Puerto Rico bankruptcy protection: U-M expert says it’s long overdue
After months of negotiation, U.S. House Republicans introduced a bill that would help Puerto Rico deal with its $72 million debt that has crippled its economy, setting rules that would allow it to seek bankruptcy protection.
John Pottow, professor of law at the University of Michigan, testified last year before the House Judiciary Committee regarding a similar bill, which he discussed with Michigan News in a Q&A.
Pottow addresses the current bill, which was drafted by the House Committee on Natural Resources with Democrats’ support.
Q: What do you think of the current plan to help Puerto Rico currently under review at the House?
Pottow: I think it’s overdue, but it’s a serious attempt to tackle the problems. What’s interesting is that it has some different protections of different investor’s rankings than would otherwise be in bankruptcy law, so that’s perhaps the reflection of some skillful lobbying. But, all in all, it’s a real attempt to pass a bill that has bankruptcy relief ultimately available.
Q: Puerto Ricans fleeing the island have been settling in Florida and could play a significant role in the presidential election. How does the current plan and candidates’ positions hurt/help them?
Pottow: I am sure Secretary Clinton will support because, in general, she is not going to fight a strong bipartisan bill. I think the minimum wage provisions are a real tough sell for the Democrats to swallow, but note that most of the “no” votes in the Committee (where it passed with broad bipartisan support) were Republicans, so nobody’s happy—always a good sign. I have no idea what Mr. Trump thinks about it. It’ll be interesting to hear his thoughts.
Q: Last year, you said investors with current bonds in the electric authority opposed Puerto Rico being treated as a state on bankruptcy issues. Has this changed? How?
Pottow: They’ve fought, but now I think they see writing on the wall.
Q: One of the criticisms that have been made at an attempted rescue is that U.S. investors buying bonds at rock bottom prices benefit from an eventual rescue. Is this still an issue? Is there a way to help protect from this type of investment?
Pottow: It’s not really a rescue of the investors. There is no money being injected to them. Rather, it’s a bankruptcy so deciding who ranks where in the pecking order of losses.
Q: Why is it important for the U.S. to help Puerto Rico with its financial crisis?
Pottow: Many reasons. I mean, if you can’t pay workers they eventually go on strike, which leads to humanitarian crises. And since we won’t let people starve or riot, there would eventually be pressure for a government bailout. I will defer to those more expert on such matters but there is also a moral obligation since Puerto Rico not given full sovereignty, flip side is federal government has obligation to act.
Q: Is there something else that we should consider when looking at this issue?
Pottow: Political subtext is very sensitive. Because of the antiquated and frankly offensive subjugation of Puerto Rico as a second class political entity, federal oversight is a two-edged sword. So federal help, while needed, will rub salt in the wound of not having their own equal power to other states. I bet this fuels the upcoming referendum on statehood.