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How a Debt Bailout for Puerto Rico Short-Circuits Options for Reform – Washington Wire – WSJ

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Salim Furth is a research fellow in macroeconomics at the Heritage Foundation’s Center for Data Analysis. He is on Twitter: @salimfurth.

Puerto Rico’s governor, Alejandro García Padilla, recently spent a week in Washington begging for an indirect bailout. The governor wants Congress to give Puerto Rico access to chapter 9 bankruptcy laws, which currently don’t apply to the U.S. territory. But Puerto Rico’s problems run deeper than its $70 billion debt.

The island has already defaulted on some of its debt and diverted funds from some debts with weaker legal obligations to make other payments. Partial default may be inevitable, but resistance to business and labor reforms may be part of the reason Congress has yet to act on Puerto Rico’s requests for help. Lawmakers might also not be pleased by a Caribbean Business report Thursday that Puerto Rico may try to maneuver on federal loans to the island’s public water and sewer authority (Prasa):

Right off the bat, Prasa will no longer set aside money to service about $1.1 billion of its junior debt, most of which is guaranteed by the central government and includes federal loans made by the U.S. Department of Agriculture’s (USDA) Rural Development, which is owed $390 million, and the Environmental Protection Agency (EPA), owed $550 million.”

The story quotes the water authority’s executive president, Alberto Lázaro, saying of the suspended set-asides, “That doesn’t mean we aren’t going to pay.”

Source: www.blogs.wsj.com

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