Menendez Gets Renewed Commitment from Secretary Lew on Need for Broad Debt Restructuring in Puerto Rico
WASHINGTON, DC – During a Senate Finance Committee Hearing today, U.S. Senator Bob Menendez (D-NJ) questioned Secretary of Treasury Jack Lew about the brewing crisis in Puerto Rico and the necessary steps to alleviate the economic and fiscal crisis crippling Puerto Rico, and ensure a playing field for the 3.5 million American citizens that reside in the island.
In response to Sen. Menendez’s questioning about debt restructuring, Sec. Lew reaffirmed the Department of Treasury’s support for a comprehensive package and emphasized that providing Puerto Rico with territory-wide restructuring authority is the first and most important thing that needs to be done. Sen. Menendez then entered into dialogue with Finance Committee Chairman Hatch and pledged to work in good faith so long as the end goal was to provide a meaningful and long-term solution to the crisis.
Below is their full exchange:
Q: Do you agree that providing Puerto Rico with the tools to restructure their debt is a necessary component of any successful recovery package?
A: Senator, I totally agree and I think there are other things that need to be part of a comprehensive plan in the long run, but there is an immediate crisis in Puerto Rico. I was just in Puerto Rico a couple weeks ago. I met with business leaders, I met with working people, I met with all the public officials. It’s not a future crisis; it’s a current crisis. They talk about hospital wards that are being shut down, schools being closed, pensions that are being drained of money, people paying into pension funds that are being emptied out to pay for bond payments. This is not sustainable. People are leaving the island and the economy can't recover if the economy shrinks because people leave. When you're insolvent, it’s by definition what you said- your bond payments just cannot be supported any longer and you have to restructure. That's what happens in the private sector when companies become insolvent. It happens when cities become insolvent. Puerto Rico has a unique package of debts. It's complicated, there's 18 different series of debt. They could be in court for 5-10 years of litigation. I don't think PR's economy could recover from 5-10 years of protracted litigation. There won't be an economy to talk about...
Q: Does the Chapter 9 authority that’s currently open to municipalities in states give Puerto Rico enough flexibility to return to solvency?
A: It doesn't really work. It doesn't address about the third of the debt and that’s not…
Q: With large debt payments due in May and July, when will it be too late to act?
A: Yeah, they have only managed to be in default on small bond issues by doing things that are almost unthinkable in terms of financial management. I mean, when you think of prematurely emptying out pension funds to pay bond holders that's not something you do if you're not already bankrupt. When you talk about taking money that's dedicated to one bondholder and shift it to pay another bondholder, that can't go on very long so I can't tell you at what point they run out of those extraordinary and very unhealthy kinds of tools. But it can’t go on forever and restructuring authority has to be in place enough in advance that they can actually restructure to meet May and July as they come. So I think the first quarter is a meaningful period if the deadline the speaker set for the House to act in the first quarter is very important. We are willing to work with anyone and everyone who approaches us with the intention of solving the problem. We know that there is going to have to be oversight along with restructuring. I do believe that doing something on the Medicaid reimbursement and EITC is important, but I totally agree with you. Without restructuring, there is not a solution.
