In Shock to Wall Street, Puerto Rico Moves to Suspend Payments on $72 Billion Public Debt

The Puerto Rican Senate and the House of Representatives have both passed an emergency declaration authorizing the governor to suspend payments on $72 billion in public debt — setting up a dramatic showdown between Puerto Rico and hedge funds amid the island’s historic debt crisis. The bill authorizes the Puerto Rican governor to “protect the health, security and public welfare … [by] using government funds first and foremost for public services.” The dramatic move comes one day after a group of hedge funds sued to freeze the assets of Puerto Rico’s Government Development Bank in efforts to stop the bank from spending money on the island that the hedge funds want to go toward upcoming debt payments.

TRANSCRIPT

This is a rush transcript. Copy may not be in its final form.

AMY GOODMAN: The Puerto Rican Senate and the House of Representatives there have both passed an emergency declaration authorizing the governor suspend payments on $72 billion in public debt, setting up a dramatic showdown between Puerto Rico and hedge funds amidst the island’s historic debt crisis. The bill authorizes the Puerto Rican governor to, quote, “protect the health, security and public welfare … [by] using government funds first and foremost for public services.” The dramatic move comes one day after a group of hedge funds sued to freeze the assets of Puerto Rico’s Government Development Bank in efforts to stop the bank from spending money on the island that the hedge funds want to go toward upcoming debt payments.

Juan, you write about this in your column in the New York Daily News. Talk about the significance of what just took place last — what, this morning.

JUAN GONZÁLEZ: Right. Well, I had a column last night, and the final result was not clear yet, because on Tuesday morning, the Puerto Rico Senate, at 2:30 in the morning, approved a moratorium on debt, declared, in effect, an emergency, a public emergency, in Puerto Rico and authorized the governor, under the Constitution, to suspend all debt payments until January of next year. Then what happened, though, that it was an all-day debate in the lower house, the House of Representatives in Puerto Rico. The bond — the Puerto Rico bonds dropped to their lowest level on the markets in history. And the — and there was a huge press by lobbyists, financial industry lobbyists, to stop the House from voting. Then, around 1:00 a.m. this morning, by the barest of majorities — I think 26 votes, which was the bare majority needed — the governor managed to get through a similar bill in the House of Representatives — not exactly the same as the Senate bill. It doesn’t decree an immediate suspension of the payment, but authorizes the governor, on a case-by-case basis, to suspend any debt payment of either the government of Puerto Rico or the public authorities of Puerto Rico.

So, basically, it sets up a collision now between Wall Street, on the one hand, and also with Washington, because there are two things that really have spurred this. One was that on Monday a group of hedge funds went into court to try to basically freeze the assets of the Government Development Bank, because they’re afraid that the bank is using money that should be going to bondholders, to help the government pay its debts — I mean, sorry, pay its services, for public services.

And then, two is, last week, the Republicans in the House finally revealed their proposal for Puerto Rico, which in essence is a complete takeover of Puerto Rico. One former governor of Puerto Rico called this control board that the Republicans would set up a “Dictatorial and Colonial Board,” because it would allow the president to name five people to an oversight board in Puerto Rico, only one of whom has to be a resident of Puerto Rico. The other four could live in the United States, be residents of the United States. But more importantly, unlike the DC bill — because in ’95, when the government established a control board over the District of Columbia, the president named five members for the control board with — in consultation with the Congress. But the president basically got to name them — Bill Clinton. This time, the Republicans are proposing that President Obama would — four of the people named by President Obama would have to come from a list provided either by Speaker Ryan or by Senate Majority Leader Mitch McConnell. So four would be Republicans, and only one would be a Democrat. So it would be, in essence, a Republican takeover of Puerto Rico, and that board would have the right to — must approve all budgets, all laws that would be passed by the —

AMY GOODMAN: Sounds like the city manager laws in Michigan —

JUAN GONZÁLEZ: Yes, exactly like city manager laws.

AMY GOODMAN: — that led to the poisoning of the water supply of Flint.

JUAN GONZÁLEZ: They could also have to approve all contracts of over $1 million. They could create a sub-minimum wage for young people. They could privatize the electric company. Basically, a complete financial dictatorship over Puerto Rico. But the difference between the District of Columbia and these financial management boards is that 60 years ago the United States went to the United Nations and declared that Puerto Rico was no longer a colony, because it had self-government. And precisely, it said to the the United Nations that the president of the United States and the Congress no longer appoint any officials of the Puerto Rico government. This bill would do just the opposite: It would create the most powerful officials in the Puerto Rican government, that it would control the entire economy of the island. So, it’s a direct contravention of what the United States justified to the United Nations for removing Puerto Rico from the list of colonies.