Nearly 10 years into a deep economic slump, Puerto Rico is no closer to pulling out, and, in fact, is poised to plummet further.
The U.S. Treasury Department on Thursday urged the U.S. Congress to take immediate action to address Puerto Rico's debt crisis, warning that the island's $70 billion debt threatens to plunge the U.S. territory into a decade-long economic disaster even worse than its current recession.
In a congressional hearing, Antonio Weiss, counselor to the Treasury Secretary, urged lawmakers to propose special legislation that would restructure the commonwealth's debt – but only under strict federal oversight by the Congress. House Speaker Paul Ryan has said that he wants the Republican-led House to bring a bill to the floor by the end of March to address Puerto Rico's crisis.
"What started as a recession has turned into a fiscal and liquidity crisis that shows signs of becoming a humanitarian one as well."
- U.S. Treasury Secretary Counselor Antonio Weiss
"There is a growing recognition that we need to act now," Weiss told the House Committee on Natural Resources. "This is a Puerto Rican crisis, which means it is an American crisis. Puerto Rico is home to 3.5 million Americans whose economic well-being and safety are at stake."
Pres. Barack Obama's administration believes the only way to help Puerto Rico is for Congress to pass a special law offering bankruptcy-like protections to the island, allowing it to restructure its debt in a way that would prioritize pension payments to retirees above debt repayments to bondholders.
Putting a stop to already deep pension cuts, the White House thinking goes, will protect hundreds of thousands of residents while encouraging young Puerto Ricans to remain on the island.
The island's population has dropped by 10 percent in the past decade – 2.5 percent last year alone – as working-age people flee the economic crisis and leave behind an aging population.
This out-migration is believed to be the fuel that is keeping the economic crisis going.
"What started as a recession has turned into a fiscal and liquidity crisis that shows signs of becoming a humanitarian one as well," Weiss said, emphasizing that Puerto Rico "simply can't pay its bills" and has had to cut back on health, public and safety services.
However, many Republicans, bondholders and financial experts warn that passing a special law for Puerto Rico will start a dangerous precedent that could hurt the municipal bond market. If Puerto Rico is granted special privileges, what's to stop other municipalities from asking for the same sort of forgiveness of debts?
Emphasizing that the proposed plan is not a form of Chapter 9 bankruptcy for Puerto Rico, Weiss suggested Thursday that any congressional legislation should establish a federal oversight committee and be crafted in such a way as to protect only distressed U.S. territories not states or other localities.
"This authority would expressly not apply to states, [which] have an entirely different relationship with the federal government under the 10th Amendment," he said.
There are major doubts about whether Puerto Rico's government would accept giving power to a federal oversight committee. Former Gov. Anibal Acevedo, who opposes such a board, believes there is a 50/50 chance that a plan including one would be approved by Puerto Rico's legislation.
Weiss emphasized that legislation should be crafted to respect Puerto Rico's sovereignty, and he expressed confidence that the island's legislature would ultimately approve a restructuring deal. "It is our judgement that, given the crisis, the benefits of this would be broadly accepted."
Weiss reassured congressional representatives on Thursday that the U.S. government will only provide the necessary debt restructuring for Puerto Rico as long as the federal government has oversight.
"We propose strong independent federal oversight to address the commonwealth's long history of fiscal mismanagement and inadequate financial disclosure," Weiss testified.
On top of that Weiss said, restructuring the island's debt "would cost U.S. taxpayers nothing."
Bryan Llenas currently serves as a New York-based correspondent for Fox News Channel (FNC) and a reporter for Fox News Latino (FNL). Click here for more information on Bryan Llenas. Follow him on Twitter @BryanLlenas.