WASHINGTON (Reuters) - Legislation to help Puerto Rico climb out of a debilitating debt crisis hit new resistance in the U.S. Congress on Wednesday, prompting Republicans to cancel a planned work session that was set for Thursday on the measure.
The House Natural Resources Committee’s planned “markup” of legislation Republicans unveiled late on Tuesday was being called off, panel Chairman Rob Bishop announced in a statement.
He said the Obama administration was still negotiating provisions and that it would be “unfair to all members to force a vote” with the talks ongoing.
One congressional aide said the abrupt move was being taken because there was not enough support among panel members to get the legislation approved and sent to the full House of Representatives for debate.
It was unclear when the committee would reschedule a work session.
Earlier on Wednesday, a U.S. Treasury official told the committee that the U.S. Congress must allow Puerto Rico to erase a share of its debt or investors will face a long, uncertain fight to recover their money from the cash-strapped island.
Republicans who control Congress outlined a plan this week to help Puerto Rico write off billions of dollars in debt if an agreement with creditors is out of reach.
That plan would create a forum for investors to negotiate with Puerto Rico officials while the island’s government tries to curb deficit spending that has created $70 billion in debt.
Such a plan would signal to Wall Street that the Puerto Rico financial crisis is manageable, said Antonio Weiss who is handling the issue for the Treasury Department.
Without congressional action, Weiss said, investors face years of combat in the courts.
“Chaos will ensue and the (Puerto Rico) economy will face another lost decade,” he told the Natural Resources panel of the House of Representatives.
As a territory of the United States, Puerto Rico answers to Congress and its people are American citizens. Roughly 2.5 percent of the island’s population is migrating to the mainland each year to escape the financial crisis, Weiss said.
House Speaker Paul Ryan on Tuesday said the Congressional rescue plan was the right move but many Republicans disagree.
Wall Street would be rattled if Congress rewrote the terms of Puerto Rico debt and that could sour investor appetite for other municipal bonds, said Representative Jeff Duncan of South Carolina.
“I believe we’re going down a slippery slope here,” Duncan said on Wednesday at a hearing on the proposal. Rather than meddle in markets, he said lawmakers should stand aside and let Puerto Rico settle its disputes with investors.
Rob Wittman, a Virginia Republican who also sits on the Natural Resources panel agreed.
“Congressional intervention at this point would serve to alter the rule of law,” he said in a statement.
Weiss told lawmakers that the current rescue plan was not perfect but it was the cheapest option since it only involves rewriting some rules for investors.
“The alternative to this legislation ... will in fact become a bailout,” Weiss said.
He noted that the Zika virus is spreading across Puerto Rico and the island is poorly-equipped to handle that emergency while the financial crisis looms.
Reporting by Patrick Rucker, Richard Cowan and Susan Heavey; Editing by Kevin Drawbaugh, Bernard Orr and Tom Brown