WASHINGTON –Puerto Rico could default on billions of dollars in payments to bondholders on Friday if the Senate does not act this week on a bill allowing the U.S. territory to restructure its massive debt.
Failure could lead to a shutdown of essential services, according to the Treasury Department.
The U.S. House has passed a bill giving the island time to work with creditors on a debt payment plan and also establish a congressional review board to oversee Puerto Rico’s future budgeting processes.
Critical services have been slashed as Puerto Rico’s government diverts its meager funds to pay back $72 billion to expectant bondholders.
On the island, the effect is felt by nearly every resident, especially those who rely on government aid for health care services.
For some in impoverished regions of the island the situation is already dire — apart from the looming government debt crisis.
In Isla Verde, Puerto Rico, Sandra Castro, a secretary in a psychologist’s office, suffers from a brain condition that requires three different medications. All are expensive and only partly covered by her government insurance plan, so she’s had to go off the medication at times while seeking funding from other sources to pay for her pills.
“To have to readjust to taking them again, changes my life completely,” Castro, 52, said through a translator in a recent phone interview. “It can provoke another seizure.”
Mildred Merced of Guaynabo, Puerto Rico works with some of the most vulnerable populations on the island, providing feeding tubes and nutritional services for the terminally ill and those with developmental disabilities who are unable to consume food independently.
“They owe everybody money,” Merced said of the government in San Juan. Merced has noticed that her inventory of medical supplies is shrinking as are the number of referrals to her office. Because payments from the government are not guaranteed, basic services that keep her firm operating have slowed to a crawl, she said in a phone interview.
The national grassroots organization MomsRising, which advocates for people like Castro and Merced, is pressing Congress to approve the aid bill.
Brad Setser, senior fellow at the Council on Foreign Relations, says passage of the legislation would give the government time to come up with a more manageable debt repayment plan and provide legal protection against creditors demanding immediate repayment.
Setser, in a phone interview, said the aid bill would also free up funding to “help Puerto Rico move toward a more normally functioning government where payments are made on time and people can count on getting payments on services delivered.”
Many experts say the bill is a necessary first step to avoid economic disaster. On Monday, Treasury Secretary Jacob Lew warned of the potential catastrophe of avoiding a vote to restructure the debt in a letter to Senate Majority Leader Mitch McConnell (R-Ky.).
“Congress must do more in the future to address long-term economic growth and Medicaid inequalities in Puerto Rico, but doing nothing now to end the debt crisis will result in a chaotic, disorderly unwinding with widespread consequences,” Lew wrote.
The Senate is expected to debate the bill on Wednesday. If lawmakers do not approve it by July 1st, bondholders can seek legal action to force Puerto Rico to pay off a $2 billion portion of the debt.
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