U.S. Treasury Secretary says Puerto Rico loan delay is island government’s fault

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U.S. Treasury Secretary Steven Mnuchin said that a delay in a loan to Puerto Rico to deal with post-hurricane needs was the commonwealth government’s fault.

“We are not holding this up,” Mnuchin said Tuesday. “We have documents in front of them that [spell out the terms under which] we are prepared to lend.”

Mnuchin made the comments to the U.S. House Appropriations Committee’s Subcommittee on Financial Services and General Government.

On September 20 Hurricane Maria hammered Puerto Rico. Puerto Rico Gov. Ricardo Rosselló turned to the U.S. Congress for help with money for Puerto Rico’s operating budget. He sought a Community Disaster Loan. In November the U.S. Congress and President Donald Trump approved offering $4.7 billion in loans to the island’s government, public corporations, and municipalities.

The Treasury hasn’t distributed any of this money yet.

"The dispute is about how the money will be used," said Emilio Pantojas García, a professor of sociology at the University of Puerto Rico. He said the Treasury Department is wary, and possibly overly so, because of "a history of malfeasance and mis-administration by the government of Puerto Rico, the fact that there are no audited financial statements since 2015 for the government, and the lack of a clear plan for reform and recovery."

Pantojas said Rosselló presented "contradictory policies" in his State of the Commonwealth Speech this week, when he announced tax cuts to stimulate growth, pay increases for the police and public school teachers, and said that his administration would reduce the size of government through consolidation and attrition, with no layoffs.

Puerto Rico is in the midst of a Title III bankruptcy process for the bulk of what was $73.8 billion in public sector debt as of February 2017.

On Feb. 26 Rosselló sent a letter to Congress complaining that the Treasury was now offering $2.065 billion. The proposal “imposed restrictions seemingly designed to make it extremely difficult for Puerto Rico to access these funds when it needs federal assistance the most,” the governor said.

On Tuesday Mnuchin said, “We are monitoring their cash flows to make sure that they have the necessary funds.” Puerto Rico said as of Feb. 23 it had $1.56 billion in its central government bank account.

Puerto Rico is asking for changes to the Treasury loan documents, he continued.

On the potential loans Mnuchin said, “We’re not making any decision today whether they will be forgiven or … won’t be forgiven.”

Eric LeCompte, executive director of Jubilee USA -- a non-profit devoted to the forgiveness of debt on humanitarian grounds -- said the priority should be to get money for rebuilding distributed as fast as possible.

"Almost six months after Hurricane Maria, we are still dealing with real human and economic suffering," he said. "It seems everyone is trying to work together to get the first installment of financing sent and it needs to be urgently sent."

LeCompte continued: “More long-term, everyone who cares about Puerto Rico also cares about greater public budget transparency on the island. Fortunately there are paths moving forward. We do have some processes that are improving transparency like the ongoing bankruptcy process and Treasury's Office of Technical Assistance on the ground."

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