WASHINGTON (Sputnik) — Earlier on Monday, Puerto Rico defaulted on its debt for the first time in its history after paying only $628,000 toward the $58 million portion of the total debt of $73 billion it owes, according to the Government Development Bank of Puerto Rico.
“The US Congress should allow some version of bankruptcy, probably the pending amendment to Chapter 9, for Puerto Rico,” Georgetown Law Professor Anna Gelpern, who has served in legal and policy positions at the US Treasury Department, told Sputnik on Monday. “However, that is politically implausible.”
Chapter 9 is a portion of the US Bankruptcy Code that provides financially distressed municipalities protection from creditors and assists them to renegotiate and resolve their debts.
Gelpern explained that Puerto Rico is expected to provide a comprehensive economic plan and debt restructuring offer in the near future.
She also argued that Puerto Rico’s crisis does not represent a major risk to the US financial system.
“This is not a threat to the integrity of the US monetary or fiscal union.”
Puerto Rico Clearinghouse Principal Cate Long, who has written extensively about Puerto Rico's debt and predicted its future insolvency in March 2012, told Sputnik the bankruptcy option would be useful for San Juan.
“It would help Puerto Rico to have Chapter 9 to adjust some of their debts,” Long claimed.
The Puerto Rican government, Long noted, is preparing a five-year fiscal plan and debt restructuring proposal that is due at the end of August.
Long noted, however, it was doubtful that Congress was going to act anytime soon.
“Congress is unlikely to do anything since they are in recess until September. They did nothing when Detroit defaulted.”
Because of Puerto Rico’s unique status as United States territory, the US Congress must approve of debt restructuring under Chapter 9 of the Bankruptcy Code.
The White House has previously stated it has no plans to bail Puerto Rico out.