On Tuesday President Donald Trump visited Puerto Rico, as the island struggled to recover from the annihilation caused by Hurricane Maria. The hurricane had left the island without power and most residents without water.
But Mr. Trump had the right news to cheer up the Puerto Ricans. He promised them to “wipe out” all of the island’s debt.
For more than a year Puerto Rico is under the heavy burden of $73 billion debt, which Mr. Trump thinks should be “wiped out” at once.
“We’re going to do something. We’re going to get it back on its feet”, the president said, in an interview with the Fox News. He said that his administration would help the island recover from the damage and the debt. While the investors refused to comment on the matter.
It is still not clear whether Mr. Trump or the federal government can solve this issue, for most of Puerto Rico’s debts are in the form of municipal bonds, a type of debt governed by the state laws and not the federal government. The federal government and its branches like the Internal Revenue Service can step in the matter under certain conditions but they still don’t have enough power to “wipe out” the debt completely.
It all started in 2006, when Puerto Rico’s economy fell into recession and never recovered again. The government tried to solve the problem by borrowing heaps of money just to balance its budget, but it made the condition worse. In 2015 the governor of Puerto Rico Mr. Alejandro García Padilla announced that the island would not be able to repay what it owed, as it had fallen into a “death spiral”.
Puerto Rico as a territory had no right to take shelter in bankruptcy court, and without any protection offered by the law, its investors began filing lawsuits seeking to enforce their claims. The economy became almost dead and the government almost penniless.
The other misstep it took was using money from its worker’s pension system to pay for the operations, creating a deep $50 billion hole.
In June 2016 the Congress passed a special law named “Promesa” that putts Puerto Rico’s finance issues under a federal supervision and halts the creditor’s lawsuits. This law made Puerto Rico acquire the power to reduce the debt under the surveillance of a federal judge.
The federal oversight board has called for a debt moratorium, in hopes of reconstructing the island’s scattered economy by using its savings. Experts predicted that it might take years for Puerto Rico to recover, but their predictions did not included Hurricane Maria and the collapse of Puerto Rico’s power grid.
While talking to the Fox News Mr. Trump appreciated the Puerto Ricans and called them “special people”. Whereas he strongly condemned the power grid that collapsed during the hurricane leaving three million people without power and communication. Even before the storm the power authority had been operating under a federal court order and was accused of “cheating its ratepayers”. About $9 billion of the total debt is issued by the power authority but Mr. Trump has vowed to get the electricity going again and to clear the debt.