Bankruptcy Questions for Puerto Rico

The American Bankruptcy Institute held a conference in New York City which included a panel on Puerto Rico. The panel brought up more questions than it answered, beginning with its title, “How Can Puerto Rico Restructure Its Debt Obligations and Return Its Economy to Growth?”.

The panelists included Jim Millstein, advisor to the Puerto Rican government and the GDB; Thomas Moers Mayer, an attorney who represents Franklin and Oppenheimer in connection with their Puerto Rico investments, including in the Recovery Act litigation pending before the U.S. Supreme Court; and Brad Setser, an economist at the Greenberg Center for Geoeconomics and former deputy assistant secretary at U.S. Treasury from 2011-15.

  1. Can Puerto Rico pay its debts? Not all the panelists agree that Puerto Rico cannot pay its debts. Millstein described the austerity measures that Puerto Rico has already put into place, and said that there is no money available to pay the debts. Puerto Rico can’t just stop providing public services, Setser pointed out, because the people of Puerto Rico can simply move to one of the States if Puerto Rico cannot provide basic services. Mayer disagreed, saying that Puerto Rico is better able to pay its debts than the government admits.
  2. Is PROMESA the same as bankruptcy? Mayer also held that PROMESA is essentially the same as chapter 9, part of the U.S. bankruptcy code which doesn’t apply to Puerto Rico. He expressed concern that allowing a fiscal control board to restructure Puerto Rico’s debts might cause States to ask for the same kind of process. Congress has said that the Territory Clause does not and cannot apply to States, and that PROMESA will be instituted under the Territory Clause.
  3. Is Puerto Rico’s status the problem? All the panelists appear to agree that Puerto Rico’s status is the root cause of Puerto Rico’s debt crisis. Mayer spoke about the injustice of the Insular Cases, and how they continue to affect Puerto Rico’s economy. Millstein discussed the history of Puerto Rico and the United States, and the ways in which Puerto Rico’s economy has been affected by that history.

The panel was a special luncheon session at the conference.

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