Puerto Rico has little to gain from reforms that increase economic growth if the extra resources will all go to its creditors, according to a commentary from Larry Summers, a former treasury secretary and director of the National Economic Council in the White House, in today’s Washington Post. No individual creditor or group of creditors, even if they bought a claim for 30 cents on the dollar, is motivated to accept less than full payment as long as other creditors are going to be paid in full. First, Summers believes, Puerto Rico needs to adjust its policies so that its economy can compete in the modern world and its government has sustainable finances. Second, a realistic settlement needs to be reached where Puerto Rico is protected from its creditors and their claims are adjusted to realistic levels. An extension of the Bankruptcy Code to cover Puerto Rico is the centerpiece of the U.S. Treasury’s recent proposal. Other critics suggest that if Puerto Ricans just tighten their belts, all debts can be paid. This, according to the commentary, is absurd given the size of the commonwealth’s debts, the prices at which they are trading, and the rate of collapse of Puerto Rico’s economy. Read more.
For more on Puerto Rico’s debt crisis, be sure to visit ABI’s “Puerto Rico in Distress” webpage.
