Trending

Newsletter

The White House’s Non-Bailout of Puerto Rico

By: Frank Worley-Lopez - Jan 28, 2014, 3:27 pm

According to a recent report in the Chicago Tribune, the White House has said it has no plans to bail out Puerto Rico from its US$70 billion debt. Financial salvation for the territory — where economic challenges resemble those of Detroit — could serve as an invitation to other US jurisdictions to request help from Uncle Sam. In this light, not conducting a White House-led bailout is probably the right thing to do.

But not so fast. Wall Street may be “independently” trying to find a solution for Puerto Rico — and not out of the goodness of their hearts: a report in Valuewalk.com says financial services corporation Morgan Stanley has been considering the idea of lending Puerto Rico $2 billion. The catch? The loan would allegedly carry a yield of 10 percent, significantly higher than rates available in the broader municipal bond market.

The proposal would resemble a form of bridge financing with the aim of transitioning the island from its current situation — where it could go bankrupt by summer — until reform efforts are fully implemented, and the island can get back on the right economic path.

There are many problems with the proposal: Puerto Rico denies involvement in the alleged talks, 10 percent interest is a prohibitive burden for Puerto Rican taxpayers, particularly without a thorough reform of the island’s complicated taxation system.

With its population in decline, economy crippled, and taxes increasing, the US Commonwealth appears to be on an almost intentional and downward spiral into economic collapse. The “bridge financing” idea might prolong the inevitable, but would most likely last just until the next election cycle.

Cynical thinking says that, instead of a public bailout, the Obama administration called some colleagues on Wall Street with the goal of pushing Puerto Rico’s fiscal problems down the road. Apparently someone listened.