The most complex Puerto Rico issue is what treatments should be authorized for various categories of bondholders. Shed few tears for those who, by buying Puerto Rico’s (or Illinois’) debt, enable the sort of high-spending, vote-buying governance that bankrupted Detroit and soon will have Illinois begging for what does not and should not exist — a bankruptcy option for states.
Puerto Rico’s debts should not be restructured in a way that sets a precedent allowing Illinois to dodge both debts and reforms, particularly reforms pertaining to government employee unions that have contributed to the territory’s dysfunction. The more Puerto Rico is allowed to evade existing legal processes and the need to negotiate with creditors, the more leeway it will have to resist reforms.
Puerto Rico’s political class recoils from a control board exercising federal oversight, which Gov. Alejandro Garcia Padilla calls a “shameful and degrading” measure to deprive the island “of its own government.” But curtailing this class’ discretion might not be seen as a deprivation by the 71 percent of Puerto Ricans who in a recent poll favored an oversight board for a government. The president of the territory’s senate likens federal oversight to “the worst colonial subjugations.” But what are the proper prerogatives of a mendicant legislature avidly seeking maximum leeway to repudiate debts?
Because the island is a U.S. territory, what happens there will not stay there: America needs to prevent, or minimize, a humanitarian crisis, some of which would be exported to America. But ameliorative measures must be made conditional on fiscal, labor and other reforms on the island.
George F. Will can be contacted at georgewill@washpost.com.