As Congress decides how to intervene in Puerto Rico’s debt crisis ahead of Speaker Paul Ryan’s March 31st deadline for legislative action, it should take great care not to trample Puerto Rico’s Constitution and private property rights.
As a practicing Puerto Rican lawyer, the ever-shifting discourse that prevails in Washington around our financial crisis has been a source of never-ending fascination these last several months. It seems legislators have come to acknowledge some realities long apparent to those of us who call the island home, yet, hypocrisy persists at every turn.
Here are some indisputable facts: Puerto Rico’s various debt obligations do indeed add up to an astonishing sum — somewhere around $70 billion, depending on the number our government finds convenient on a given day. This astronomical number is, in fact, too large for an island of only 3.5 million, with a labor force only about a third that size, to pay back without serious economic growth and a significant restructuring.
That seems to be where consensus ends in Congress. Yet, this should not be where consensus ends.
Puerto Rico’s constitution both clearly lays out a hierarchy of credits and also offers protections to about a quarter of the island’s debt. Due to our constituents’ will, those bonds are “irrevocably pledged” and have first claim on all resources, ahead of all other bonds and the island’s pensions. That’s why Puerto Rican Governor Alejandro Garcia Padilla has continued to pay these debts, even while defaulting on others. Of course, these so-called “clawbacks” are not a long-term solution.
However, in a scenario where Puerto Rico is granted the ability to allow its municipalities, public corporations and instrumentalities to file for Chapter 9, as states have been able to do for nearly a century, the remaining 75 percent of the island’s various obligations are subject to restructuring. This includes the debt of public corporations like COFINA, an entity created by Goldman Sachs, invented for the sole purpose of helping the Puerto Rican Government issue debts that it could not afford.
But Obama Treasury official Antonio Weiss and some congressional Democrats have argued that Congress should cast aside the island’s Constitution and support a Super Restructuring Authority, which would have broad power to impair bondholder contracts under the plenipotentiary powers of the Territories Clause.
To be clear, a financial control board, as some are considering, as one additional element of a true plan for Puerto Rico’s financial recovery and economic growth, is not a bad idea. Under this context lawmakers would do well to impose an independent mechanism with powers to instruct fiscal discipline and balanced budgets, and solve its massively underfunded pension system. But this board must not have the authority to disregard Puerto Rico’s Constitution by impairing its bondholder agreements.
A Super Restructuring Authority would have far-reaching negative consequences. It would set a precedent that would harm retirement funds and pensions, up to one-third of which reside in Puerto Rico, invested in “full faith and credit” debt and drive up borrowing costs for States. In violation of constitutional protections offered by the island, it would eviscerate Puerto Rico’s long-term financial credibility, making it impossible for the Commonwealth to ever again borrow at reasonable rates.
Republicans in Congress should not be fooled into falling for this dangerous, precedent-setting step, which would upend a century of bankruptcy law and violate bondholder contracts. A state-like Chapter 9, combined with the element of a compliance board limited to fiscal and pension reforms, is a straightforward step that can offer Puerto Rico very significant relief, put the Commonwealth on a path to economic prosperity while respecting our Constitution and adhering to established bankruptcy law.
Ivan Rivera is a lawyer and former president of PRO-ELA, an organization of the Popular Democratic Party that fights for the autonomous rights of Puerto Rico. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions.
