The Senate passed the PROMESA bill establishing the outline for Puerto Rico’s debt restructuring just as the island was expected to miss $2 billion in debt payments in July – its largest defaults so far – and before Congress recessed for the Fourth of July holiday.
The House approved the measure June 9 and President Barack Obama is expected to sign the bill.
As expected, the bill retains the controversial oversight financial board, an unelected body that will oversee the overhaul of Puerto Rico’s finances and which would have the power to veto the governor’s and Legislature’s bills or measures. Appointees to the board, comprising about seven members – only one of which would be an island resident – must be approved by the President.
The oversight board has raised hackles about Puerto Rico’s right to self-governance or sovereignty. But in a separate court case related to the island’s debt crisis, the U.S. Supreme Court affirmed that Congress has final say over Puerto Rico.
As much as Puerto Ricans here and on the island opposed PROMESA, it was bound to pass, not least because Gov. Alejandro García Padilla strongly advocated for it, as did the island’s sole delegate to Congress Pedro Pierluisi. President Obama favored it, as did Republicans in the House and Senate. Notwithstanding Democratic Sen. Bob Melendez‘s (NJ) four-hour standoff on the bill, many Democrats supported it, including Senate Minority Leader Harry Reid.
PROMESA was considered Puerto Rico’s last chance for an orderly restructuring of its total $72 billion in debt.
“PROMESA has its downsides. It creates an oversight board that unnecessarily undercuts the democratic institution of the Commonwealth of Puerto Rico. But facing the upsides and downsides of the bill,” Gov. García Padilla wrote in a CNBC op-ed, “it gives Puerto Rico no true choice at this point in time.”
There is another important reason why PROMESA passed and it constitutes a lesson for other debt-ridden states and entities:
If you get into a jam, you’re not going to be able to dictate the terms of the rescue. It’s that simple.
The real work of reorganizing and re-envisioning Puerto Rico’s finances and government lies ahead. No doubt it willl be painful because the García Padilla administration only nibbled at the edges of reform. Many protests will be planned.
The proposed oversight board should do its work quickly, wrapping up its work in five years of less, and return Puerto Rico to island rule.