Treasury Secretary Jacob Lew warned that “time is very short” for Congress to pass legislation that would let Puerto Rico restructure its $70 billion debt and avoid a “chaotic unwinding” triggered by the territory’s failure to make nearly $2 billion in payments due July 1.
Secretary Lew began the week touring the island to underscore the impact of the financial crisis on 3.5 million citizens who live there. He ended the week at a Monitor-hosted breakfast for reporters, making the case for urgent congressional action. “It is not a crisis of the future, it is a crisis of the present,” Lew said.
He spoke of visiting a school where deferred maintenance created unsafe conditions, and of seeing a hospital unit where two week-old babies waited for treatment because it had to be paid for on a cash-on-delivery basis.
On other issues, the secretary was asked several times for his reaction to controversial comments presumptive Republican presidential nominee Donald Trump recently made about economic issues. These included the possibility of renegotiating the value of US debt, holding down the value of the dollar to boost trade, and the option of printing dollars to avoid defaulting on debt.
Lew responded that “I am not going to comment on the political debate. One of the attributes of being Treasury secretary is you don’t engage in politics.”
But he went on to offer a pointed response without mentioning Mr. Trump by name. “One of the things you do as Treasury secretary is spend a lot of time making sure that we have the deepest and most liquid markets in the world. That our [Treasury securities] are the definition of safety…. Dollars are the definition of safety. We have spent hundreds of years building that reputation and it is an important element of our economic and national security,” he said.
Lew’s breakfast appearance came after the House Committee on Natural Resources delayed the introduction of a revised measure to deal with Puerto Rico’s fiscal woes. The measure had been expected to be released this week. At the session at the St. Regis Hotel, Lew minimized the impact of the delay.
“The substance is more important than the schedule, as long as it gets done in time on Puerto Rico,” Lew said. “It is better to wait a day and try and reach agreement.” Lew described the negotiations between Congress and the White House as “a good faith conversation.”
Among the contentious issues in the negotiations are the powers that would be vested in a board that would oversee the restructuring. In a debt restructuring, lenders end up receiving less money or getting paid on a slower schedule than originally agreed to. Under current law, Lew noted, Puerto Rico is barred from restructuring its debts the way cities and states can.
“There are a lot of stakeholders out there who don’t want to have their debt be part of the conversation,” Lew said. “If they succeed in pulling their credit out, it might be called restructuring, but there is not enough on the table to effect a restructuring that works.”
He warned that “the alternative to an orderly restructuring is a chaotic unwinding,” of Puerto Rico’s situation where public services undergo dramatic reductions. Such an unwinding, he argued, “is more of a risk to confidence in markets than a restructuring is.”