Draft bill for Puerto Rico will only hurt the island

Puerto Rico: The direct translation is “Rich Port City.” As Washington insiders debate the resolution bill recently proposed by the House Natural Resources Committee, it’s worth acknowledging that it isn’t a rich port city at present. It can be again — and it should be again — but this bill won’t get Puerto Rico there.

{mosads}The first time I visited Puerto Rico was with a law school friend, and I spent three weeks on la isla del encanto, “the enchanted island.” It certainly was, and I fell in love with it. I have since taken my sons there for treasured family vacations.

The first thing that struck me was that the very moment the plane landed, every single passenger started to clap and cheer. The passengers next to me couldn’t understand my surprise and asked, “Doesn’t everyone clap when you land at your home?”

As American citizens, Puerto Ricans have traditionally been among the most highly decorated soldiers in American wars, and over 40,000 Puerto Rican soldiers fought in World War II. We think of Puerto Rico as another place, but Puerto Rico sits at the heart of America’s past and its future.

This is the reason it is such a shame that some in Washington are trying to perpetrate a great fraud on the Puerto Rican people. They hesitate to exempt Puerto Rico from detrimental union-backed initiatives.

For example, the Jones Act, adopted to subsidize union labor at American ports, puts Puerto Rico at a tremendous disadvantage in international trade. Why have domestic unions insisted on preventing Puerto Rico from obtaining an exemption from this job-killing law? I can only imagine it is because they’re afraid it would prove rescinding Jones Act red tape might create more jobs in the United States as well.

And President Obama’s recent trip to Cuba makes things worse for Puerto Rico. Caribbean island tourism is the lifeblood of Puerto Rico’s economy. Obama chose to open up relations with Cuba at this key moment in Puerto Rico’s future and just gave a tremendous boost to what will become Puerto Rico’s newest competitor.

Appeals to conservative principle may no longer carry the day in this Congress, but they deserve a try anyway. Here goes: Property rights were the foundation of the Constitution and the republic it created. When government suddenly decides that a creditor’s rights are void, without warning, we live in a banana republic.

That is the way the late Venezuelan President Hugo Chávez used to deal with his creditors. When he grew frustrated with the operation of private industry, he simply nationalized it. Make no mistake, the House bill effectively nationalizes Puerto Rican debt, Chávez-style. Even worse, the bill would force the retirees and pension funds who hold Puerto Rican debt to fund this government bailout.

The draft bill proposed by the House Natural Resources Committee contains a “cram-down” of creditors that would allow Puerto Rico to walk away from its debts — once again, Chávez-style. House Republicans rightly opposed a mortgage cram-down during the financial crisis, and so it’s certainly inconsistent that they would embrace the concept here.

This modus operandi has grave consequences for the island. If future creditors know their contractual rights can be suspended on a political whim, the interest rates they charge will go up. There is no way around that basic law of economics here: It will mean borrowing costs for the island will increase going forward. There is no reason to inflict that kind of pain on an island that has already seen such struggle.

Members of Congress will be remembered for how they act on this issue. Ahead lies the entitlement reform debates for which Speaker Paul Ryan (R-Wis.) made his name. If they waiver here, how will they ever bolster the courage to press entitlement reform forward in future fights?

Verret is an assistant professor at the Antonin Scalia Law School at George Mason University, a senior scholar with the Mercatus Center at George Mason University, and former chief economist and senior counsel to Chairman Jeb Hensarling (R-Texas) of the House Financial Services Committee.