WASHINGTON (Sputnik), Leandra Bernstein — The United States will likely grant Puerto Rico the ability to restructure its $73 billion debt under bankruptcy, rather than allow it to default, president of Ely & Company, Inc. financial consulting firm, Bert Ely told Sputnik on Tuesday.
“You’re going to have a restructuring,” Ely said of the large Puerto Rican debt burden.
On Monday, Governor Alejandro Garcia Padilla announced that Puerto Rico could not pay its debt and would soon run out of money to operate the government.
The pressing question for Puerto Rico is whether they are granted permission to restructure under Chapter 9, the provision in the US Bankruptcy Code to deal with municipal bankruptcies, he explained.
“There is a lot of pushback from creditors [over] whether or not Puerto Rico and Puerto Rican entities would be able to restructure their debt under Chapter 9,” Ely explained. Under bankruptcy, Puerto Rico would receive temporary protection from its creditors who would, more than likely, be forced to take a write-down on their investments.
Because of Puerto Rico’s unique status as US island territory, the US Congress must approve of a Puerto Rican debt restructuring under Chapter 9.
Ely noted the potentially lengthy process of getting congressional approval could lead to “paralysis” in Puerto Rico’s ability to settle its outstanding debts and finance day to day government operations.
However, there will continue to be a lot of pressure from the United States on the commonwealth government to make structural reforms over the long term.
Ely explained that Puerto Rico will likely have to abandon some of its “very leftist policies,” and cut minimum wages, privatize electric utilities as well as rethink public workers’ salaries as well.
On Tuesday, the Puerto Rican legislature debated $674 million in cuts to the commonwealth’s $9.8 billion budget. The proposal would set aside $1.5 billion to help pay off the country’s debt.
On Monday night, Governor Padilla requested the ability from the US Congress to file for bankruptcy.