The Obama Administration has suggested steps to help Puerto Rico emerge from its financial troubles but says it needs cooperation from Congress to really address the crisis.
"Without a comprehensive solution, which requires Congressional action, Puerto Rico and its creditors risk a long, difficult, and disorderly crisis," according to a statement from Treasury Secretary Jacob J. Lew, National Economic Council director Jeffrey D. Zients and Sylvia Mathews Burwell, Secretary of Health and Human Services.
Puerto Rico faces a $28 billion shortfall over the next five years, and has proposed closing that gap through revenue and expense proposals, the statement said. But even then shortfall will still be $14 billion.
"The remaining shortfall must be filled, in no small part, through the restructuring of Puerto Rico's large and complex debt burden," the statement said.
Puerto Rico's Governor, Alejandro Garcia-Padilla, also appealed to Congress for help, in an appearance today before the Senate Committee on Energy and Natural Resources.
"We are facing an unprecedented crisis in Puerto Rico – a crisis decades in the making. To address it, my administration has reduced expenses by 20 percent and increased revenues by 23 percent in the last 3 years. Despite these efforts, by the end of the year, Puerto Rico may have to choose between paying its creditors and providing essential services to the island's 3.5 million American citizens. Police and fire protection, health care and social services, are all in jeopardy."
The White House, which is expected to have a tough time convincing the Republican-controlled Congress to assist Puerto Rico, stressed that the plan was not a bailout.
The White House wants congress to pass a law allowing Puerto Rican municipalities to declare bankruptcy, which would reduce the commonwealth's debt by about a third. The government of the colony would be barred from declaring bankruptcy, as are the states.
The administration also proposed some kind of fiscal oversight for the colony, noting that the government suffered from a "longstanding lack of fiscal oversight and transparency."
The statement also calls for reforms to the island's health care system, noting that, "Insufficient and unstable funding for Medicaid has contributed to Puerto Rico's fiscal challenges and endangered access to coverage.
Finally, the statement says congress needs to stimulate growth on the island, which has been hard hit by a shrinking economy and a steady loss of population to the mainland.
"Low participation in the formal economy stunts economic growth and undermines Puerto Rico's economic reform efforts," it said.
"Congress can help reverse the loss by expanding the Earned Income Tax Credit and Child Tax Credit," the statement added.
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