Congress will decide soon if Puerto Rico gets Chapter 9 bankruptcy[/caption]
Puerto Rico has racked up more than $70 billion in public debt, and its governor announced it will default on a $420 million bond payment due today. The governor of Puerto Rico, as well as President Barack Obama and many Democrat politicians in Washington D.C. have called for Chapter 9 bankruptcy as the remedy for the Commonwealth’s debt crisis. In July of this year, Puerto Rico’s governor declared the Commonwealth’s debts unpayable in an effort to pressure Congress to grant Chapter 9 bankruptcy.
Hedge funds are buying up discounted debts in Puerto Rico in order to profit from the debt crisis if the Commonwealth is granted Chapter 9 bankruptcy. As they have done in Greece, Argentina, and Detroit before this, these hedge fund investors, who are quite well-connected in Washington D.C. are leveraging cronyism and corruption to profit from the debt crisis in Puerto Rico at the expense of everyone else. Bankruptcy will lead to major profits for hedge funds at the expense of millions of U.S. investors, including many counting on those assets for their retirement, who have money at stake. Hedge funds will make a 20 percent profit from their investments in Puerto Rico’s troubled debts.
Congress can and should exempt Puerto Rico from the restrictive provisions of the Jones Act that severely impede the Commonwealth with trading with the United States. The relevant restrictions of the Jones Act require that all goods shipped by water between U.S. ports must be carried on U.S. flagged ships, that were built in the U.S. that are also owned by U.S. citizens, and have a crew made up of U.S. citizens and U.S. permanent residents. This effectively locks Puerto Rico out of a great deal of commerce with the United States, and exempting them from these restrictions would economically beneficial to the Commonwealth’s economy.
The financial control board, that will manage the restructuring of Puerto Rico’s debts, is one of the ideas being considered, and is gaining more support among members of Congress. This will allow the Commonwealth to manage and restructure its debts while enacting key reforms that will prevent another debt crisis in the future.
While Chapter 9 bankruptcy will come at the expense of millions of investors who have stake in Puerto Rico’s debt, it will also come at the expense of the 3.5 million citizens of the Commonwealth. Not only will Chapter 9 fail to address the root causes of the debt crisis, the poor financial management and structural problems with the economic of Puerto Rico, it will also reward the corruption, cronyism, mismanagement and over-regulation of the Commonwealth’s economy. Only key reforms of the financial and economy system in Puerto Rico will address and remedy the root causes of the debt crisis.
As Ryan Houck of Free Market America reminds us, “…the free market is the only force in human history to uplift the poor, establish the middle class and create lasting prosperity.” Economic property, which only the free market can bring, is the only way to lift the hopes and dreams of the citizens of Puerto Rico. There are so many structural problems with the financial and economic system, including needless regulations and laws that hold back commerce, that prevent the free market from flourishing in the Commonwealth. Reforms are so badly needed to bring prosperity to the people of Puerto Rico. Congress can help but, for the most part, the Commonwealth must enact reforms to remedy their debt crisis and prevent a debt crisis in the future.
Congress will be taking up the issue of what to do about the crisis in Puerto Rico soon. This is key test of whether members of Congress will given to the demands from the government of Puerto Rico and the Obama administration to bailout the Commonwealth and grant Chapter 9 bankruptcy, or give Puerto Rico the much needed guidance to enact key reforms that will solve the root causes of the crisis. How Congress decides this will give some indication of whether it can stand strong for free market principles and reform, or once again adopt the “too big to fail” bailout and bankruptcy approach yet again. The American people elected this Congress to break from politics-as-usual and represent the interests of the people rather than the well-connected special interests. It remains to be seen how Congress will address the debt crisis in Puerto Rico.]]>
