The U.S. Treasury Secretary, Jack Lew, had pronounced Puerto Rico's debt crisis to be in default, thus needing a complete restructuring of all its debt and general obligation bonds.
Jack Lew testified in front of the House Financial Services Committee that the restructuring efforts will have to cover all of Puerto Rico's debt in order to address the crisis that they have been experiencing.
The secretary had independently looked into all the issues based on risk and credit quality, including the possible effect of the $3.7 trillion U.S. municipal bond market, according to Reuters' report.
He emphasized that providing loans and bailout is not an opition. Instead, the island needs urgent restructuring. In Wall Street Journal's publication, Lew said, "Restructuring is an alternative to a bailout. This is not a case of 'waiting will help.' All waiting does is makes a process more complicated, messier and more costly."
Puerto Rico's financial crisis escalated in 2015, with a record of $70 billion in debt, the highest one than any other U.S. state government, except California and New York. Bloomberg View cited that the island has lost 80,000 jobs since 2006, and their poverty rate of 45% is more than double to Mississipi. Puerto Rican government admitted defaulting to its borrowings and tried to look to its creditors and Washington for help.
The government looks at admitting to bankruptcy is the only solution to the debt crisis. The U.S. Supreme Court is yet to decide whether the island has the right to make such move.
Lew added, "I believe the worst thing for the municipal bond market would be a disorderly unwinding in Puerto Rico, which is what will happen if Congress doesn't act."
The Republicans who dominate the U.S. House of Representatives have already promised a rescue strategy for Puerto Rico's crisis. he U.S. House Speaker, Paul Ryan, said that they will pass a bill to the House floor before March ends. He already formed committees to work with Puerto Rico's government to come up with a solution to the island's financial problems.
There could still be hope for Puerto Rico's economy to improve. One of its public agencies, the Puerto Rico Electric Power Authority (PREPA) had agreed to a deal with creditors, including holdout bond insurers, on a restructuring of its debt.
PREPA's Chief Restructuring Officer, Lisa Donahue, said in Channel News Asia's report, "It's a good feeling that we have been able to get disparate creditors together to agree to a path forward. The one thing that made it doable is that everyone recognized there was a problem and that we needed to solve it together."
