By Tom Buerkle
NEW YORK (Reuters Breakingviews) - President Donald Trump’s visit to Puerto Rico risks compounding the damage caused by Hurricane Maria. His vow on Tuesday to wipe out the U.S. commonwealth’s huge debts sent its bond prices plunging on Wednesday. The island’s devastation may well necessitate a fresh restructuring, but that won’t address urgent issues. The White House needs to provide money and supplies, not distraction.
The president spent a few hours touring the island on Tuesday, tossing rolls of paper towels to locals and praising what he said was the “great job” being done by federal emergency teams and military commanders. Roughly two-thirds of grocery stores and gasoline stations have reopened and power was restored earlier this week to the business district of the capital, San Juan. Most of the island’s hospitals, though, rely on intermittent deliveries of diesel to power generators so are still in the dark.
Governor Ricardo Rosselló announced shortly after the president left that the death toll had more than doubled, to 34. It will take months if not years to rebuild damaged roads, the power grid, homes and other infrastructure. Catastrophe-modeling firm AIR Worldwide has estimated insured losses of anywhere between $40 billion and $85 billion.
Given the scale of the task, it seems likely bondholders will ultimately face an even bigger haircut than they were already bracing for. In May, Puerto Rico initiated a form of bankruptcy to restructure its $72 billion of debt. The commonwealth’s general obligation bonds due in 2035 were trading at around 57 cents on the dollar before Maria struck, declining to some 45 cents on Tuesday. Trump’s comments sparked a surge in sell orders that wiped another 25 percent off the price on Wednesday, according to the Municipal Securities Rulemaking Board’s electronic quotation service.
Driving away investors won’t help Puerto Rico’s recovery effort. Trump doesn’t even have the authority to abrogate debts, something budget director Mick Mulvaney seemed to recognize Wednesday when he said the president’s comments shouldn’t be taken literally. Even if the president wants to help negotiate a more generous restructuring for the island, that process is a slow, painstaking one. That’s the opposite of what the territory and its 3.5 million people need most.
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