Investors in Puerto Rico's debt-burdened economy still face the risk of default on some of the island's nearly US$73 billion in debt even after the U.S. Congress on Wednesday created a controversial but powerful federal oversight board to manage its economy and debt restructuring.
U.S. President Barack Obama has said he will quickly sign the Puerto Rico Oversight, Management, and Economic Stability Act, known as the PROMESA bill, before the U.S. territory faces a possible default on July 1 on US$1.9 billion worth of debt payments.
While the government of Puerto Rico — a U.S. territory that, unlike a state, cannot declare bankruptcy — says it cannot honor all of its debts, and will likely default for a fourth time in the last year on some of its bonds, some creditors could get their payments via insurers or reserve funds. A missed payment will constitute a default, credit experts say.
Puerto Rico has already missed approximately US$562 million worth of debt payments.
PROMESA hands control over the economy of Puerto Rico to a Washington-appointed federal oversight board with sweeping powers that critics say is a manifestaton of colonial rule. The bill will also pave the way for debt restructuring, something that Puerto Rico has been blocked from doing on its own to manage the debt crisis.
PROMESA, a rare bipartisan compromise, moved forward in the Senate on Wednesday in a cloture vote of 68 to 30. It is expected to receive a final vote on Thursday. The House of Representatives passed it on June 9.
The risk of defaults is not eliminated by PROMESA, but creditors see it as reducing uncertainty.