A Two-Step Plan for Puerto Rico
20 Pages Posted: 8 Feb 2016 Last revised: 16 Mar 2016
Date Written: March 15, 2016
Few still believe that Puerto Rico is capable of meeting all of its financial obligations and continuing to provide basic services. The territory is already in default, and conditions are rapidly deteriorating. Is there a way forward? We think there is. In this short article, we outline a two-part plan for correcting Puerto Rico’s most urgent fiscal and financial problems.
The first step is to create an independent financial control board that has authority over Puerto Rico’s budgets and related issues. Notwithstanding concerns that an externally imposed financial control board (FCB) may interfere with the decision making processes of democratically elected officials, a properly designed FCB can play essential roles in the rehabilitation of distressed governments.
The second step is giving Puerto Rico a mechanism for adjusting its debts. Puerto Rico currently does not access to any restructuring option. To fix this problem, Congress could either give Puerto Rico and its municipalities access to existing bankruptcy law (Chapter 9), or it could craft an alternative restructuring framework for America’s territories. We will advocate for the latter approach, although either could be used.
With each step of our proposal, we summarize the key features at the outset and then describe the key features in slightly more detail.
Keywords: Puerto Rican government bankruptcy, insolvency, debt crisis, restructuring, federalism, governance dysfunction, reform, reorganization, local autonomy
JEL Classification: H20, H72, H77, K30
Suggested Citation: Suggested Citation