Congress’s latest attempt to address the Puerto Rico debt crisis is winning applause in some conservative quarters. The Wall Street Journal editorialized favorably, claiming that PROMESA, the acronym for H.R. 5278, “applies market reform principles to an urgent problem.”
Writing in Forbes, the Conservative Reform Network’s Ryan Ellis called the bill “a conservative win,” one that enjoys the support of Americans for Tax Reform and the Council for Citizens Against Government Waste.
“Market reform principles?” “A conservative win?”
If only! Unfortunately, the bill falls well short of the pro-growth reforms necessary to deal with Puerto Rico’s economic woes. Here’s what it would do.
First, PROMESA would impose a blanket stay on litigation filed by disgruntled creditors. The stay would allow Puerto Rico’s unpopular leaders to play shell games with government assets—shifting them around to benefit insiders and keep them out of creditors’ hands.
The stay would set a dangerous precedent that future insolvent governments (say, Illinois or California) would find highly attractive. The last thing taxpayers need to give Puerto Rico—or any financially feckless government—is a get-out-of-jail-free card.
PROMESA also calls for imposing a “control board” to oversee the island’s budget. This may be an unsavory necessity, but it isn’t exactly straight out of John Locke.
Among other duties, the control board is supposed to facilitate voluntary negotiations between Puerto Rico and its creditors.
Voluntary negotiation among stakeholders is a good, conservative approach that Heritage has championed. Unfortunately, as laid out in PROMESA, there’s a catch.
The board-facilitated “voluntary” negotiations take place under the shadow of coercive debt restructuring. Compulsory debt restructuring that tosses aside the agreed-upon contractual rights of creditors has no place in a conservative playbook.
To give credit where due, the latest version of PROMESA does attempt to protect creditors’ respective places in line. In particular, it bars the island’s government pensioners from moving to the head of the line.
Ensuring creditors and pensioners maintain the priorities they were promised accords with conservative principles, but the only way to ensure creditors receive what they would under existing law is to actually work out Puerto Rico’s debts under existing law.
The Wall Street Journal correctly notes that, with PROMESA in place, Puerto Rico will need “fortitude and a little luck” to achieve economic growth. But the island needs more than luck; it needs substantial pro-growth reforms from Congress.
Missing from PROMESA are the two most important pro-market, pro-growth policies Congress could enact to help Puerto Rico: An exemption from the federal minimum wage and an exemption from the maritime Jones Act.
Given the bill’s suspension of legal rights and lack of pro-growth reforms, PROMESA offers conservatives little to cheer.