Puerto Rico and the PROMESA Act: Claims and Responses

Claim: If conservatives don’t agree to this bill, the alternative is  a $72 billion bailout package.

Response: Things are going to get worse in Puerto Rico before they get better. Even though there is no reason to believe a Republican-controlled Congress would ever pass a direct taxpayer bailout, calls for such action are likely to increase whether or not PROMESA (H.R. 4900) is passed, as Puerto Rico will likely continue to experience economic and fiscal troubles. Congress and Puerto Rico need to pass economic reforms to slow and reverse the ruinous outmigration of Puerto Rico’s young workers. PROMESA reshuffles the deck, but it doesn’t change the game.

Claim: If Congress doesn’t pass some sort of assistance package, Puerto Ricans are just going to abandon the island and move to the mainland, causing an economic death spiral.

Response: Puerto Ricans are moving to the mainland in large numbers because of the lack of economic growth and opportunity on the island — not, for the most part, because of the government’s financial distress and liquidity issues. Regardless of what happens with Puerto Rico’s government debt, this exodus will continue if Puerto Rico can’t return to growth, which it can only do by creating opportunities for young adults and attracting and keeping businesses on the island. There is no reason to believe this bill would create those economic opportunities.

Claim: The fiscal oversight board has the tools it needs to jumpstart Puerto Rico’s economy.

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Memo: A Conservative Response to Puerto Rico’s Debt Crisis

To:             Interested Parties
From:        Heritage Action
Date:         March 10, 2016
Subject:    A Conservative Response to Puerto Rico’s Debt Crisis

Some type of congressional action on Puerto Rico’s looming debt crisis is expected before the end of March.  Puerto Rico, a United States territory, owes creditors more than $70 billion and is seeking congressional approval to file Chapter 9 bankruptcy.

The Heritage Foundation has written extensively on the current situation in Puerto Rico and has laid out the path Congress should take as it addresses this issue.  While the situation in Puerto Rico is complicated, there are a few important things to know:

This is primarily a growth problem. Puerto Rico isn’t just facing an acute financial crisis; it is facing a chronic, long-term growth crisis. Puerto Rico is not merely in a temporary debt crisis, with sunny skies on the horizon if it can only get past this temporary hurdle — far from it. Under current policies, Puerto Rico simply cannot grow. In fact, if all of Puerto Rico’s debts and unfunded liabilities were wiped out tomorrow, without a transformation in governance and an economic turnaround, it would just be a matter of time before the island would be back facing fiscal trouble once again. No amount of bailouts, debt restructuring, or new bankruptcy proceedings will change this simple fact. Without growth, Puerto Rico’s problems will only continue to fester and get worse.

Congress can help. While most of Puerto Rico’s problems are of its own making, Congress has imposed policies on Puerto Rico that severely damage its ability to grow. Two policies worth noting…

Read the entire memo.

 

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