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Business Review Board / June 30, 2016

Puerto Rico Deal: A Lifeline by Any Other Name…

New debt relief bill does nothing to fundamentally alter the status quo.

A congressional stalemate over how to handle Puerto Rico’s budget crisis threatened an economic “D-Day” for the island’s inhabitants. However, the increasingly nervous markets were relieved at yesterday’s news that 68 senators voted to enact the Puerto Rico Oversight, Management, and Economic Stability Act to which Barack Obama will assign his signature.

The Washington Post says the deal “pens a path for an orderly restructuring of the island’s $72 billion in bond debt while creating a new federally appointed fiscal oversight board.”

The issue revolved around a $2 billion debt payment that comes due Friday. Writing in National Review, Austin Rose explains what a default could have looked like: “In a worst-case scenario, the island would have defaulted on its debt. Swarms of bond holders and creditors could then have filed lawsuits to win back their money, and win. Puerto Rico, still cash-strapped, would have been legally obligated to dip into the seed corn of vital services to pay up.”

Rose says the measure “can help avoid a worst-case scenario through negotiation, giving the beleaguered debtor extra time before lawsuits come crashing down and more agency about how and what programs to cut.”

However, it’s worth noting that opposition was fierce on both sides. As The Hill notes, “Groups on both the right and left were unhappy with the legislation — both Heritage Action and a coalition of major labor unions opposed the bill.” And when both sides quarrel over the same bill, you know the issue is anything but settled. In Congress, that’s par for the course.

Which brings us to the biggest problem that so often goes unresolved — long-term viability. As noted by the Post, “Over the longer term, the island faces bigger questions about how it can reverse its economic decline and whether to revisit its status as a U.S. territory.”

The measure represents a short-term reprieve, but, like all perpetual issues Congress refuses to address, a lack of tough love means there are no fundamental changes, which ensures that we’ll be talking about this issue again soon. William Shakespeare once wrote, “A rose by any other name would smell as sweet.” An unscrupulous and short-sighted lifeline by any other name would smell just as rotten.

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