Puerto Rico is a territory, that means that it is part of the United States, but not one of the United States. The government of Puerto Rico has a problem: they borrowed way more money than they can possibly pay back. The various banks and hedge funds that have bought Puerto Rican debt are suing in courts. Their local government has declared a moratorium on paying debts. If this was a state government, or a private company, they would declare bankruptcy, and there would be an established procedure for courts to deal with their problem. That option is not available for Puerto Rico.
Now Puerto Rico has another problem- the law passed to deal with this situation sacrifices workers.
The new law passed by Congress has several parts:
- A special board is established with 7 members (2 appointed by Paul Ryan, 2 appointed by Mitch McConnell, and 1 appointed by each of Harry Reid, Nancy Pelosi, and Barack Obama). The board will have pretty broad powers to control the government of Puerto Rico. All expenses of the board must be paid by Puerto Rico; the bill specifically says that no money from the federal government will be spent on anything. In fact the government of Puerto Rico must immediately send in $2,000,000 as an advance on the salaries and expenses of the board.
- The board will create a plan to restructure the debts, which must be approved by a court, subject to some constraints, such as: the plan is feasible and in the best interests of creditors, which shall require the court to consider whether available remedies under the non-bankruptcy laws and constitution of the territory would result in a greater recovery for the creditors than is provided by such plan …
- Puerto Rico will be exempt from certain rules, specifically the recent regulations on overtime pay rules, and will also be partially exempt from the $7.25 per hour minimum wage.
Members who spoke said that it is not what they want, but better than nothing, and the best compromise they could negotiate. The board has to come up with a plan that is in the best interest of the creditors- and the one thing that congress is sure of is that the low-wage workers should sacrifice.
However, I believe that putting the bond holders ahead of the minimum wage workers (not to mention schools and hospitals) in priority does not promote economic growth; the workers spend all of their money in Puerto Rico, the hedge funds that own the bonds mostly don’t spend their money at all, and what they do spend is not spent in Puerto Rico. The economy expands when people have more money to spend, not when they have less money. This fix, therefore, isn’t actually a fix at all. Without growing the economy, Puerto Rico will be forced to continue borrowing, and the workers of Puerto Rico will be exploited.