Not Greece

Martin O’Malley Has the Right Solution for Puerto Rico’s Debt Crisis

The Democratic contender came out early with a humane response to the commonwealth’s woes—and now other candidates are getting on board. 

By John Nichols

Puerto Rico is not Greece.

But the United States commonwealth is confronted with a debt crisis. It faces the threat of a brutal round of austerity cuts, which could make a bad circumstance dramatically worse. If ever there was a moment that called for enlightened leadership that recognizes both the economic and social challenges facing the Puerto Rico, this is it.

Former Maryland governor Martin O’Malley heard that call as the crisis began to come into focus last month and declared, “As a nation we must help our fellow US citizens not only because it’s the right thing to do, but because our region’s economic stability depends on it.”

Urging the Obama administration and Congress to act “to avoid Puerto Rico’s economic collapse,” O’Malley said in a statement:

First, Puerto Rico should be able to negotiate with its creditors just as states can under the U.S. Bankruptcy code. Congress should approve Resident Commissioner Pedro Pierluisi’s legislation that would allow for this to happen. 

Second, as I’ve stated before, the Department of Health and Human Services must end the inequitable treatment of Puerto Rico under Medicare, Medicaid and the Affordable Care Act. High costs and low reimbursement rates are a huge burden to Puerto Rico’s budget and millions of U.S. citizens are at risk of losing care. 

These are two steps we can take today, but I urge the Administration and Congress to work with Puerto Rico on a path forward that both provides immediate relief, and builds a foundation for sustainable, long-term economic stability. 

Republican Jeb Bush, a longtime advocate for Puerto Rican statehood, has spoken out for some time about the need to provide the commonwealth with greater flexibility. Give Bush credit for that, especially as it is likely to put him at odds with many in his own party.

What distinguishes O’Malley’s early and steady focus on Puerto Rico—and more broadly on the Caribbean—has been the precision he has brought to it as a former mayor and governor. That’s earned him significant attention from Puerto Rican media and media in the United States that bothered to pay attention to the crisis.

Now, the crisis is back in the news.

After lawyers for Puerto Rico failed on Tuesday to get the US Court of Appeals in Boston to reinstate a local law to help the commonwealth restructure a crushing $72 billion debt burden, other candidates picked up on the call, and they deserve credit for this.

Former Secretary of State Hillary Clinton said, “The people of Puerto Rico are hurting right now under a weak economy that has been struggling for years.”

Clinton, who had expressed concern about Puerto Rico’s circumstance earlier, provided more details, saying, “As a first step, Congress should provide Puerto Rico the same authority that states already have to enable severely distressed government entities, including municipalities and public corporations, to restructure their debts under Chapter 9 of the Bankruptcy Code.”

Later in the day, Senator Bernie Sanders said, “I strongly believe Puerto Rico should be afforded the same bankruptcy protections that exist for municipalities across the United States. We need to do everything we can to allow Puerto Rico to restructure its debt in a rational way that does not harm its people, ordinary investors or pension funds in the United States. Chapter 9 protections would be a good first step.”

Sanders added that “we also should recognize that the reason Puerto Rico has such unsustainable debt has everything to do with the policies of austerity and the greed of large financial institutions. Puerto Rico has been in a severe recession for almost a decade. Today, more than 45 percent of the people in Puerto Rico are living in poverty, the childhood poverty rate is greater than 56 percent and real unemployment is much too high. Our goal must be not only to give Puerto Rico the flexibility it needs to restructure its debt, but to make sure that it can rebuild its economy, create good-paying jobs and expand its tax base.”

The right things are being said now. The volume is being amplified.

When the call for a reasonable response was faint, however, O’Malley was the one who stepped up. And he framed a message that was humane and responsible.

This is worth noting, because Puerto Rico’s challenge is both fiscal and political. Political players in Washington have to be pushed to pay more attention to the island that is part of the United States but not a state. As a commonwealth, Puerto Rico has a unique relationship with the United States that creates both benefits and challenges. This has been especially evident as Puerto Rican officials have looked for options to restructure a debt-repayment burden so overwhelming that it threatens to empty the commonwealth’s treasury, to cause profound hardship for island residents, and to leave officials with few options for renewing a battered economy.

While states and mainland cities have the varying degrees of flexibility to restructure debt burdens of the sort that Puerto Rico is facing, the island lacks them. At virtually every turn, Puerto Rican officials are prevented from taking steps that have the potential to stabilize its fiscal affairs while maintaining basic services—the only rational and humane response to the crisis caused by its inability to cover payments to bondholders who delighted in speculating on financial instruments issued by the commonwealth because the bonds had “triple-tax-free” status that exempted them from federal, state, and local income taxes.

There will be much resistance in Washington to doing right by Puerto Rico. It is going to take consistent leadership to get the attention and the action that is necessary to get an equitable restructuring of debts. This political pressure is going to require both economic common sense and a sense of morality that recognizes that helping our fellow citizens is “the right thing to do.”

O’Malley has been out front on this one, applying the pressure. He deserves credit for that, and encouragement to keep it up.