His new bill would put the island’s economy ahead of vulture fund profits.
More than half of Puerto Rican children already live in poverty, its unemployment rate is over 12 percent and the government has been closing schools and curbing public services to help make short-term debt payments. On Monday, the U.S. Supreme Courtruled that Puerto Rico is barred from requiring vulture funds — those that invest in distressed debt — to take haircuts on government bonds. The ruling grants the federal government exclusive jurisdiction over any debt reduction scheme for the U.S. territory. Wall Street hedge funds were thrilled.
But the July 1 deadline and the Supreme Court ruling also strengthen the hands of Washington politicians — including those more enamored with traditional thinking at the International Monetary Fund than with the demands of Puerto Rican citizens.
Thus far, there have been two positions on resolving the Puerto Rican crisis circling through the nation’s capital. Vulture funds have pursued a “screw you, pay me” strategy that has gained traction with many congressional Republicans, while decimating Puerto Rico’s economy. The Obama administration, by contrast, has backed a bipartisan bill to impose further budgetary austerity on the island, coupled with meaningful debt reduction. The bill’s austerity intent is clear. It would allow for the minimum wage to be suspended, and would lift President Barack Obama’s new overtime pay expansion island-wide. American citizens in Puerto Rico might well ask whether being stripped of labor protections provided to mainlanders is a product of the island’s colonial history. It’s hard to see what private-sector investment in such plans would encourage other than, say, payday lending.
The choice, in other words, is between madness and masochism. So, late last week, Sen. Bernie Sanders (I-Vt.) quietly unveiled an alternative. Sanders would cut vulture fund investors out of any benefits from a debt-reduction deal, while establishing a long-term infrastructure plan to fix the root problem of Puerto Rico’s debt: a dysfunctional local economy.
The Sanders bill faces major political headwinds. While Obama’s strategy has cleared the House, the executive branch is all but begging the Senate to vote on it in time to avert a July 1 debacle. And Sanders is not exactly an ideological ally of Senate Majority Leader Mitch McConnell (R-Ky.), whose support will be needed to pass any law to salvage the Puerto Rico situation. But the Sanders bill is a clever approach to a problem that could upend traditional thinking on financial crisis management around the world — one that prioritizes the well-being of Puerto Ricans over Wall Street profits.
Obama and House Speaker Paul Ryan (R-Wis.) have blessed The Puerto Rico Oversight, Management, and Economic Stability Act, or PROMESA, which Sanders has savaged on the presidential campaign trail. PROMESA would set up a new Washington-appointed oversight board empowered to direct spending and taxation plans for Puerto Rico, and, if all goes well, reduce the the island’s overall debt levels.