of Puerto Rico by imposing on them a heavy-handed fiscal control board that would, in essence, assume ultimate control and decision-making over the affairs of the island’s government.
While I recognize that Puerto Rico continues to be kept under territorial rule by Congress, it has been the policy of Congress, especially since the people of Puerto Rico were granted U.S. citizenship in 1917, to provide the island with increased self-government regarding internal matters. At this stage in the history of U.S-Puerto Rico relations, Washington should not be perpetuating the territorial rule of a jurisdiction of U.S. citizens, instead it should be putting them in a path toward statehood as it did with its other territories.
PROMESA’s encouragement of fiscal irresponsibility is problematic. Once enacted, the legislation would impose an immediate stay on all claims against the government of Puerto Rico from bondholders. Congress would provide this unprecedented recourse to the island’s government even though, to this day, the administration of Gov. Alejandro Garcia-Padilla has yet to show that it cannot meet its obligations. Despite numerous requests from members of Congress, including Senate Finance Chair Orrin Hatch, the government of Puerto Rico has yet to produce its audited finances. Moreover, while the governor keeps claiming that his government is strapped for cash, he has continued to increase public spending during his term.
Make no mistake: An automatic stay protection against creditor claims would be a gift to a liberal chronic spender like Gov. Garcia-Padilla. From the moment the stay takes effect, the governor will stop paying many, if not most, government obligations and divert the money toward more useless government spending, especially in an election year. It would be inexplicable if a Republican Congress were to allow this to happen.
PROMESA also undermines the rule of law by changing the rules under which government bonds were sold to investors, allowing the local government to ignore the priority the Puerto Rican Constitution gave to debt payments. Experts believe this would not only shut out Puerto Rico from the credit market, but also create uncertainty in the broader municipal lending market and raise the borrowing costs for states that issue similar prioritized-debt.
Conservatives should not feel compelled to support another Washington fix simply to further the Obama administration and Treasury Department’s scorched earth campaign against bondholders. They should instead take note that the majority of Puerto Ricans on the island, as well as a broad coalition of Puerto Rican leaders, oppose a bailout and want the government to pay what it owes. They understand that with strong local leadership and good governance, Puerto Rico can overcome its current woes and build a bright future of growth and opportunity.
Congress can provide a helping hand to Puerto Rico. But ultimately the current financial troubles that plague the island can be solved only in San Juan.
Alfonso Aguilar is the president of the Latino Partnership for Conservative Principles and the former Chief of the U.S. Office of Citizenship in the George W. Bush administration. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions.
