(Bloomberg) -- Puerto Rico officials urged U.S. lawmakers to reject a proposal that would allow the bankrupt island to cancel some of its debts outright, saying that would potentially upset negotiations with creditors and jeopardize the territory’s ability to raise money in the bond market.
Representative Raul Grijalva, the Democrat who chairs the House Natural Resources Committee, has proposed changing the Puerto Rico financial rescue law, known as Promesa, so the island could “discharge” its unsecured financial obligations once every seven years. That follows a push in some quarters to give debt relief to the territory.
But at a hearing of the committee in Congress Tuesday, Omar Marrero, the head of Puerto Rico’s fiscal agency, and Natalie Jaresko, the executive director of an oversight board that manages the island’s finances, urged lawmakers not to take such a step. They said it could force bondholders to demand more security to lend to Puerto Rico.
“The risk of having that unsecured debt discharged raises the risk that creditors today in the midst of negotiations will demand better security for the debt and that security is costly to the government of Puerto Rico,” Jaresko said. “The second great risk is what it means with regard to future potential access to markets and access to capital that Puerto Rico will of course need as they move forward.”
Representative Rob Bishop, the ranking Republican on the committee, said proposed changes to the Puerto Rico rescue law are unlikely to make it through the politically divided Congress. “Any of the proposals that have been floating out there aren’t going anywhere,” Bishop said during the hearing. “The idea that they’d be passed in the Senate or signed by a president is delusional at best.”
Puerto Rico is currently negotiating over its plan to cut the central government’s bond debt and its obligations to pensioners, the biggest remaining chunk of obligations that have yet to be dealt with in the island’s more than two-year bankruptcy. The federal government extended Puerto Rico access to bankruptcy under the Promesa law.
Other possible Promesa changes include auditing the commonwealth’s debt, establishing a reconstruction coordinator for Puerto Rico to manage federal funds to rebuild after Hurricane Maria and requiring additional disclosures from professionals employed by the oversight board to avoid potential conflicts of interest.
(Updates with federal lawmaker’s comment in the sixth paragraph.)
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