Obama Administration Push for Puerto Rico Bailout Will Benefit Cronies

puerto rico

 

If the House legislation on Puerto Rico is defeated, and the bailout and super Chapter 9 Bankruptcy wins instead, Obama Administration cronies that support the latter will benefit greatly. They stand to make more than $100 million if the bankruptcy and bailout plan for Puerto Rico is put in place.

MillCo Advisors, headed up by former U.S. Treasury official Jim Millstein, could see $52.4 million in revenue from consulting work related to the Puerto Rico bailout, the New York Post is reporting, as well as, “Puerto Rico also has contracts with Manhattan law firms Cleary Gottlieb and Proskauer Rose that max out at $37 million and $6.6 million, respectively, according to government records and contracts reviewed by The Post.”

The Commonwealth of Puerto Rico hired SKDKnickerbocker, an influential Manhattan communications and public relations firm, for a $3.4 million public relations and marketing contract that includes a $500,000 advertising budget. Former Obama administration Communication Director Anita Dunn, who still regularly visits the White House, and was hired by Puerto Rico’s Governor Padilla as a bankruptcy advisor, also works for SKDKnickerbocker.

“The fact that the Puerto Rican debt crisis resulted from years of over-spending, political cronyism and outright corruption goes a long way to explain why Puerto Rico’s political leaders have poured many millions of dollars into a small group of politically connected legal, lobbying and consulting firms,” the New York Post quoted from Ken Boehm, chairman of the National Legal and Policy Center, a Virginia watchdog.

As a result of working with MillCo Advisors and SKDKnickerbocker, Puerto Rico has issued a new plan to restructure their debts, but it has had no input nor support from creditors. Seen as an attempt to deflect attention from the debt moratorium bill passed by the Commonwealth, the plan is not seen as a serious effort to address the issues. It is purely a lobby tactic in the larger debate over how to address the debt crisis in Puerto Rico.

House Speaker Paul Ryan had promised the House would propose legislation that would help Puerto Rico to arrive at “a responsible solution” to their debt crisis. Two days ago, the House Committee on Natural Resources released H.R. 4900, the “Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA).” Committee Chairman Rob Bishop (R-UT) and bill sponsor Rep. Sean Duffy (R-WI) are leading the effort to pass H.R. 4900 in Congress.

“This is the constitutionally-sound solution that will provide real, long-lasting reform to the Commonwealth while respecting the rights of all parties and creditors. It is the Island’s best shot to mitigate its financial collapse and future calls for a bailout, which would be untenable. Congress must act now to avoid a humanitarian crisis that will severely impact 3.5 million Americans living in Puerto Rico and millions of Americans on the mainland,” Rep. Bishop said.

The legislation will protect American taxpayers from the costs of bailout and bankruptcy for Puerto Rico and will instead enable Congress to create an independent financial control board that will have the authority help the Commonwealth implement reforms to improve their fiscal affairs before restructuring their debts. The plan will address the root causes of the debt crisis in Puerto Rico rather than allowing a bailout/bankruptcy plan that will only further reward and enable the policies that have caused the crisis. Additionally, the legislation would hold responsible those who have caused the crisis, and it will allow order to be brought to the process of debt restructuring, rather than the disorder created by the Commonwealth’s recent bill to allow the debts to not be paid.

“The three and a half million Americans living in the U.S. territory deserve the attention and support of Congress. After decades of mismanagement, Puerto Rico’s investors also deserve better. A protracted and chaotic legal battle would not serve the interest of creditors or the island. Worse would be a multi-billion dollar taxpayer bailout thrust on the shoulders of America’s taxpayers and retirees. The PROMESA Act will ensure that the island meets its debt obligations in a controlled, responsible manner, without saddling the U.S. taxpayers with the bill. If we get this right, we have an opportunity to put the people of Puerto Rico on a path to economic opportunity. However, if we do nothing, the American people will be on the hook,” Rep. Duffy said.

The Obama administration, that supports strongly the bailout and bankruptcy, is opposed to this legislation, in the former of Antonio Weiss, the counselor to Treasury Secretary Jack Lew, calling the plan “unworkable” because it gives creditors some voice in the process of debt restructuring.

If Puerto Rico is allowed bankruptcy, it might become more likely that other states and cities in the U.S. will go this route, including the state of Illinois, that is currently facing a debt crisis of it’s own as well. If Illinois is allowed also to pursue bankruptcy, it would have a profound affects on the ability of the state to borrow money, as well as cause an increase in the interest rates on their current debt.

H.R. 4900 is good, conservative, commonsense legislation that protects American taxpayers and gives Puerto Rico hope of economic revitalization, the office of Speaker Ryan said in a statement on the bill.

The legislation remains stalled in the House as both sides of the debate, those wanting reforms in Puerto Rico and the other side wanting bankruptcy and bailout instead, seek their input on the legislation that will ultimately come out of the House committee and possibly pass in Congress. The two sides are seeking very diametrically opposed plans on how to address the debt crisis, so it remains to be seen what exactly will emerge from the legislative process in Congress. The American taxpayers, the creditors of the debt, and the citizens of Puerto Rico will all benefit if the PROMESA Act is passed rather than a costly bailout and bankruptcy plan that will only benefit the cronies of the governments in San Juan and Washington D.C. at the expense of American and Puerto Rican citizens.

 


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