I grew up – poor in dollars but rich in a strong family bond — in rural Mississippi, and spent most of my adult life in public service representing some of the most economically disadvantaged regions in America. My first elected office was the county clerk of Jefferson Davis Country, and my last was representing that same region of Mississippi in the United States Congress. The constant over those 30 years, was always advocating for the poor.
While I no longer am in public service, I still follow national issues related to poverty and I have been watching the unfolding debt crisis in Puerto Rico. As you may know, Puerto Rico is facing a debt so large it is hard to comprehend, an amount totaling nearly $70 billion. Like Mississippi, poverty and unemployment on Puerto Rico is at alarmingly high levels – nearly half the population on the island. The commonwealth’s public health system is facing catastrophe and almost all public services are underfunded. Crime is surging in many parts Puerto Rico. As if all of this was not bad enough, the commonwealth is facing a brain drain, with the best and brightest leaving for greener pastures in the mainland United States.
The question now facing decision makers in resolving the debt crisis, is how to manage the current situation to ensure that Puerto Rico can come back from this disaster and become a place where people want to live, work and raise families. If those individuals manage the situation poorly, the amount of poverty and human misery – which is already to high for anywhere in the United States – will continue to grow out of control in Puerto Rico.
There are three primary stakeholders in this situation. First, the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) — and its oversight board that has the authority to restructure the debt and require budget conciliations and reforms designed to generate long-term fiscal stability. Last year, PROMESA was created in a bipartisan agreement between Speaker Paul Ryan and President Barack Obama. Second, is the new governor of Puerto Rico, Ricardo Rosselló Nevares, who campaigned on a promise to hold creditors back to protect the immediate needs of Puerto Ricans. Third, are the creditors themselves, such as hedge funds and other institutional investors.
As you read this, the new Governor and the oversight board is trying to cut a deal that would allow the Puerto Rico Electric Power Authority (PREPA) to reduce the amount of debt it would be forced to pay back to creditors. Currently, PREPA is in $9 billion dollars in debt. However, by reducing the amount of debt that PREPA needs to pay back to creditors, they are taking some serious risks, that could throw the whole situation into chaos.
Included in the legislation that created PREPA, there is a provision barring the creditors from pursuing litigation, designed to allow the oversight board to put together a deal free from the encumbrance of courts, lawyers and judges. However, that prohibition on litigation ends in just a few weeks, on May 1st.
As much as Governor Rosselló wants to help spare his constituents additional pain and suffering, and put more of the burden of the pain of the debt crisis on the backs of creditors, the simple fact is that if he is not careful, he could send many of the creditors scrambling to the courts. From my experience, bankruptcy courts are hardly sentimental or compassionate, and will take the side of creditors in many instances. Even worse, if things end up in the courts, it will only extend the amount of time it takes to resolve these issues, creating more – not less – hardships for the people of Puerto Rico.
Like Governor Rosselló, I am more sympathetic to the plight of the people of Puerto Rico than I am for banks and hedge funds. But the reality of the situation is that the creditors have to be paid back and have to be offered a deal that is preferable to going to court. If PROMESA and the Governor fail to achieve this outcome, it will be an unmitigated disaster. When PROMESA was created, there was a sense of relief that the Congress and the White House stepped in to create an orderly process. If PROMESA fails to treat all creditors equally and fairly, this could end up in the courts and the only sure losers will be the poor people of Puerto Rico.
Shows, a Democrat, represented Mississippi’s 4th Congressional from 1999 – 2003