There is no legal reason why federal bankruptcy law does not apply to Puerto Rico and other U.S. territories. This exclusion is a mistake. Washington legislators must amend this and grant the island’s municipalities the same rights as the rest of the country.
Without the chance to seek protection under bankruptcy law – the way Detroit did, – it is very hard to negotiate with creditors a restructuring of debt, as it is usually done in these cases. Puerto Rico needs payment relief for the more than $72 billion it owes because, during an economic crisis and with few real options for sustained growth, such high financial obligations are impossible to meet.
The alternatives proposed by the FMI ex-economists favoring hedge fund creditors contain tough austerity measures that are yet to be proven effective anywhere. Government expense cuts – mostly in education – and tax increases would allow the island to pay its debt but would impoverish its citizens – all of them U.S. citizens – for decades to come.
Bankruptcy does not cost taxpayers money. It is a painful process for those in debt, who will sooner or later suffer regardless of the tools they find to somehow pay back what they owe. To confound citizens by using the terms “bail out” or “rescue” while debating whether or not to include Puerto Rico under bankruptcy law is intentionally misleading. It also shows bias in favor of a few inflexible creditors who should not have been surprised by the island’s financial woes, as they have been around for a long time. Hedge funds are sophisticated investors who have significant resources at their disposal to analyze risk.
Puerto Rico, the U.S. territory with the highest number of Latinos, needs fair rules, including the end of coastal trade laws that make imports more expensive, similar reimbursements as the rest of the nation for Medicare and Medicaid, and, most importantly, protection under bankruptcy law to allow the island to resort to the same tools as Detroit to restructure its debt.