Editorial: Puerto Rico’s Only Hope: The Bankruptcy Process Will Be Painful, but It’s Necessary

Puerto Rico, deep in a fiscal hole it dug partially with its own shovels, is about to grab a rope and start pulling itself out, according to an editorial in today’s New York Daily News. All who care about the island Commonwealth, including the 3.5 million people who live there and 800,000 New Yorkers of Puerto Rican descent, should suck up the inevitable pain and hope to high heaven that this works. The day of reckoning is here for many reasons, but foremost because, over decades, Puerto Rico’s government spent way more than it took in. While American states have to balance their budgets, a task they often fudge through fiscal trickery, Puerto Rico didn’t even have that fig leaf. So the government issued more and more debt to fund its operations, up to $70 billion by 2014, and now north of $100 billion. Add to that more than $40 billion in unfunded pension liabilities. But Washington more than contributed to the calamity. In 1984, Congress shamefully and inexplicably stripped Puerto Rico of the ability to seek bankruptcy, a right open to all 50 states and every political subdivision therein. More than 30 years too late, Congress finally wised up last summer and gave Puerto Rico the bankruptcy option. As the plan begins to bite, there will no doubt be major dislocations, from public sector layoffs to reduced pensions to big losses for investors, as the island’s debt exceeding $100 billion is restructured. It’s not going to be fun. But pray that all who love this great place stay on board long enough to let its people crawl out of the hole and start walking.