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Old 05-04-2016, 12:04 PM
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Mary Pat Campbell
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
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As Puerto Rico Defaults, Eyes Turn to Washington

Puerto Rico’s default on most of a $422 million debt payment on Monday puts the spotlight back on Washington to enact a rescue package for the island, and congressional aides said a revised bill would be introduced next week.

On Monday, Treasury Secretary Jacob J. Lew renewed his call on Congress to act swiftly, warning in a letter to House Speaker Paul Ryan that without a legal framework for a debt restructuring, Puerto Rico is in danger of getting caught in “a series of cascading defaults” that could lead to a taxpayer bailout.

“This is not just a matter of financial liabilities and litigation,” Mr. Lew said in the letter, which was circulated to other lawmakers and released publicly. Late last year, Mr. Ryan instructed the relevant House committees to find a “reasonable solution” for Puerto Rico.

Puerto Rico did pay $23 million, representing interest due on Monday. The remaining $399 million that was not paid was to cover the principal.

Congressional aides said on Monday they agreed that the latest default showed an urgent need to establish federal oversight and restructuring powers for Puerto Rico, but they could not see a way to speed up the process. In 1984 Congress explicitly barred Puerto Rico from restructuring debt in bankruptcy, without leaving any rationale for doing so.

Legislators on the island thought a bank run might ensue, and they raced to enact a measure giving the governor the power to halt debt payments by the development bank. Other, smaller debt payments were also due from other branches of government on Monday, but the moratorium law was initially written to halt only debt payments by the Government Development Bank.

That means Puerto Rico did not default on Monday on a $1.5 million monthly payment on its general-obligation debt, said Matt Fabian, a managing director at Municipal Market Analytics. General-obligation debt is given top priority by the Puerto Rico Constitution, and if the island skipped that type of payment it would face lawsuits from its creditors.

“It’s all about avoiding powerful litigation for as long as possible,” Mr. Fabian said, explaining why he thought Puerto Rico made one payment and defaulted on the other.


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