Fausta's Blog

American and Latin American Politics, Society, and Culture

By

Puerto Rico: Default, followed by lawsuits UPDATED Bankruptcy

Move over, Detroit,
Puerto Rico to File Largest Public Sector Bankruptcy in History.

A headline on Monday;
Puerto Rico Debt Gains After Bondholders Reject Governor’s Offer

– Commonwealth may get $295 million in Medicaid funding
– Prices on GO bonds are below island’s best-case 77-cent offer

Today’s headline:
Puerto Rico Creditors Sue Over Debt-Cutting Plans. Lawsuits naming Puerto Rico, oversight board filed after legal freeze expires (emphasis added)

Bond insurer Ambac Assurance Corp., which has $10 billion in guarantees on the line in Puerto Rico’s debt crisis, filed lawsuits in federal court challenging the territory’s debt-cutting plan. Hedge funds holding sales-tax bonds called Cofina s also sued to prevent Puerto Rico from spending their collateral for other purposes.
. . .
Meanwhile hedge funds led by Aurelius Capital Management LP sued Puerto Rico in New York state court, seeking to recoup past-due payments on $1.4 billion in defaulted general obligation bonds. Creditors holding Cofina bonds and general obligation bonds were already battling in another case for top priority.

The mounting legal claims signaled a collapse in restructuring negotiations, heightening the likelihood that the federal board overseeing Puerto Rico’s finances will place the territory under bankruptcy protection, though no such filing appeared to have been made by Tuesday evening.

The fact is,

A legal shield protecting Puerto Rico from lawsuits expired Monday. Without having invoked Title III or signed standstill agreements with creditors, Puerto Rico for the moment is exposed to debt-related claims stemming from its fiscal plan, which allocates roughly $800 million a year over the next decade for debt payments. Creditors are owed more than four times that amount annually.

Now the lawyers are needing to get paid, too.

For decades Puerto Rico funded its overspending by issuing bonds. Investors ignored the disastrous spending even after the bond ratings collapsed because they were betting on high yields.

On Monday demonstrators protesting austerity measures vandalized the business district in Hato Rey, threw pepper spray canisters at the police, and blocked access to the airport,

Students Of Puerto Rico Lead Resistance Against PROMESA. A reduction of 450 million dollars to the university’s budget can only mean the imminent destruction of the UPR as we know it.

The University of Puerto Rico has been closed due to a strike; now it is losing its Middle States Commission on Higher Education accreditation (link in Spanish). Losing this accreditation means students will find it near-impossible to transfer to colleges and universities in the U.S. and overseas without losing all their credits, even if they completed a high school international baccalaureate.

Spanish was declared Puerto Rico’s official language in 2015, providing a disincentive for English-language multinationals to establish businesses in the island.

Mary O’Grady was in the Batchelor Show talking about Venezuela and Puerto Rico:

Puerto Rico’s Democratic Governor Sounds More Like A Republican When It Comes to Island Debt Crisis

The governor noted that he does not support the PROMESA bill, nor do many on the island since many say it reeks of colonialism. In truth, the board is acting in a function that is no different from the various state takeovers of American cities (Harrisburg, Detroit) we’ve seen who were in disastrous financial condition. Still, even here, the notion of an unelected board overruling the representative body is disconcerting. Regardless, despite his opposition, the governor understood that this is the law and the new reality.

Roselló wants to cut spending by 25%.

Good luck with that. When Republican Luis Fortuño was governor, he was voted out after his first term because he tried to cut expenses.

UPDATE
As expected, Puerto Rico To Request Bankruptcy Protection. Move sets up showdown with Wall Street firms owed billions of dollars

The governor said he would petition Puerto Rico’s federal oversight board to invoke a quasi-bankruptcy law that puts its standoff with creditors before a judge. His decision marks the start to what could be a lengthy legal fight as Wall Street watches closely to see how other indebted municipal governments may fare in confrontations with investors.

Promises, promises,

The slide into bankruptcy would mark a new low in Wall Street’s relations with Gov. Rosselló, a political newcomer who pledged as a candidate to repay the territory’s debts, shrink the government and strengthen ties with the U.S.
. . .
A bankruptcy filing by the board, which creditors lobbied Congress to create, could mean deeper losses on bonds than they anticipated. Puerto Rico will face off against angry hedge funds, mutual funds and bond insurers in the court-supervised proceeding known as Title III, a legal mechanism created by Congress to restructure debts by force if negotiations broke down

This is going to wind its way through the courts, since as Matthew Wirz explains, “key provisions of Title III have never been interpreted by the courts, and the law includes protections for creditors that chapter 9 doesn’t.”

