Treasury Secretary Jacob J. Lew pressured Congress to act swiftly in solving Puerto Rico’s debt crisis, warning the U.S. territory is in free fall while lawmakers work to throw it a lifeline by March 31.
Mr. Lew told Speaker Paul D. Ryan he will travel to the island on Wednesday to meet with Gov. Alejandro Garcia Padilla and his economic team, legislative leaders and the business community to address the situation.
Puerto Rico is drowning in a sea of red ink and struggling to make bond payments, raising the specter of drastic service cuts that would inflict real pain on the island’s 3.5 million residents.
As it stands, Puerto Rico is cobbling together what it can meet its bond payments without slashing health care, education and other services. It must pay $400 million to satisfy debts by May 1, with additional payments due in June.
“Puerto Rico is already in default. It is shifting funds from one creditor to pay another and has stopped payment altogether on several of its debts,” Mr. Lew wrote in a letter to the speaker. “As predicted, creditors are filing lawsuits.”
Democrats fumed last month, when Republicans refused to include language in a year-end spending package that would have allowed Puerto Rico to take advantage of U.S. bankruptcy laws and restructure its debt.
Republicans said that would set a bad precedent, Instead, a trio of GOP senators led by Senate Finance Chairman Orrin Hatch, Utah Republican, proposed a bill last month that offered up to $3 billion in transitional relief for the island and billions more in tax relief for workers.
Mr. Ryan then ordered the relevant House committees to work with the Puerto Rican government to come up with a “responsible solution” by March 31. His spokeswoman said Friday that members of the House Judiciary and Natural Resources committee are digging into the issue.
Mr. Lew urged Congress to act fast.
“Six congressional hearings have been held by five different committees in the past year, with another hearing scheduled for later this month,” he said. “It is time for Congress to act to provide order to a chaotic and worsening situation.”
Already, the island is resorting to drastic measures, selling off assets from depleted pension funds and borrowing from money for workers compensation and insurance funds, according to the Treasury.
It’s also withholding millions of dollars in tax refunds owed to its residents, Mr. Lew said.
“Not only do these actions affect the most vulnerable citizens in Puerto Rico, the unpaid obligations do not go away; they simply accumulate and make long-term recovery even harder to achieve,” he wrote.
Analysts say Puerto Rico’s woes are the result of years of over-borrowing and spending and the steady exit of professionals and other workers who could help turn around the island’s fortunes.
Even Wal-Mart is pulling out, announcing Friday it will be closing seven stores in Puerto Rico as part of a global plan to shutter 269 of its nearly 11,600 stores.
Meanwhile, the Supreme Court last month agreed to hear Puerto Rico’s appeal of lower court rulings that prevented the island from discharging some of its public debts.
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