CNE to Congress: Debt Restructuring Mechanism for Puerto Rico Is Urgently Needed but must be Workable
Statement on Washington D.C. Congressional Staff Briefing on April 28, 2016
The Center for a New Economy (CNE) has been invited by the Committee on Natural Resources of the U.S. House of Representatives to share its expertise on the complexities of the Puerto Rico fiscal and economic crisis with committee members and staff. In its briefing, CNE stressed the urgency for Congressional action, but cautioned that any bill approved by Congress must provide Puerto Rico with a debt restructuring mechanism that will actually work. READ MORE
Staff Briefing by Sergio M. Marxuach for the U.S. House of Representatives Committee on Natural Resources on April 28, 2016.
- On behalf of the Center for a New Economy I want to thank the staff of the Committee on Natural Resources for the invitation to share with you some of the things we have learned over the last decade or so with respect to Puerto Rico’s complicated capital structure.
- We recognize the Committee has devoted a considerable amount of time, effort, and resources to this issue and understand progress has been made in developing a comprehensive legislative solution to Puerto Rico’s debt crisis.
- In spite of this progress, we believe that work remains to produce a bill that addresses the concerns of all stakeholders—both in Puerto Rico and in the mainland—in a balanced, equitable, and fair manner.
- We look forward to continue working with you as the Committee adjusts the legislative text currently under consideration.
The Endgame: An Analysis of Puerto Rico’s Debt Structure and the Arguments in Favor of Enacting a Comprehensive Debt Restructuring Mechanism for Puerto Rico
Puerto Rico’s debt structure is inordinately complicated. With no access to a broad debt restructuring mechanism, the chaos that a disorderly default could bring would further erode bondholder value, increase restructuring costs, depress the local economy, and make long-term recovery harder to achieve.
What follows is the executive summary of the policy paper “The Endgame: An Analysis of Puerto Rico’s Debt Structure and Arguments in Favor of Enacting a Comprehensive Debt Restructuring Mechanism for Puerto Rico” updated on April 2016.
A link to the updated paper in its entirety can be found at the end of this post.
Puerto Rico’s current crisis has been years in the making and is not limited solely to the public debt overhang. At the core of the current predicament is a deteriorated development model and economic institutions that have hindered growth. Thus, any solution enacted by the federal government must provide a workable process conducive to a comprehensive restructuring of the debt and recognize the multifaceted nature of the crisis. Following are the priorities identified by the Center for a New Economy to address the crisis:
- BROAD RESTRUCTURING AUTHORITY
If Puerto Rico does not address its debt overhang problem effectively it will be unable to attract the private capital necessary to generate sustainable economic growth in the future. Thus, it is important that the bill provide for a workable and viable mechanism conducive to broad restructuring of the public debt.
- SCOPE OF THE OVERSIGHT
A Federal Fiscal Control/Oversight Board for Puerto Rico solely focused on imposing “quick fixes” and addressing public debt issues runs the risk of failing to solve the crisis. If Congress wants to avoid facing the same predicament in 5 or 10 years, any solution crafted in the current juncture must ensure the long-term transformation of the island’s fiscal and development institutions and have the support of diverse stakeholders in Puerto Rico.
- SHORT-TERM ECONOMIC AND FISCAL STABILIZATION
Congress should consider enacting short-term measures to stabilize the island’s fiscal and economic situation. We suggest that Congress gradually treat Puerto Rico as a state with respect to Medicaid funding over the next ten fiscal years and propose a scale of decreasing wage subsidies in the form of a tax credit against the employer portion of the federal payroll tax.
- ECONOMIC GROWTH
We recommend creating a federal joint task force or working group to collaborate with an Economic Growth Commission to be set up in Puerto Rico with representatives from the island’s civil society, business sector, labor unions, government, and academia, to develop a medium-term economic growth strategy for the island.
CNE al Congreso de EEUU: el mecanismo de reestructuración de la deuda que se cree para Puerto Rico tiene que funcionar
Declaración en relación a la sesión informativa que CNE ofreció en el Congreso en Washington D.C. el 28 de abril de 2016.
El Centro para una Nueva Economía (CNE) fue invitado por el Comité de Recursos Naturales de la Cámara de Representantes de EEUU a ofrecer su peritaje sobre la crisis económica y fiscal de Puerto Rico durante una sesión educativa dirigida a los miembros y el personal del Comité. Durante la sesión, CNE resaltó la urgencia de que el Congreso tome acción sobre Puerto Rico pero advirtió que cualquier proyecto de ley que se apruebe debe proveerle a la isla acceso a un mecanismo de reestructuración que verdaderamente funcione. READ MORE