No Labels Radio: Why partisan bickering could make Puerto Rico's debt crisis worse
On this week’s episode of No Labels Radio, Gov. Jon Huntsman hosted a discussion about Puerto Rico’s deepening debt crisis with financial restructuring expert Jim Millstein and former Ambassador to the U.N. Stuart Holliday. Millstein is an expert on the debt crisis having previously served as the Chief Restructuring Officer at the Department of Treasury and Managing Director and Global Co-Head of Corporate Restructuring at Lazard.
Currently Puerto Rico is $70 billion in debt. Millstein explains that Puerto Rico’s debt occurred because of shrinking tax revenues caused by a decade of negative economic growth. To shore up revenue, Puerto Rico raised taxes and slashed spending, but these measures were not enough to generate a surplus and pay off their debt. In an effort to fill the revenue void, Puerto Rico started borrowing huge sums of money that realistically could not be paid back, causing even larger budget deficits and piling on debt.
Puerto Rico is a troubling case study of what happens when government neglects its finances for too long. This serious issue should get the attention of leaders in the US too, because more of our cities, states and even national government could face crises without a solution to our debt challenge.
Obviously this problem must be solved quickly. However, Millstein brings up an important point that complicates efforts to restructure Puerto Rico’s debt:
“We’re making progress, but the truth of the matter is that Puerto Rico is in a bit of an odd legal status compared to other any other state; it’s a territory of the United States”
Since Puerto Rico is not a state nor an independent sovereign country, the fate of the island’s economy is left almost entirely at the hands of the U.S. Congress – the same Congress that struggles each year to fund their own country and manage their own budget deficits. Skip to the 14:45 mark to hear more of Millstein’s analysis of the origins of Puerto Rico’s debt crisis.
In response to Puerto Rico’s skyrocketing debt, Congress is currently drafting a bill that would provide an oversight board for this situation, akin to the emergency financial manager that Michigan created for the city of Detroit in 2012. This oversight board would help Puerto Rico’s governor, Alejandro García Padilla, and the island’s legislature to create fiscal policies to bring back surpluses and economic growth.
This is a solid plan with one major caveat: the oversight board would have to weather a new president in the White House along with the possibility of a new majority in both the House and Senate. Major ideological changes could affect policy proposals from the board or even threaten the board’s existence.
Partisan fighting has the potential to delay Puerto Rico’s recovery and plunge the island further into debt. Despite the approaching storm of the election and changes in the executive and legislative branches, Millstein described Puerto Rico’s situation as a relatively small problem for the U.S. Congress to solve. Rather than dragging yet another serious issue through the partisan mud-pit, Congress should seize this opportunity and demonstrate decisive, pragmatic leadership that transcends both aisles.
Millstein sums up the situation perfectly: “Congress does have the tools to help it, and if Congress can’t get it’s act together on a problem as small as this, then I think it’s a bad sign for the future.”
The show is available in its entirety On Demand (including conversations with Pollster Frank Luntz on 2016, and Senator Ron Johnson (R-WI) on the Wisconsin primary) at www.siriusxm.com/ondemand.