WASHINGTON • U.S. Treasury Secretary Jack Lew said on Tuesday that Puerto Rico was “for all practical purposes” in default and needed a full restructuring of all its debt, including general obligation bonds.
“Restructuring is going to have to be inclusive of all of Puerto Rico’s debt in order to address the crisis that they have,” Lew said in testimony before the House Financial Services Committee.
As for the potential impact on the $3.7 trillion U.S. municipal bond market, Lew said each issue is looked upon independently based on risk and credit quality.
However, he added: “I believe the worst thing for the municipal bond market would be a disorderly unwinding in Puerto Rico, which is what will happen if Congress doesn’t act.”
Puerto Rico’s leaders argue that bankruptcy offers the only way to manage the tiny Caribbean island’s $70 billion in debt and the U.S. Supreme Court on Monday heard arguments about whether the U.S. territory has the right to make such a move.
Republicans who control the U.S. House of Representatives have promised to soon offer a Puerto Rico rescue plan but any concrete action on the crisis is likely many weeks away. U.S. House Speaker Paul Ryan initially had promised to have a Puerto Rico rescue bill to the House floor before the end of the month.