WASHINGTON – Puerto Rico said recently that there is no reason to believe that its debt is unconstitutional, but that this issue could arise in legal disputes if there is no "consensual restructuring" of the debt.
The Commonwealth made the statement in its quarterly report on financial information and operating data, which was dated Nov. 6. It was responding to suggestions by lawmakers at a recent hearing by a U.S. Senate committee that some of Puerto Rico's debt may be unconstitutional.
"The administration has no reason to believe that any of the commonwealth's debt was incurred in violation of the Puerto Rico Constitution and believes the focus must remain on working towards achieving a comprehensive fiscal adjustment and economic growth plan that includes a consensual restructuring of the commonwealth's debt," the report said. "In the absence of such a solution, however, legal disputes of this type could intensify, including among the commonwealth's different creditors."
The statement stems from a hearing held by the Senate Energy and Natural Resources Committee on Oct. 22, during which presidential candidate Sen. Bernie Sanders, I-Vt., told Puerto Rico Gov. Alejandro García Padilla and Resident Commissioner Pedro Pierluisi, D-P.R., that he understood some of the debt may violate the island's constitution. He asked if this is a possibility and also whether any debt found to be unconstitutional should be repaid.
The commonwealth said in its report that both García Padilla and Pierluisi, who were witnesses at the hearing, said there is a possibility that this is true but that the question requires further study.
Sergio Marxuach, the policy director at the San Juan-based Center for a New Economy who also testified at the hearing, said the territory's Constitution says that debt should not be issued to balance the budget and that taxes should be raised instead. The commonwealth disclosed the constitutional requirement in official statements for the debt, Marxuach said.
Puerto Rico said in the report that Act 19-2015, which amended the Puerto Rico Government Development Bank's organic act, established a Public Debt Auditing Commission that is to look into issues like the constitutionality question. The PDAC has not started operating because it does not currently have all of its members named.
In the report, Puerto Rico said it will continue to believe all of its debt is constitutional unless a PDAC audit or a similar investigative process revealed facts that show otherwise.
