The island territory of Puerto Rico faces more than $118 billion in public debts it has struggled to pay. Years of over-spending, corruption and cronyism in state-run enterprises, and fiscal irresponsibility have lead to the current debt crisis. The governor of the Commonwealth, as well as the Obama administration, have demanded bankruptcy as the remedy for the crisis. Republican leaders in Congress have countered with the case for governmental and financial reforms instead. This debate lead to legislation, currently pending in Congress, to address the crisis.

As a result, Congress will soon pass the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), introduced by Rep.

Sean Duffy (R-WI) as well as Reps. Rob Bishop (R-UT) and Jim Sensenbrenner (R-WI). While this is generally a good bill, the latest version has some key provisions, that could radically alter the outcome of addressing the debt crisis in the Commonwealth, that need to be changed. It is important the changes are made in the current version of the legislation.

The Obama Treasury department

Input from the ObamTreasury department has lead to changes in PROMESA, that could allow the legislation to result in a Super Chapter 9 like restructuring of debts in Puerto Rico. While Title VI creates a process for addressing the debts, if they are not resolved by that process, under Title III the Oversight Board can restructure the debts of any of the Commonwealth's instrumentalities. Under this process, creditors could be crammed down in ways that clearly are not intended under PROMESA as it was written in Congress.

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Under Section 314c, the control board can unilaterally haircut debt without the approval of a single group of creditors. This capability is not available in Chapter 9 or Chapter 11.

This would result in essentially the equivalent of a “Rhodes bankruptcy”, like that which was granted to the city of Detroit. Clearly the members of Congress that crated PROMESA didn't intend for this kind of result, nor did the grass-roots opposition among the public intend for a bankruptcy result for the island territory.

World politics

The debt crisis in Puerto Rico is affecting world politics because many of their citizens are fleeing the failing economy of the Commonwealth in seeking economic opportunity in the United States. Clearly reforms are needed to bring about a future of prosperity for the citizens of Puerto Rico, and enacting PROMESA the right way is the route to that future.

Good news for Puerto Rico

The American people strongly support reforms for Puerto Rico, and that is the good news. Our Congress and President need to enact PROMESA with the changes to ensure strong reforms, and not a Super Chapter 9 type results, are achieved. This is clearly in the interest of the millions of American people who have retirement investments tied up in the debts that will be restructured, as well as those of the citizens of the island Commonwealth in a future of strong economic prosperity.