Clean­ing up Puerto Rico’s mess

The cri­sis is past crit­i­cal and is ap­proach­ing dis­as­ter

The Washington Times Daily - - EDITORIAL -

Puerto Rico con­tin­ues to strug­gle with the con­se­quences of ir­re­spon­si­bly run­ning up debt. It owes debtors about $70 bil­lion, and a de­fault on debt which was due to be fully repaid by last month has made things worse. The Puerto Rico Over­sight, Man­age­ment, and Eco­nomic Sta­bil­ity Act, en­acted last year af­ter Pres­i­dent Obama and House Speaker Paul Ryan ap­plied pres­sure on Congress, was sup­posed to pre­vent things like that. In­stead it threat­ens to ac­cel­er­ate the rate of col­lapse.

Puerto Rico has gone past crit­i­cal and is ap­proach­ing a dis­as­ter that will lead, no doubt, to de­mands that the U.S. gov­ern­ment pay the is­land’s bills. The blame for this goes to the politi­cians who are still try­ing to pro­tect pub­lic em­ployee pen­sions above ev­ery­thing else. A pen­sion over­sight board de­serves blame, too, be­cause it wouldn’t make tough and un­pop­u­lar de­ci­sions to de­velop a plan to right the ship.

Rather than make tough choices it won’t talk about what it needs to do. The lack of trans­parency in de­lib­er­a­tions fur­ther an­tag­o­nizes the credit mar­kets on which the gov­ern­ment de­pends. It has shut down the op­por­tu­nity to change Puerto Rico’s Fis­cal Plan and re­fuses to ad­dress the crit­i­cisms lodged against it, in or out of court. The Puerto Ri­can gov­ern­ment is us­ing rev­enues des­ig­nated to pay back debt for or­di­nary com­mon­wealth ex­penses.

The cu­mu­la­tive amount of the di­verted rev­enues is close to $1 bil­lion. Given that the to­tal ser­vice on the gen­eral obli­ga­tion debt is $800 mil­lion or less, about 20 per­cent of that is be­ing di­verted for im­proper pur­poses, which is dig­ging the hole so deep it will be hard to get out of it with­out help from Washington. The board needs a shake-up to put an end to the con­tin­u­ing shake­down by fran­tic op­po­nents of re­form.

Six mem­bers of the pen­sion over­sight board are ap­pointed by Congress. One, An­thony Gon­za­les, a New York judge who is sup­posed to know some­thing about bank­ruptcy law, is a pres­i­den­tial ap­pointee whom Pres­i­dent Trump can and should re­place. A new Trump mem­ber with an ap­pro­pri­ate back­ground in mu­nic­i­pal fi­nance would boost the board’s abil­ity to push fis­cally sound poli­cies and guar­an­tee com­pe­tent ad­min­is­tra­tion. He or she could be the new de­cid­ing vote in push­ing back against fis­cal at­tacks, en­abling a re­al­is­tic re­cov­ery rate for bond­hold­ers, and putting Puerto Rico’s fi­nan­cial house in or­der.

A fair agree­ment to Puerto Rico’s fi­nan­cial prob­lems can only be reached through trans­par­ent ne­go­ti­a­tions, higher ac­count­abil­ity and a re­spect for the law­ful pri­or­i­ties and liens. A new ad­min­is­tra­tion marks a new di­rec­tion and a new pol­icy, and the pres­i­dent needs proper rep­re­sen­ta­tion on the over­sight board to solve Puerto Rico’s debt cri­sis once and for all.

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