Share

By

Puerto Rico: Gov. Rosello’s off-message on statehood

Puerto Rico plans to hold a statehood-or-independence referendum in June this year. It would be the first binary choice referendum, as prior referendums have included the current Commonwealth status.

The Admissions Clause of the Constitution reads,

1: New States may be admitted by the Congress into this Union; but no new State shall be formed or erected within the Jurisdiction of any other State; nor any State be formed by the Junction of two or more States, or Parts of States, without the Consent of the Legislatures of the States concerned as well as of the Congress.

Puerto Rico’s governor Ricardo “Ricky” Roselló was on the Tucker Carlson show last night talking about the plebiscite,

Carlson started by quoting this Miami Herald interview, where Roselló said (emphasis added),

“The United States is always demanding democracy in other parts of the world,” Rosselló told the Miami Herald, “but it seems to me it doesn’t have the moral standing to demand democracy in Venezuela or Cuba if it won’t extend [democracy] to 3.5 million of its own citizens.”

In the Miami Herald interview Roselló blamed the U.S. for the island’s catastrophic fiscal problems,

For Rosselló, the debt crisis and the island’s political status are inextricably linked: “Puerto Rico’s colonial situation is what has provoked this crisis.”

“If we compare ourselves with the other 50 states, the fundamental difference is our lack of rights, our lack of participation, and our lack of resources to move our jurisdiction forward,” he said. “Our colonial condition creates a situation of incredible inequality.”

This may play well with home audiences, but to everyone else it’s insulting.

Worse yet, last night at Carlson’s he dug in his heels in accusing the U.S. of undemocratic behavior (2:00 into the video).

In fact, the mere holding of a free plebiscite shows that there is democracy in Puerto Rico; Puerto Ricans in the island don’t vote on national elections only have a Resident Commissioner (not a Senator or Representative) in Congress. Puerto Ricans living in the 50 states vote in National elections.

The economic crisis:
As you may recall, Puerto Rico‘s debt crisis has been in the news, but the profligate spending has been going on for decades. The island may run out of money by July. Nearly one third off all employment is government jobs, thousands of them sinecures (locally known as batatitas). Roselló did mention that his administration reduced 20% of political appointees in government jobs and cut the budget by 20%, and aims to bring down the number of government agencies from 131 to “30 to 35” (3:40 into the video).

Why would the 50 states benefit by adding one more state?
Roselló spoke of Puerto Rico having added value as a destination, which it does, but its strategic value decreased, while there are thousands of destination spots across the U.S. and Caribbean. Its only sea container terminal is in San Juan. It does not have a Panamax port.

Language:
When Carlson asked, “Would English be the official language of Puerto Rico?”, Roselló replied (4:10 into the video),
“The United States is also a Spanish-speaking country. It’s the third-largest Spanish-speaking country in the world, and the United States itself doesn’t have an official language. So I don’t oppose, as a matter of fact our public policy is, bilingualism.”

Unfortunately, as any visitor to the island will tell you, fluency in English is woefully inadequate among the general public.

A brief analysis:
I have not lived in Puerto Rico since the 1970s. From before I was born, the status (i.e., statehood-commonwealth-independence) issue has served as a catch-all for all problems, from corruption to criminality to government waste and spending.

Governor Roselló made a very weak case last night for Puerto Rico’s statehood.

If he could factually state, “look, we are cutting government spending, ending corruption, adhering to the rule of law, and are making sure every child learns not only fluent English but also respect for the Constitution of the United States. We value our culture while we are fully committed to assimilating American values. We appreciate your help,” he would make a stronger case for statehood.

Until he’s willing to make that speech, efforts to bring statehood to the island will continue to look like giving the Democrats another state, since the Democrat party machine is very strong in Puerto Rico and among Puerto Rican communities in the U.S.

The referendum is scheduled for June 11, 2017.



Share

By

Will Puerto Rico avoid bankruptcy?

The incentive for avoiding bankruptcy is a push for statehood.

Puerto Rico Doesn’t Want Bankruptcy. Gov. Ricardo Rosselló, sworn in Jan. 2, says he will aim to pay creditors.

Mr. Rosselló’s most immediate problem is the liquidity crisis sparked by former Gov. Alejandro García Padilla’s initiatives—dating to at least 2014—seeking bankruptcy protection. Puerto Rican debt service amounted to only about 16% of the consolidated budget in 2016. But with money tight, Mr. García Padilla was unwilling to cut expenses. Instead he decided not to pay the debt service, and the island lost access to credit markets.

Roselló is asking for more time, and some of the debt are agreeable. Read the full article here.

Share