Congress Offers Broken PROMESA to Puerto Rico
The U.S. Senate this week voted to pass the Puerto Rico Oversight, Management, and Economic Stability Act, known as PROMESA ("promise" in Spanish), without amendments.
Cast as “Puerto Rico’s last chance” before a July 1 default, the bill is a classic congressional compromise in which neither Democrats nor Republicans are completely satisfied. The bill offers Puerto Rico the means to restructure its debt while avoiding a taxpayer bailout. In return, President Barack Obama will appoint a seven-member federal financial control board to oversee the island’s finances. The board will not be beholden to any Puerto Rican authority. The bill also includes an option to reduce the federal minimum wage from $7.25 to $4.25 an hour for workers who are 25-years-old or younger.
PROMESA provides immediate relief for an upcoming payment that would have been missed, risking lawsuits from creditors and the elimination of critical services including healthcare, public transportation and law enforcement. But upon closer inspection, the bill is less a panacea than a Band-Aid. While it does stay payments and provide for an orderly restructuring process, the bill does not offer any viable mechanisms for incentivizing job creation, reversing 10 years of economic stagnation, or lowering Puerto Rico's high cost of living.
Even Governor Alejandro García Padilla, who has lobbied on behalf of the bill, admits that the oversight board “undercuts the democratic institution of the Commonwealth of Puerto Rico.” The board’s ability to dictate the restructuring process and prioritize the interests of creditors without responsibility to the Puerto Rican government or its people has led several observers to compare the relationship between the U.S. and Puerto Rico to one of blatant colonialism.
That Congress had to rush to get PROMESA through the Senate in the first place is a testament to its short-sighted approach to the island.
For anyone paying attention over the past 10 years, Puerto Rico's current crisis should have come as no surprise. The island's economy has stagnated due in part to Congress’ decision to phase out federal corporate tax rates that had incentivized American businesses to open up shop in the commonwealth. The Great Recession, local fiscal mismanagement and corruption, a high cost of living, brain drain and excessive taxation on those who stayed put haven’t helped.
But even if members of Congress had been unaware of Puerto Rico's long-running economic meltdown – unlikely, given repeated downgrades to its credit rating and the outsize role the commonwealth has played in the municipal bond market over the past several years – the case for plausible deniability was eliminated on June 28, 2015, when the New York Times published Governor García's warning that the island’s debts were “not payable,” and again on August 5, 2015, when Puerto Rico defaulted on its debt for the first time in its history.
The fact of the matter is that Congress chose not to act when it could have crafted a long-term fix for the island’s troubles. It chose not to act on February 11, 2015, when Puerto Rico’s lone, non-voting representative introduced HR 870, which would have afforded Puerto Rican municipalities the same Chapter 9 bankruptcy protections they had prior to 1984. It chose not to act when 12 senators introduced an identical bill in the Senate on July 15, 2015. It chose not to act when the governor repeatedly lobbied and testified before Congress that there was no way Puerto Rico would be able to meet its debt obligations and provide critical services for its people.
It stalled on votes even when the Secretary of the U.S. Treasury Department, the President of the New York Federal Reserve and the U.S. President warned of an economic and humanitarian crisis if Congress didn't take concrete action. It chose not to act when the embattled electricity authority shut off power to a hospital or when hedge funds demanded that Puerto Rico close more schools to pay off its debt.
There may be plenty of blame to go around for Puerto Rico's current circumstance, but one thing is clear: Congress had the opportunity to act for at least a year before it did, well before the July 1 deadline that was used to push through PROMESA without additional amendments that could have offered the means to a viable economic future for the island (an exemption from the Jones Act, for example).
Given recent Supreme Court rulings that have torpedoed Puerto Rico’s status as a “free associated state” and thrown its sovereignty into question, it is now more clear than ever that only Congress can facilitate the changes that Puerto Rico needs. If only it cared to do so.
García is the social media editor and production editor for Americas Quarterly. Follow her on Twitter @LeaniGarcia.