October 22, 2019 / 8:26 PM / 25 days ago

Debt cancellation proposal for Puerto Rico flounders at congressional hearing

Oct 22 (Reuters) - A 2016 U.S. law that authorized federal oversight for Puerto Rico should not be amended to allow for the cancellation of unsecured debt, some of the island’s government officials said at a congressional hearing on Tuesday.

The House Natural Resources Committee, which oversees U.S. territories, is mulling changes to the PROMESA Act, which created a financial oversight board and a pathway for Puerto Rico’s 2017 bankruptcy filing.

A discussion draft of amendments to the law included a proposal allowing Puerto Rico lawmakers to discharge debt not secured by collateral for repayment.

Omar Marrero, Puerto Rico’s chief financial officer, said the move would increase future borrowing costs.

“Instead of being able to fully access the bond market in the future, we will be limited to only the least-optimal mechanisms for funding future projects such as secured or high-interest bonds,” he said.

Natalie Jaresko, the oversight board’s executive director, said the debt cancellation proposal “may make it harder and more expensive” for the board to restructure Puerto Rico’s existing debt through the ongoing bankruptcy process, leaving less money available for critical services for residents.

In September, a proposal to restructure Puerto Rico’s core government debt, consisting of $35 billion of bonds and claims and more than $50 billion of pension liabilities, was filed in U.S. federal court by the board.

Puerto Rico legislative leaders testifying at the hearing contended that the solution for the island’s problems is statehood and not the PROMESA Act.

U.S. Representative Raul Grijalva, a Democrat who chairs the Natural Resources Committee, said another hearing will be held so other parties, including labor and the private sector representatives, can testify.

“I plan on doing all that I can to prevent the oversight board from using the existing provisions of PROMESA as an excuse to cause further suffering to the residents of Puerto Rico,” he said.

But U.S. Representative Rob Bishop, a Utah Republican, dismissed some of the amendments as “political pandering to special interest groups,” adding that they will not go anywhere in the Republican-controlled Senate.

Other proposed changes to the law included requiring the U.S. government to fund the oversight board; defining essential services in Puerto Rico as education, public safety, healthcare and pensions; ordering an audit of the island’s debt; and appointing a coordinator to administer federal funds for reconstruction efforts in the wake of 2017’s Hurricane Maria. (Reporting by Karen Pierog in Chicago Editing by Matthew Lewis)

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