In an interview on Tuesday, Donald Trump announced that the U.S. would try to wipe out Puerto Rico’s $75 billion debt to bondholders, which instantly caused panic on Wall Street. The president’s remarks also resulted in a decline in Puerto Rico bonds. They dropped overnight from 56 to 36 cents to the dollar.
The White House had to act promptly, suggesting that for the time being the president’s administration does not plan to take such steps, as they are very likely illegal and Trump himself has no authority to eliminate Puerto Rico’s debt. President Trump’s budget chief, Mick Mulvaney, said he “wouldn’t take it word for word for that”, adding that Puerto Rico would have to deal with this issue without the help of U.S. finances.
White House officials and spokesman refused to give further comments on the president’s remarks. In the interview, Trump told Fox News the following on Puerto Rico: “They owe a lot of money to your friends on Wall Street and we’re going to have to wipe that out.”
However, since last year a process has begun to deal with the substantial debt Puerto Rico has accumulated. In 2016 Congress passed a law intended to help Puerto Rico to recover from its debt, which apart from the $75 billion debt to bondholders includes unfunded pension liabilities amounting to $50 billion. It is also possible that the White House request $29 billion as hurricane relief and direct part of it to Puerto Rico to ease the revival of its economy.
In May of this year, Puerto Rico filed bankruptcy, which is the largest municipal bankruptcy ever filed in the U.S., CNN reports.