Washington - Democratic Senator Elizabeth Warren (Massachusetts) is drafting a legislation to allow Puerto Rico cancel its public debt and authorizes a federal compensation of $ 15billion to apply to certain creditors.
With the support from colleagues like Bernie Sanders (Vermont) and Kirsten Gillibrand (New York), the legislation drafted by Senator Warren would allow a territory to eliminate its debt if it meets two of three criteria: if its population has decreased by 5 percent during the past decade, if it has received significant assistance to mitigate disasters or if the debt per capita exceeds $ 15,000.
The measure will also include the Virgin Islands.
Although Warren's office warned that the bill is not ready yet, a summary of the proposal that is circulating among Democratic Senators -obtained by El Nuevo Día-, indicates that "prolonged economic recessions, decrease of population and natural disasters have made it extremely difficult or impossible for some territories to carry overwhelming debt burdens".
The senators intention is to allow the government of Puerto Rico to request the cancellation of their debt, which is around $ 72 billion and it is currently subjected to a restructuring process before the territorial bankruptcy Court created by the PROMESA law, that also imposed the Board that controlls the public finances of the island.
It has been proposed, before Judge Laura Taylor Swain, to restructure $ 47,119 billion of debt, without including interests.
Warren and Sanders - potential pre-candidates for presidency as well as Gillibrand - have previously requested the debt cancellation. The three senators have been in Puerto Rico to survey the damage caused by Hurricane Maria.
"Puerto Rico's budget should go to rebuilding the island and addressing its ongoing humanitarian crisis, not paying Wall Street vulture funds." said Warren, in a letter she sent -along with the Democratic congresswoman Nydia Velázquez-, to the president of the Board, José Carrión III last November.
Then, Puerto Rican Velazquez said that maintaining the current level of debt will prevent Puerto Rico to start over.
In a highly divided and polarized Senate, and with the reluctance to revise the PROMESA Law, a bill in favor of legislatively canceling Puerto Rico´s public debt faces a steep path. And it is not yet clear whehter there will be a similar legislation in the Houe.
The proposal is gaining support
But it is evident that the idea of cancelling a significant part of the public debt to the government of Puerto Rico has gathered strength. Governor Ricardo Rosselló's fiscal plan recognizes that the government should not pay the debt for the next five years, hoping to re-boost the economy.
Recently, a group of well-known economists, academics and public policy makers proposed to cancel the debt. Among those who made that call was AntonioWeiss, who as counselor to Secretary of Treasury, Jacob Lew, was one of the architects of the process that ended in the approval of the PROMESA law, during the Barack Obama administration.
Even President Donald Trump, during his trip to Puerto Rico last October 3rd, acknowledged - although the White House made an effort to correct it - that it was necessary to "wipe out" the debt.
"Response to disaster and reconstruction have been complicated due to the debt of the territories. Few investors are willing to invest money in Puerto Rico or the US Virgin Islands reconstruction if overindebtedness means that the islands don´t have a realistic chance of recovering", warns the summary that Warren is circulating in search of co-sponsors.
It states that "the Congress previous attempt to address the Puerto Rican debt crisis, the PROMESA law was promulgated in 2016 but was not written to face the devastation of a disaster like Hurricane Maria". Debt cancellation, adds the document, "would allow" the territories to "recover with dignity and build strong economies".
According to the main points of the possible bill, the senators plan to propose a "compensation fund" for creditors that would reach $ 15 billion. A “special master” or “special commissioner” will be in charge of the process of distributing these funds.
The preliminary plan will suggest that half of that compensation fund would go to "Puerto Rican creditors" whose debt will be canceled, including "Puerto Rican residents, banks and credit unions with business only in Puerto Rico, unions and island public pension plans", businesses with a main base in Puerto Rico and" any other person that the 'special master' identifies (subject to some exclusions)".
The other $ 7.5 billion would be for US creditors, excluding "hedge funds", bond insurers and financial firms "with consolidated assets of more than $ 2 billion", dedicated to manage repurchases or exchange of investors.
"Creditors exclusions could probably not stand an attack in Court," said the former bankruptcy judge Gerardo Carlo Altieri, who added that establishing a compensation fund " is not a bad idea". But Carlo Altieri also argued that it will be necessary to see how the legislation seeks to amend or replace the PROMESA law.
Regarding what is perceived in Warren's preliminary plan, Carlo Altieri argued that it would be an attempt to "rescue the territories financially", something that Republican Congress has been opposing.
After the governor submitted his fiscal plan proposal, which includes privatizing Electric Power Authority (PREPA) assets, the Board plans to hold a dialogue about the future of that corporation on Thursday.
The board has also indicated that they are planning to have a fiscal plan ready - despite the uncertainty about the availability of federal assistance, by Friday, February 23rd.
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