Congress should not overlook Puerto Rico’s bondholders

Congress should not allow Reps. Gutierrez (D-Ill.) and Velázquez (D-N.Y.) to hastily push through a provision on the Dec. 11 omnibus spending bill that would allow Puerto Rico to file for Super Chapter 9 bankruptcy and evade its debt. This unprecedented measure would effectively skirt the rule of law, destroy investor confidence in the Island and, most importantly, completely wipe out the savings and retirement funds of the hundreds of thousands of American citizens – on both the mainland and in Puerto Rico – who invested in Puerto Rican government bonds.   

The reality is that no bankruptcy measure can truly fix Puerto Rico’s debt crisis. Though it would be beneficial to the Island’s political leaders to simply wipe the slate clean, the Island must undertake genuine spending and borrowing reforms to ensure that this crisis does not simply resurface down the road.

{mosads}Instead of hastily ceding to the Puerto Rican Governor Alejandro Garcia Padilla’s demands, members should encourage the Puerto Rican government to work with bondholders to reach a consensual solution to the Island’s debt crisis before entertaining any bankruptcy-induced debt restructuring.  

On Dec. 1, the Senate Judiciary Committee held a hearing to discuss Puerto Rico’s fiscal problems, which was the third such Senate hearing called to discuss the Island’s debt crisis in recent months. We applaud Sens. Orrin Hatch (R-Utah) and Chuck Grassley (R-Iowa) for standing up for the rights of bondholders and the rule of law.   

The governor and his team of lobbyists (a who’s who of Democrat consultants and union influencers) have tried to label Puerto Rican bondholders greedy “vultures,” who desire payment at the expense of the well-being of the Puerto Rican people.  We find this strange definition of the term “vulture.” By the governor’s own admission, approximately 25-30 percent of the Island’s debt is held by regular Puerto Rican citizens – a high number that does not even include small bondholders on the mainland.  

According to Grassley’s testimony, nearly 60 percent of Puerto Rico’s debt is held by individuals, by regular American citizens. We bondholders are many things: seniors, retirees, small business owners, mothers, fathers, parents and children. But we are not “vultures.” 

The uncomfortable reality is that Puerto Rico’s public sector debt has been accrued through years of government fiscal mismanagement. The government has long operated on an unbalanced budget, borrowing to paper over the deficit and to keep pace with unrelenting public spending. In his term as governor, while Puerto Rico’s economy and population have continued to shrink, public spending has risen. Now the governor says that these debts are “unpayable,” despite the fact that much of the debt is owed to the Puerto Rican people themselves – many of whom now face increasingly bleak prospects financially.  

Gov. Garcia Padilla should be negotiating with bondholders, rather than seeking to unilaterally wipe them out. As such, any attempts to violate the Island’s Constitution, as the governor has advocated for in his pursuit of Super Chapter 9 or a control board with restructuring powers, should be flatly rejected.  There is a constitutional obligation to pay these bonds and Garcia Padilla is not honoring this. He must act according to our Constitution. 

Any legislation that is passed should also force the Island to be more transparent and responsible with its financials. The government must reform its spending and borrowing practices, which are the root cause of this crisis. The government must also resume regular reporting of audited financial statements; a practice that ended when Garcia Padilla took office. Congress should be clear in demanding greater fiscal discipline from the Island along these lines. Failure on the part of Puerto Rico to amend these practices only pushes its inevitable financial reckoning off on a future generation. 

Puerto Rico’s bondholders are not the enemy; we are not the cause of Puerto Rico’s financial problems. Our crime is one of working hard, saving money for our families, and investing in supposedly safe bonds backed by our government. Garcia Padilla’s insistence on a one-way dialogue should not fool Congress; the only path toward an equitable, sustainable solution for Puerto Rico is one that centers on good faith negotiations and respects the rights of all parties involved. 

Garcia is a retired chemist from San Juan, Puerto Rico. Perez Garcia is a retired accountant from San Juan, Puerto Rico.   Ponce de Leon is a retired electrical engineer and current small business owner from San Juan, Puerto Rico. Feder is a retired accountant from Long Island, New York.  All are members of Main Street Bondholders, a project of the 60 Plus Association that is made up of small bondholders from across America who are committed to a policy process that returns Puerto Rico to sound financial management, respects the rule of law, and protects their retirement savings.

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