Trump: Puerto Rican debt will be 'wiped out'
Donald Trump said that because of hurricane Maria, Puerto Rico's $70-billion debt will have to be "wiped out."
In an interview with Fox News, Trump said that much of the island's debt was owed to big Wall Street banks. The president did not sound sympathetic to them.
"They owe a lot of money to your friends on Wall Street and we're going to have to wipe that out," Trump said during an interview with Fox News. "You can say goodbye to that."
"I don't know if it's Goldman Sachs but you can wave goodbye to that."
Puerto Rico had roughly $70 billion in debt before Maria hit.
The debt had been a major obstacle for the U.S. territory as it fought for statehood. Bondholders had asked Congress and the Trump administration to hold off on granting statehood until Puerto Rico had paid off its debt.
The island had been struggling economically since former President Clinton signed a tax reform law in 1996 that closed a loophole giving tax incentives for U.S. businesses to establish subsidiaries in Puerto Rico.
Now, Puerto Rico officials are trying to recover from Hurricane Maria since it struck the island nearly two weeks ago. Less than 10 percent of the island has power.
Trump visited the island Tuesday, meeting with local officials about the recovery process and distributing supplies to residents.
It's unknown how Trump will be able to "wipe out" Puerto Rican debt. The president's claim about Wall Street owning the debt is only partly true. According to CNNMoney, most of the debt is owned by ordinary investors.
But in reality, Puerto Rico owes most money to regular Americans. Less than 25% of Puerto Rican debt is held by hedge funds, according to estimates by Cate Long, founder of research firm Puerto Rico Clearinghouse.
The rest is owned by individuals and mutual funds that are held by mom-and-pop investors.
"For the most part, Main Street America owns this debt," Long said last week. "It's not as though these are vultures circling around the island."
The president can ask Congress to bail out the island, but far more likely will be a restructuring of the debt with at least some kind of haircut for investors.
But the president is correct. For Puerto Rico to recover, it will need some kind of debt relief. Already, tens of thousands of people are fleeing the island because of the poor economy and lack of job prospects. To stem the flow of economic refugees to the mainland, Puerto Rico is going to have to offer hope to those who remain that rebuilding in the aftermath of hurricane Maria will be worth the effort.