April 15, 2016, Fairfax, Va.—Americans for Limited Government President Rick Manning today issued the following statement urging Congress to require Puerto Rico to restructure its $72 billion debt and not to bail out unsecured creditors who bet poorly on Puerto Rican debt:
“The United States finds itself in a difficult position in relation to the Puerto Rican debt crisis. Speaker Paul Ryan, House Natural Resources Committee Chairman Rob Bishop and Financial Services Subcommittee Chairman Sean Duffy have put together a thoughtful approach to protect the U.S. taxpayers by imposing a tested mechanism for getting the territory’s finances under control and by creating a controlled environment for restructuring Puerto Rico’s unsustainable $72 billion of debt that will keep taxpayers off the hook.
“There is a successful history of Congress imposing financial controls in the past with the most recent example being the successful effort in the District of Columbia to pull the nation’s capital back from the brink of insolvency. Protecting taxpayers is job one of this legislation, and while the details of the bill need to be worked out through the regular process, any attempt to weaken the power of the imposed financial control board to restructure Puerto Rico’s $72 billion debt must be a deal breaker.
“However, the legislation should not be viewed as sacrosanct, and should have a number of important riders added to it that will rein in President Obama’s regulatory overreach which puts our nation’s economy and freedom at risk, and the House Resources Committee and Rules Committee should incorporate riders which rein in this overreach.
“Time is working against the people of Puerto Rico due to the failures of their government, and Congress needs to move forward on the Duffy Puerto Rico financial control legislation provided it meets five criteria:
“1. Protects U.S. taxpayers from bailing out Puerto Rican bondholders and other creditors by preventing unsecured bondholders from cutting in line in any debt restructuring and that restructuring will be mandatory when there are no other funds to pay debts;
“2. Establishes a strong Financial Control Board mechanism empowered to restructure Puerto Rico’s debt and make the changes needed to put Puerto Rico on strong economic footing moving forward, along with defined criteria for when control should be returned to the elected representatives;
“3. Does not establish a precedent whereby states with heavy debt burdens like Illinois and California can use it as a model for discharging their debt onto the U.S. taxpayer by requiring Puerto Rico to restructure its debt when there are no other funds to pay bondholders;
“4. Incorporates key riders to rollback President Obama’s regulatory overreach;
“5. Legally insures that bondholders who were willing to benefit from the higher rates of unsecured bonds will be subject to the commensurate losses. Creditors who made a bad bet on unsecured debt in Puerto Rico must not be allowed to cut the line to get repaid.
“Americans for Limited Government would look favorably upon any legislation which meets these criteria, in particular by protecting taxpayers from bailing out creditors who bet poorly on Puerto Rican debt, and would urge passage of said legislation. If taxpayers are protected and creditors get a real haircut when there are no funds to pay the debts, then by definition it is not a bailout.”
H.R. 4900 (text readable), April 13, 2016 at https://getliberty.org/wp-content/uploads/2016/04/hr_4900_promesa.pdf
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