Left-leaning news outlets keep portraying President Donald Trump as being more preoccupied with blaming Puerto Rico for its debt than actually helping the island during its ongoing catastrophe. And it’s true that Trump has highlighted the territory’s massive debt ($70 billion), roughly 75% of which is owed to bond investors. They also have another $123 billion in unfunded liabilities.
Yet on Tuesday, after chiding Puerto Rico for “throwing the federal budget out of whack,” Trump made comments that appeared much more sympathetic.
“We’re going to work something out. We have to look at their whole debt structure. You know they owe a lot of money to your friends on Wall Street, and we’re going to have to wipe that out,” Trump said in an interview with Fox News’ Geraldo Rivera during his visit to the island.
“That’s going to have to be … you know, you can say goodbye to that,” Trump said of Puerto Rico’s crushing debt. “I don’t know if it’s Goldman Sachs, but whoever it is, you can say goodbye to that.”
“The debt was massive on the island.”
Well, the markets noticed.
According to CNBC,
Puerto Rican bonds took a huge hit on Wednesday following President Donald Trump’s comments on the island’s massive debt.
The island’s general obligation bonds, which yield 8 percent, dropped to just 36 cents on the dollar. Just last month, the bonds were trading at around 56 cents to the dollar.
Mick Mulvaney, director of the Office of Management and Budget, tried to walk back Trump’s comment on Wednesday. In an interview, he told CNN: “I wouldn’t take it word for word with that. I talked to the president at length yesterday as we flew home on Air Force One.”
“The primary focus of the federal effort is to make sure the island is safe and that we’re rebuilding the island,” he said.
The bonds were already trading at 56 cents on the dollar prior to Trump’s comments, which shows that despite their above-market yield of 8% per annum, investors still had little faith they’d be paid back.
But, is the further drop warranted? Does Trump actually have the power to wipe out Puerto Rico’s debt?
Sorta. In June of last year, Congress enacted a special law called Promesa that put Puerto Rico’s finances under a federal oversight board and halted current lawsuits by creditors. The new law also gave the island commonwealth certain bankruptcy-like powers — such as the power to reduce debt unilaterally under the supervision of a federal judge.