(Bloomberg Opinion) -- Arriving in the midst of hurricane season, Puerto Rico’s new debt restructuring plan is a small ray of sunshine. But even if the proposal prevails in court — a big “if” — the territory’s prospects aren’t bright. With its obligations reduced, Puerto Rico will still outstrip every U.S. state in per capita debt. Hopes for a lasting recovery will continue to depend on federal hurricane-recovery aid and fixes to an array of ill-suited federal laws and regulations.
The federal oversight board aims to squeeze $35 billion in debt and other liabilities to $12 billion, and to reduce more than $50 billion in unfunded pension liabilities by means of benefit cuts and other measures. The overall approach is right. But the bankruptcy court must approve the plan, and litigation by holdout creditors is all but certain. Some are arguing Tuesday at the U.S. Supreme Court over the board’s constitutionality.
Regardless, the island faces the same underlying problems that brought it so low in the first place: wallowing in recession for more than a decade, with a steadily shrinking population, and unemployment and poverty worse than in any U.S. state. All that was before Hurricane Maria in 2017 killed almost 3,000 people and wreaked havoc on the island’s assets and infrastructure.
Washington can help — first, by expediting aid for reconstruction. Despite a growing exodus, Puerto Rico is home to more U.S. citizens than 22 states. But it has no voting representation in Congress, which explains why help has come more slowly than in Texas and Florida, for instance. Roughly $43 billion has been allocated to Puerto Rico (not $90 billion, as President Donald Trump claims) but federal agencies have spent only $14 billion of it. The Government Accountability Office just blasted the Federal Emergency Management Agency for holding up repairs to the energy grid, and two FEMA officials overseeing the project have been arrested and charged with fraud. Two years after Maria hit, funding still hasn’t been approved for rebuilding the hospital serving the remote island of Vieques. Instead of restricting aid more tightly, as the president has threatened, his administration should be asking why basic services aren’t already back up and running.
Congress also needs to grapple with the so-called Medicaid cliff — the chronic shortfall in health-care funding for the island’s population. Lawmakers should support employment by extending the earned income tax credit to the island’s workers; encouraging the island’s government to make it easier to start and operate businesses; and exempting Puerto Rico from the Jones Act, the law that forces the use of U.S.-built, -owned and -crewed ships for mainland commerce. Underlining the absurdity of that last impediment, Puerto Rico will take delivery this month of liquefied natural gas from Siberia — because the U.S. has no Jones Act-qualified LNG carriers.
Restructuring Puerto Rico’s debt is necessary. But Washington needs to wake up: It will take a lot more than that for the island to prosper.
Editorials are written by the Bloomberg Opinion editorial board.
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