January 13, 2016

The New York Times: Let the U.S. Treasury Rescue Puerto Rico

By Michelle Wilde Anderson

Last week, Puerto Rico eked out a major round of payments on its enormous debt — surely the last one that the island can afford to pay in full. The territory’s debt crisis reached a boiling point last summer and is beginning to overflow. By the new year, Puerto Rico will most likely be unable to meet payroll for basic services on the island.

So far, Congress has languished in paralysis, failing to act on legislation to let the territory file for bankruptcy and restructure its payment schedule. That leaves the Obama administration, again, to compensate for congressional inaction with a creative solution. The Treasury Department can and should do so — immediately.

It is inconceivable that Puerto Rico can keep paying its debts on schedule. Indeed, it might be irresponsible to do so. The territory is 10 years into a recession, with unemployment and its under-the-counter economy growing. Manufacturing businesses, long a key sector of its economy, have moved production abroad, as they have in Detroit and other postindustrial cities. That has meant mass layoffs and rising blight, and has left the work force few options on the island other than poverty wages in a service economy.

With the economy shrinking, so has the government. Puerto Rico’s austerity policies have included tax and energy rate hikes, school closings, pension cuts and privatization of its airport. The government has laid off 21 percent of its employees since 2008.

If service cuts and asset sales remain the only response to the crisis, the economy is sure to worsen. Such measures will undermine Puerto Rico’s ability to recover and pay its debts over the long run, leaving it like a debtor who sells his car to make a few more payments to a creditor but then can’t reach his job.

Read more here.