Obama signs bill so Puerto Rico can survive debt

President Barack Obama on Thursday signs a financial rescue package for Puerto Rico, which is facing a major payment today on its $70 billion debt.
President Barack Obama on Thursday signs a financial rescue package for Puerto Rico, which is facing a major payment today on its $70 billion debt.

WASHINGTON -- President Barack Obama signed a rescue package Thursday for Puerto Rico, which is facing more than $70 billion in debt and has a major payment due today.

Obama signed the bill hours after it won final Senate passage Wednesday night. Obama said that there is still tough work to do to get Puerto Rico out of the hole.

"But it is an important first step on the path of creating more stability, better services and greater prosperity over the long term for the people of Puerto Rico," Obama said as he signed the bill in the Oval Office.

Puerto Rico's governor, meanwhile, signed an executive order Thursday to implement a debt moratorium on more than $1 billion worth of general obligation bonds.

Puerto Rico faces a $2 billion debt payment due today that includes those general obligation bonds. Gov. Alejandro Garcia Padilla previously said the government did not have enough money for payments.

Garcia also signed executive orders Thursday that expand a state of emergency to four other government agencies, including the island's largest public university and a retirement system that has been shorted by $40 billion.

"These measures are reasonable and necessary to ensure essential services while the debt is restructured under the legal framework provided by Promesa," he said, using the acronym for the bill that Obama signed Thursday.

The bipartisan bill doesn't provide any additional funding, but it allows Puerto Rico to turn to federal court to cut its obligations and protects the government from creditor lawsuits by putting them on hold.

In return, Puerto Rico is being forced to accept strict oversight by a control board that will have significant power over its day-to-day affairs. The legislation also does little to alleviate the underlying economic conditions on the island that led to its vast accumulation of debt.

Enactment of the measure is an accomplishment for Republican leaders in Congress, particularly House Speaker Paul Ryan, who vowed late last year to address Puerto Rico's burgeoning debt crisis. His promise came after demands for action by Minority Leader Nancy Pelosi, who also pushed Democrats to back the final bill.

"This bipartisan legislation addresses the fiscal crisis in Puerto Rico while protecting American taxpayers from a bailout of the territory," Ryan said in a statement after the vote.

The Obama administration also claimed victory after Treasury Secretary Jacob Lew worked hard to shape the bill and press lawmakers in both chambers to support it.

Obama said the debt crisis has been a heavy burden for the territory, with basic services shutting down and government workers not being paid.

"We've got to keep on working to figure out how we promote the long-term growth and sustainability that's so desperately needed down there, but the people of Puerto Rico need to know that they are not forgotten, that they are part of the American family," Obama said. "Congress' responsiveness to this issue, even though this is not a perfect bill, at least moves us in the right direction."

Statehood question

Having grown increasingly frustrated as the decade-long recession has sapped business from his tailor shop in San Juan, the capital of Puerto Rico, Porfirio Guerrero now believes that the only way for the island to recover is to become a full-fledged part of the United States, a sentiment that is gaining force in the territory.

Puerto Ricans have been divided for decades on whether to remain a semiautonomous commonwealth, push for statehood or break away entirely from the United States. The island's economic crisis has pushed many like Guerrero toward statehood.

"Can't you see the devastation around here?" Guerrero said, gesturing at struggling and shuttered shops that make up the once thriving business district of Rio Piedras. "It would depress anyone. We need statehood."

Though the bill is intended to help Puerto Rico, the outside oversight board and a provision to cut the minimum wage for some workers have fed into the sense of many islanders that they are second-class citizens, forced to beg Congress for help in a time of need.

"If Puerto Rico was a state, Congress could not approve a law of this nature," said Charlie Rodriguez, a former president of the island's Senate from the pro-statehood party. "But since Puerto Rico is a territory, Congress can do whatever it pleases."

The shift in sentiment is dramatized by the woes of the governing Popular Democratic Party, the standard-bearer for the island's current status as a commonwealth.

"The party has completely fallen apart," said Eduardo Villanueva, a political analyst who supports independence. He said the congressional action "was the final blow to the commonwealth status."

Even some members of the party concede it faces a challenge.

"There are legitimate questions about where we should be headed," said Roberto Prats, a former senator from the party. "We have a fiscal crisis; we have a debt crisis, an economic recession and an outcry of people demanding that we address the situation of the political status."

Unemployment is at nearly 12 percent, higher than in any U.S. state and fueling an exodus of Puerto Ricans to Florida and other states -- something that itself strengthens the bonds with the mainland.

Many of the problems stem from the end of a federal tax break for manufacturers that prompted many factories to close, as well as huge public pension liabilities and the high cost of energy. The territorial government, its municipalities and its utilities accrued the nearly $70 billion in debt that the governor finally declared "unpayable" last year, setting off a chain of defaults.

Puerto Rico has been a U.S. territory since 1898, and it gained limited political autonomy when the U.S. approved its constitution in 1952. The territorial status has helped the island to preserve some its cultural identity, allowing it, for example, to send its own athletes to the Olympics and to keep Spanish as an official language.

That autonomy comes with a cost: While islanders are citizens, they can't vote in presidential elections and have no voting representative in Congress. They also pay Social Security and Medicare taxes but receive less federal funding than U.S. states.

Only a small minority now backs independence, and when times were good, many people like Guerrero supported the current status. They've since changed their minds.

"Statehood would fix everything," said Jaime Cruz, a 73-year-old lottery vendor. "Things are going down the drain for me."

Adel Musa, a 43-year-old clothing store owner, said he believes that statehood would help pull the island out of the economic slump.

"People right now are living in misery," Musa said. "We're trying to survive, but it's hard."

Information for this article was contributed by Mary Clare Jalonick and Danica Coto of The Associated Press and by Billy House, Michelle Kaske and Steven T. Dennis of Bloomberg News.

A Section on 07/01/2016

Upcoming Events