Federal Reserve Oversight Vice President Randal Quarles. (AP)

Washington - Despite the worsening fiscal crisis, a senior Federal Reserve official said yesterday that including Puerto Rico in the U.S. Central Bank's coronavirus emergency loan program is not a good idea given the island's public debt levels and PROMESA Act.

Fiscal problems in the territories are not a COVID-19-induced cash flow problem, said Federal Reserve Oversight Vice President Randal Quarles in response to a question by Democrat Nydia Velázquez (N.Y.) at a House Financial Services Committee virtual roundtable.

Quarles said that allowing territories, such as Puerto Rico, to take on new public debt - at a time when the island's government is bankrupt and subject to a restructuring process of its financial obligations - would not improve their situation.

House Democrats want to pass a new economic stimulus bill today that, in addition to proposing at least an additional $20 billion in allocations that would benefit the island, clearly opens the door for the Federal Reserve to finance the Puerto Rican government's debt arising from liquidity problems caused by the coronavirus emergency.

Congresswoman Velázquez, one of the authors of the new economic stimulus bill, has indicated that at least municipalities should have access to these loans.

"This provision may provide a valuable option for some municipalities in Puerto Rico that are struggling with additional costs associated with their local response to the pandemic," Velázquez told El Nuevo Día.

Quarles considers that Puerto Rico's fiscal crisis is not related to the coronavirus emergency and that Community Disaster Loans (CDLs) granted through FEMA in coordination with the U.S. Treasury would be a better tool to assist the island. CDL loans can be forgiven.

Velázquez asked the Federal Reserve representative what data the Central Bank has to argue that the coronavirus emergency does not deepen the island's fiscal crisis, at a time when the Puerto Rican government is anticipating a $1.6 billion deficit by the end of this fiscal year in June due to the virus.

"They are our colonies, and Congress wants to include the territories, (in the loans programs)" Velázquez said.

Although the future of the economic stimulus bill is uncertain, given the Republican majority and the White House rejection, it may not be clear what effect PROMESA restructuring process would have on an authorization for the central government to access emergency loans from the Federal Reserve.

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