Treasury Secretary Jacob Lew supports allowing Puerto Rico to access Chapter 9 bankruptcy protection as the commonwealth struggles to deal with $72 billion in debt.
In a letter sent Tuesday to Senate Finance Committee Chairman Orrin Hatch, R-Utah, Mr. Lew said “no one” is contemplating a federal bailout, and that any federal response should include “a tested legal bankruptcy regime.”
Without such a regime, “an untested and potentially disruptive process with numerous creditor lawsuits and years of litigation would depress the local economy, increase costs and make long-term recovery harder to achieve,” and strain federal assistance resources. It “also has the potential to further harm retiree investment portfolios across the country. A significant portion of Puerto Rico’s debt is still held directly by individual retail investors or indirectly through the municipal bond funds they own,” Mr. Lew said in response to Mr. Hatch’s request for the Obama administration’s position on Puerto Rico’s debt crisis.
“Orderly resolution of debt defaults are preferred to chaotic resolutions,” said Mr. Hatch in an earlier letter to Mr. Lew.
Congress would have to explicitly grant Puerto Rico access to bankruptcy law. Senate and House bills have been introduced to do that, but there is no action scheduled for the congressional recess in August.
In June, Puerto Rico Gov. Alejandro Garcia Padilla said the U.S. territory cannot repay $72 billion in debt that it has incurred through the issuance of general obligation bonds, sales tax-backed bonds and public corporation/agency bonds.