Today, a private sector coalition of over 20 trade associations is speaking with a single voice and asking Congress to grant Puerto Rico the right to allow its public corporations access to protections under Chapter 9 of the U.S. Bankruptcy Code.
From a business perspective, Chapter 9 is part of the solution to Puerto Rico's complicated debt and liquidity crisis. The alternative -- doing nothing and watching bondholders subject Puerto Rico to years of litigation and chaos -- would be a disaster for a business community that thrives on predictability and order.
If we subject ourselves to a long and disorderly process, this unsustainable burden would leave Puerto Rico with little chance to grow its own economy. Chapter 9 would provide an orderly legal process -- guided by a federal judge -- to restructure what its public corporations owe and give our island the chance to fight for its future.
During these tough times, we believe that the private sector needs to lead Puerto Rico into economic recovery. The Garcia Padilla administration has promoted economic development and attracted investments from multinational firms such as Lufthansa Technik, investors such as John Paulson & Co., and other high-profile job creators. But without the organized process that Chapter 9 can deliver, this crisis could create uncertainty that is not conducive to commitments and investments from the business community. Puerto Rico needs the private sector's help if it is to emerge from this crisis -- and Chapter 9 is the most important step it can take to secure it.
This solution would not "bail out" Puerto Rico with the use of mainland taxpayer dollars. All that is needed is a technical fix to the current Bankruptcy Code -- a fix that Senator Bob Dole, who served on the Senate Judiciary Committee when the current law was framed in 1984, has already endorsed. Any businessman will tell you that bankruptcy is a trying, difficult process -- but it is a necessary first step. It's also the right thing to do for a struggling population.
While many bondholders have been willing to fairly negotiate with Puerto Rico on a debt agreement, some others have proven intractable. In the highly complex world of municipal bond negotiations, good will can never be enough. The troubled Puerto Rico Electric Power Authority, for example, has spent a year in talks with its bondholders, without success.
Dozens of lawsuits and protracted legal battles will surely ensue in Chapter 9's absence. This outcome would be a great benefit to lawyers and politicians, but it would provide no comfort to Puerto Rico's business community or struggling families. Chapter 9 is the only solution that provides confidence that the Island's future is in safe hands.
Granting Puerto Rico's public corporations access to Chapter 9 of the Bankruptcy Code should not be done in a vacuum. The Island's business leaders strongly believe that it has to be accompanied by firm commitments from the local government to implement structural reforms. We are in the threshold of a new era of fiscal responsibility, with spending constraints, business permit processes, and labor law reforms being evaluated, but we must make sure that we do not turn back now.
The private sector knows that it must play an important role in moving Puerto Rico's economy forward. But prosperity first requires stability. Without the tried-and-true legal framework that only Chapter 9 protection can provide, confident and ambitious investors will be difficult to find. We urge Congress to pass this vital legislation to give Puerto Rico a new beginning.