SAN JUAN/WASHINGTON (Reuters) - Democratic U.S. senators have drafted a letter to Republican Senate Majority Leader Mitch McConnell insisting legislation designed to solve Puerto Rico’s debt crisis should include a mechanism for the island to restructure its debt, according to a draft of the letter seen by Reuters.
The move is a challenge to Republicans pushing bills in Congress to bring Puerto Rico’s finances under federal oversight, who are generally opposed to letting the U.S. commonwealth restructure its debt.
Democrats have argued that any such oversight should be conditional on allowing Puerto Rico to be governed by federal bankruptcy or debt restructuring laws.
A congressional source familiar with the letter said Senate democrats plan to make it public on Tuesday ahead of a hearing on Puerto Rico by the House Committee on Natural Resources, but timing remains uncertain.
A solution “must allow Puerto Rico to restructure a meaningful portion of its debt,” according to the draft of the letter, which noted that “Puerto Rico was included in Chapter 9 of the U.S. Bankruptcy Code until 1984, when Congress inexplicably excluded it from the nationwide approach to resolving municipal insolvency.”
Letters such as this are generally aimed at demonstrating party unity and are typically circulated to collect as many signatures as possible to show strength on a given issue.
The congressional source said this letter’s authors are expecting signatures from all 44 Democratic senators and 2 independent senators. If such broad support were achieved, it would allow Democrats to block any legislation that did not include a restructuring mechanism - although that is no guarantee that Republicans, who control Congress, would draft a bill that includes one.
A restructuring option would be a coup for the island’s governor, Alejandro Garcia Padilla, who has long said Puerto Rico needs to cut its $70 billion in debt to grow its economy, a stance that has faced resistance from creditors.
Aside from its debt load, Puerto Rico faces widespread economic strain, including a 45-percent poverty rate and a shrinking tax base, as a growing number of citizens jump to the mainland United States. The island has begun skipping some debt payments in recent months in order to make others, and now faces lawsuits from insurers of some bonds.
The letter comes weeks after House Speaker Paul Ryan demanded legislation by the end of March to address Puerto Rico’s debt.
“We urge you to match his commitment to act on a responsible solution by the end of the first quarter,” the draft letter says, addressing McConnell.
Reporting by Nick Brown in San Juan and Richard Cowan in Washington; Editing by Bill Rigby