Liberal Democrats in the House of Representatives introduced legislation on Friday that would subject Puerto Rico’s mutual funds to more stringent federal regulations, with the aim of giving Puerto Rican investors the same protections available to investors in the United States. The move, which comes two months after the fiscally-troubled island officially defaulted on some of its debts, shows that members of Congress are beginning to seriously consider what role, if any, Washington will have in alleviating Puerto Rico’s ongoing fiscal crisis. The WSJ reports:
The proposed law aims to establish federal oversight for Puerto Rico’s mutual-fund industry after investors in Puerto Rico municipal-bond funds sustained heavy losses as the island’s fiscal crisis deepened. Puerto Rico has faced a sluggish economy and high unemployment for years, and Gov. Alejandro Garcia Padilla in June called the island’s $72 billion debt load unpayable.“It is outrageous that, when investing their hard-earned money for retirement, Puerto Ricans are not afforded the same transparency requirements and consumer protections that apply in the mainland,” Ms. Velazquez [Rep. Nydia Velazquez, D-NY] said in a statement.
It’s clear that there hasn’t been enough supervision of Puerto Rico for some time; ultimately this is on the U.S. Congress, which needs to conduct a thorough review of the policies and laws governing the Commonwealth. Many Democrats will be inclined to offer Puerto Rico a full-fledged bailout, while fiscal hawks in the GOP will want to force the U.S. territory to find a way out of this mess on its own. But if Puerto Rico turns out to be as broke as is feared, then there will have to be tradeoffs, what we’ve before called “relief for reform.” As a U.S. territory, Puerto Ricans are entitled to meaningful assistance from the federal government on the condition that they undertake real, lasting changes to the policies that helped produce the crisis.Public unions and other vested interests in Puerto Rico may not like the packages that Washington ultimately enacts, but while U.S. taxpayers have some obligations to help a U.S. territory, those obligations aren’t infinite and they don’t extend to enabling irresponsible behavior.