Paper towels won’t save Puerto Rico, but a debt deal might.

HURRICANE MARIA BROUGHT NEW ATTENTION TO PUERTO RICO.

Sovereign debt is dull television compared with a president lobbing paper towels into a crowd, but the former is rather more important to Puerto Rico, and the devastation wrought by Hurricane Maria might offer an opportunity to do something about it.

President Donald Trump, who brings his own tropical storm with him wherever he goes, touched down in Puerto Rico on Tuesday to survey the recovery efforts, to offer encouragement to those afflicted and to celebrate the marvellousness that is Hurricane Donald wherever it blows.

And just as the storm surge accompanies the storm, all the voices that bewail the outrageousness of Donald Trump were indeed outraged, from the all-day allsplutter of the cable networks to the all-night all-snark of the late night comedians.

But given that after gusting through the NFL and Puerto Rico, Hurricane Donald will move on elsewhere shortly, perhaps a thought could be given to Puerto Rico’s plight which, in his own idiosyncratic way, the president brought attention to.

Puerto Rico is a few years into a sovereign debt crisis, though it is not strictly a sovereign territory, belonging as it does to the United States. With a population of approximately 3.5 million people, Puerto Rico has a debt of more than US$70 billion, which it cannot plausibly repay.

Sovereign states always have the possibility of defaulting on the debt, and resorting to legislation to limit the recourse of creditors. American states have the possibility of bankruptcy, in which debts are discounted and restructured. Puerto Rico is neither, and so was faced with a debt it could not pay, and fewer options than a private homeowner or incorporated business. Severe austerity would have been required, inflicting economic distress on an already poor population.

There is a long-standing moral principle that debts — however incurred, even when the debtor is at fault — ought not to be the cause of a person, family or business being driven to destitution. The same applies to a country. That moral principle has its earliest expression, perhaps, in the jubilee (every 50 years) remission of debts and restoration of land that is found in the Torah. Jesus taught that overwhelming debts ought not grind a person into more extreme poverty.

That same principle is behind our bankruptcy laws. And it finds expression in the adage that if a borrower owes the bank $100,000 and cannot pay, he has a problem; if he owes a million dollars and cannot pay, the bank has a problem.

As Puerto Rico lacks the authority to deal with its own debt, it falls to the American Congress to take action. It did last year by passing PROMESA, the Puerto Rico Oversight, Management and Economic Stability Act. PROMESA suspended debt service payments as of July 1, 2016, and gave Puerto Rico immunity from creditor lawsuits for a year. It established a financial stability board that would demand a new fiscal plan for the island and provide for a restructuring of debt, that would likely include some measure of default.

All that has been underway, with limited progress, but at least avoiding economic collapse and the attendant suffering of the poorest. Hurricane Maria therefore arrived at a most inopportune time. However, as the American Congress will now have to plan for a massive reconstruction effort, the inopportune time might be precisely opportune to accelerate getting Puerto Rico out from its debt load with a fresh start.

Getting that fresh start will include American legislators acting to disenfranchise the so-called “vulture funds” — which give not only a bad name to the world of finance but also to vultures. Vulture funds buy up debt that is in default or close to it for pennies on the dollar and then resort to litigation or threaten to block restructuring until full, or fuller, repayment is made. It is not a mischaracterization to say that vulture funds seek to profit off the weak by threatening ruinous consequences for the poorest. In whatever hurricane relief bill goes through to rebuild Puerto Rico, the vulture funds ought to be put at the back of the queue, if not dismissed altogether.

Trump was criticized, and rightfully so, for discussing Puerto Rico’s debt crisis while the bodies were still being recovered from Hurricane Maria. But Puerto Rico’s future cannot be rebuilt — or even its buildings and infrastructure today — without substantial debt relief, which is a financial issue to be sure, but also a moral and political one.

Hurricane Maria brought new attention to Puerto Rico, with both politicians and celebrities demanding that something must be done on a greater scale and at a quicker pace than what now prevails. Debt relief is that something.