Velazquez calls on Obama to fix Puerto Rico’s debt crisis

July 8, 2015 By Paula Katinas Brooklyn Daily Eagle

U.S. Rep. Nydia Velazquez wants the White House to help resolve Puerto Rico’s money woes. Photo courtesy Velazquez’s office

Share this:

The world’s attention is focused on the financial crisis in Greece, but a debt dilemma closer to U.S. shores has a local member of Congress reaching out to the White House for help.

U.S. Rep. Nydia Velazquez (D-Brooklyn-Manhattan) the first Puerto Rican-born woman to be elected to the House of Representatives, has written a letter to President Barack Obama requesting that he take action to stem a mounting debt crisis in Puerto Rico.

In her July 6 letter, Velazquez asked Obama to declare an emergency meeting of the President’s Working Group on Financial Markets and bring Puerto Rican officials and the island’s creditors together to hammer out an agreement.

Such a move, Velazquez wrote, “is our best hope, not just for Puerto Rico, but U.S. interests as well.”

Puerto Rico is $73 billion in debt and its governor, Garcia Padilla, recently declared that the massive debt is “unpayable.”

Adding to the mess is the fact that Puerto Rico, a commonwealth of the U.S., cannot use U.S. bankruptcy laws to declare bankruptcy and protect itself from creditors. The Hill newspaper reported that a 1984 law that updated previous U.S. bankruptcy laws gave states the power to permit municipalities to declare bankruptcy, but did not include U.S. commonwealths like Puerto Rico.

U.S. Senators Charles Schumer (D-New York) and Richard Blumenthal (D-Connecticut) are working on legislation that would allow Puerto Rico to have access to bankruptcy courts, The Hill reported.

The island is also cut off from other forms of financial assistance, according to Velazquez.

“As a territory of the U.S., it is not a sovereign nation, which bars it from seeking assistance through the International Monetary Fund (IMF). Such a reality means that the island is in an exceptionally rare predicament – one in which conventional legal options are not an option, nor are more traditional lines of international aid,” she wrote.

Puerto Rico’s money problems could wind up hurting people on the U.S. mainland, Velazquez warned.

“Given that 53 percent of U.S. municipal mutual funds hold Puerto Rico’s bonds, it is likely that those most affected will be individual American investors, including many senior citizens who depend on such funds for regular income,” she wrote.

Mutual funds, commercial banks and hedge funds have sizeable holdings of Puerto Rico’s debt, according to Velazquez.

Calling the financial problem “unprecedented,” Velazquez told the President in her letter that his administration should seek “an unprecedented approach” to solve the problem before it spirals out of control.

Puerto Rico’s financial crisis is filtering down to the everyday person on the island, according to the Miami Herald, which reported an uptick in the number of people leaving the island to move to the U.S. mainland in recent years. Between 2010 and 2013, 144,000 people left Puerto Rico, the Herald reported.

***CORRECTION***

An earlier version of the article erroneously described Puerto Rico as a territory of the U.S. It is a commonwealth.