Congress Wrestles with Puerto Rican Debt

Last week, Congress held a hearing on the crisis in Puerto Rico. As readers will recall, I have written about the sovereign debt crisis before, and the humanitarian crisis within which the economic difficult is happening. It is important to frame it this way, because the free-marketers, both the economic “experts” and their fellow travelers in the political community, are determined to obfuscate the human aspect of this situation and to clarify only the “economic” laws and property or contractual rights that pertain to it. A perfect example of what Pope Francis means when he criticized ideology trumping, even enslaving, the human.

One of the bright signs of last week is that some Republicans have agreed that the federal government needs to do something to help the people on the island. Congressman Sean Duffy of Wisconsin has promoted a bill, written by Puerto Rico’s non-voting member of Congress, Pedro Pierluisi, that would allow Puerto Rico’s municipal corporations to enter bankruptcy proceedings, and last week Congressman Don Young, who chairs the relevant subcommittee, indicated he would support such legislation. This would not allow bankruptcy proceedings for the government itself, so it is only a half-measure and, just so, it appeals to the hedge funds. It is not enough and would amount to sending one more lifeboat to the sinking Titanic. That said, congressional action does help put pressure on all creditors, including the hedge funds, to come to the negotiating table and recognize the need to take a haircut, and one more lifeboat is better than one less.

One of the champions of a more just settlement for Puerto Rico, one that takes account of the needs of the poor on the island and not merely the desires of the hedge fund managers to maximize their profit, has been Eric LeCompte, executive director of JubileeUSA, a faith-based organization that focuses on issues of sovereign debt and pleads for the needs of the poor throughout the world. LeCompte testified at the hearing, and he set forth the humanitarian aspect of the crisis better than I could:

From a religious perspective, we recognize that this is not simply a debt crisis - this is a humanitarian crisis. Consider:  Nearly 50% of Puerto Rico's people live in poverty;  50% of Puerto Rico's children live in homes that receive some form of  welfare benefits;  80% of Puerto Rico's children live in high-poverty areas;  Because pension accounts have been used to pay the debt; Government pensions may not have enough funds to meet their obligations by 2020;  The current unemployment rate in Puerto Rico is over 12%;  Over the past decade, 10% of the population has left for the US  mainland in search of work. Like our religious partners on the island, we pray for two things: First: long-term solutions to Puerto Rico's economic troubles that address the underlying problems that led the island into this mess in the first place Second: immediate measures to help Puerto Rico's people who are suffering right now.

LeCompte argued forcefully that austerity measures cannot solve this crisis human crisis, and they can’t even solve the fiscal crisis. They can only make matters worse.

LeCompte told me after the hearing that he thought it went well, as far as it went. “It's clear momentum is growing in Congress to address Puerto Rico's debt crisis,” LeCompte said. “The hearing offered a framework for a legislative solution that can include a process for Puerto Rico's debt to become payable and ensure greater transparency in the island's governance. Republicans and Democrats from that committee are focused on getting Congress to protect the 3.5 million Americans living in Puerto Rico. The solution can't come soon enough, and even when it does come, I'm concerned because it won't be enough to stop the suffering on the island.”

LeCompte has been working closely with the island’s religious leaders, especially Archbishop Roberto Gonzalez who becomes a focal point for moral leadership whenever the island faces a crisis. “San Juan's Archbishop and other religious leaders on the island continue to be the moral voice for a solution that prevents austerity and promotes investment in Puerto Rico's people,” LeCompte told me. “We have a brief window where the kind of resolution the religious leaders want is possible - but it requires that both Puerto Rico's Governor and principle creditors put Puerto Rico's people first.”

There is plenty of blame to be spread around for the crisis. While the hedge funds are properly called vulture funds, much of the Puerto Rican government’s debt is held by regular bond holders. After LeCompte testified, the next spokesperson was Thomas Moers Mayer, from Franklin and Oppenheimer mutual funds, and he spoke to the fact that much of the debt is held by individuals who have simply been saving for retirement. I do not know why he resists bankruptcy access for the Commonwealth, apart from naked self-interest, but if the creditors enter into negotiations with the government, with or without a formal, legal bankruptcy proceeding, these mutual funds tend to be less rigid. What is unfortunate, is that the mutual fund investors are backing an oversight committee, appointed by the federal government, with virtually no limits on its authority. Ask the people of Flint how such arrangements work out? If the oversight committee is dominated by people who simply listen to the economic “experts” and who ignore the humanitarian aspect of the crisis, such committees can cause more harm than good.

In a related development last week, Argentina made an offer on its still unresolved sovereign debt crisis, which dates back to 2001. LeCompte explained to me, “Argentina needs to settle this case to access the markets. A G20 country, Argentina, was brought to its knees by a small group of predatory hedge funds also known as vulture funds. One of the world's stronger economic powers, the International Monetary Fund, and the US Treasury were not powerful enough to stop the so-called vulture funds.” In 2012, U.S. courts upheld the vulture funds’ right to demand full payment, even while over 90 percent of Argentina’s creditors had reached a deal with the government. Note: When you have tons of money, you get to hire good lawyers and good lobbyists, so the deck is stacked against poor countries when they enter federal courts.  

“Whether it's Argentina, Puerto Rico or Zambia we are concerned by how our financial system impacts the most vulnerable,” said LeCompte. “We’ve lost in the short term in Argentina. In the long term we need to win regulations that protect the poor and promote transparency.”

Watching the Republican debate Saturday night, I did not see anyone particularly concerned about the plight of the poor. If Hillary Clinton wins the presidency, it is doubtful she would appoint the kind of Treasury Secretary who would use the weight of that office to force the vulture funds to behave humanely. (Let me qualify that: Former Congressman Barney Frank is perfectly qualified to serve as Treasury Secretary, and while I suspect I am more suspicious of the entire business model that governs Wall Street, he would not be afraid to use the power of that office to make the hedge funds operate in a less rapacious manner. And, Clinton would get high marks for appointing the first openly gay Treasury Secretary.) On this side of the parenthesis, only Sen. Sanders, were he to become president, which remains unlikely, would really stick it to the hedge funds. The rest of us have to lay the groundwork for questioning how the hedge funds make their money and generate the political strength to limit the pernicious and often inhumane consequences of that business model. We need to think about alternate ways of funding governments in poor countries and how the IMF, too, can become less enslaved by the ideology of the market. JubileeUSA’s expertise needs to become more widespread, and LeCompte’s voice needs to find echoes throughout the religious community: It doesn’t have to be this way. The laws of he market are not laws of nature. The laws of the market are subject to moral analysis. They may not teach that at most business schools, but it is one of the central insights of Catholic Social Teaching, and an insight that points to the need for a more just treatment of the people of Puerto Rico.