July 6, 2015
Velázquez Writes President on Puerto Rico Fiscal Crisis
Washington, DC –Rep. Nydia M. Velázquez (D-NY) wrote the following letter to the President today regarding Puerto Rico’s debt crisis:
July 6, 2015
The Honorable Barack Obama
President of the United States
Dear Mr. President:
I am writing you with great urgency regarding the financial crisis in Puerto Rico. As you are aware, the Commonwealth is $73 billion in debt and its Governor has recently stated that these debts are “unpayable.” Given the potential for this situation to rapidly deteriorate further, I am requesting that you convene an emergency meeting of the President’s Working Group on Financial Markets to address this matter and bring all parties to the table to negotiate an orderly resolution.
This situation is unprecedented and therefore requires an unprecedented approach. Public utilities in Puerto Rico cannot resolve their debts through Chapter 9 of the U.S. Bankruptcy Code, as public utilities located in U.S. states are able to do. As a territory of the U.S., it is not a sovereign nation, which bars it from seeking assistance through the International Monetary Fund (IMF). Such a reality means that the island is in an exceptionally rare predicament – one in which conventional legal options are not an option, nor are more traditional lines of international aid.
As a result, there is great potential that the situation will resolve itself in a manner that is more disorderly and costly that it otherwise would be. It is the unfortunate reality that those least able to represent themselves in what will certainly be a long and arduous resolution process will suffer the most. Given that 53 percent of U.S. municipal mutual funds hold Puerto Rico’s bonds, it likely that those most affected will be individual American investors, including many senior citizens who depend on such funds for regular income. In addition, U.S. entities, many of which are household names, including mutual funds, commercial banks, and hedge funds have sizeable holdings of Puerto Rico’s debt. Two such mutual funds together hold $6.8 billion – or nearly 10 percent – of the island’s municipal obligations. Bond insurers, which guarantee $14 billion of Puerto Rico bonds, also stand to be impacted. A disorderly default and resulting protracted legal battle could lead to further losses for many of these individuals and corporations, potentially leading to concerns regarding financial contagion.
For these reasons, it is in the interest of the United States to ensure an orderly resolution to this crisis. While the technical assistance that your administration has provided Puerto Rico has been useful, it is time to move beyond such limited measures. Absent the availability of Chapter 9, however, the President’s Working Group on Financial Markets presents the best option to produce an organized and fair outcome for those involved. Bringing all parties – creditors and debtors alike to the table, as only the White House can do, is our best hope, not just for Puerto Rico, but U.S. interests as well.
Thank you for your attention and leadership on this important matter.
Nydia M. Velázquez
Member of Congress
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