(Bloomberg Politics) — Democratic presidential candidate Hillary Clinton arrives in San Juan on Friday at a moment of crisis. Puerto Rico’s governor next week is set to receive a plan to manage a crippling $72 billion in debt that he says it can’t repay.
Clinton’s topic for the visit: health care.
The dissonance indicates the difficulty of Clinton’s political task. She hopes that Hispanic voters in this U.S. territory and mainland Puerto Rican strongholds, especially Florida, will be a key part of a winning coalition. She backs giving Puerto Rico’s municipal agencies the ability to pursue Chapter 9 bankruptcy, something available to municipalities and agencies in the 50 states. But many creditors work at hedge funds, a key source of Clinton’s campaign cash.
Clinton has said that bankruptcy should be used judiciously, an acknowledgement of the divided loyalties she’s facing.
“We’re not talking about a bailout, we’re talking about a fair shot at success,” she said in a July statement after Gov. Alejandro Garcia Padilla, a Democrat, announced that the island’s debts were too big to be repaid in full. Puerto Rico’s debts dwarf Detroit’s record $18 billion municipal bankruptcy that shook markets in 2013.
As Clinton visits the epicenter of a crisis that threatens the stability of pensions and investment funds across the nation, Puerto Ricans and those who bet on the island’s credit want to hear about how she’d manage the issue if elected president. The island has more debt than any U.S. state government other than New York and California, a sputtering economy and a population heavily dependent upon government aid.
The visit is Clinton’s first campaign stop here since 2008, when she earned one of her final victories over Barack Obama in a 68 percent to 31 percent vote late in the primary process. Puerto Rico’s 2016 vote is in March, when both parties are likely to be in the thick of their nomination battles, and the earlier slot on the calendar is drawing candidates to the commonwealth. Former Florida Gov. Jeb Bush, a Republican, and former Maryland Gov. Martin O’Malley, a Democrat, have already campaigned here, and Florida Sen. Marco Rubio, a Republican, will also be in San Juan on Friday, appearing at a fundraiser and a rally.
Clinton’s main public event is a roundtable discussion at the Caribbean Cardiovascular Center, and she’ll also appear at a fundraiser, tapping into the pockets of wealth that remain on this island.
While Clinton’s focus on health doesn’t directly address the debt crisis, it does reflect one of its root causes: money borrowed to support continuing expenses such as medical care. More than 60 percent of the island’s population uses Medicare or Medicaid, but federal support is more limited than in the 50 states. The Medicaid reimbursement rate is 70 percent lower and Medicare reimbursement 40 percent lower, according to the Puerto Rico Healthcare Crisis Coalition. The commonwealth also gets additional Medicaid funding through the Patient Protection and Affordable Care Act (PPACA), but that is to dry up in 2019.
As a result of broader economic troubles and the health-care system’s specific challenges, about 400 physicians are leaving every year. The territory currently has about 11,000. The commonwealth’s economy has struggled to grow for the past decade. Its unemployment rate is double the national average at 11.9 percent, and its population has shrunk by 7 percent as residents leave in search of work on the mainland.
They are departing an island drowning in debt. Unlike the bonds of most states and municipalities, Puerto Rico’s are exempt from local, state and federal taxes throughout the United States, which made them attractive to investors. They’re held by 50 percent of open-end muni funds, according to Morningstar Inc. Wall Street helped Puerto Rico issue $126.6 billion of debt since 2000.
The situation’s gravity has prompted action. The Puerto Rico Electric Power Authority, which supplies most of the island’s electricity, reached an agreement this week with some bondholders that would help reduce its $9 billion debt load and defer payments. Other creditors must also agree to the changes before that restructuring plan is final.
Commonwealth bonds suggest that investors are concluding that Garcia Padilla will extract broader concessions. General-obligation debt rallied to the highest level in two months on Thursday and on Wednesday an index of commonwealth debt had the biggest one-day gain since 2008.
Thus far, the Obama administration and Congress haven’t acted to backstop the debt. U.S. Treasury Secretary Jacob Lew said in July no federal bailout is being considered for Puerto Rico. Republicans who control both chambers of Congress have so far signaled little urgency in assisting Puerto Rico and have called for more belt-tightening from the commonwealth before considering a plan.
Clinton isn’t alone among presidential hopefuls in wanting to give Puerto Rico access to bankruptcy. It’s a move that Bush and O’Malley both back, albeit with different standards for allowing agencies to move forward.
“Some will try to make it an us-against-them situation,” said former Governor Luis Fortuño, a Republican who left office in 2013 and has endorsed Bush. “It’s not. It’s much more complicated. What this situation merits in my opinion is a nuanced response.”
U.S. Rep. Luis Gutiérrez, an Illinois Democrat of Puerto Rican heritage, this week asked Obama to take on a “deeper, more personal role” by taking the unusual step of directing Lew to host a summit to develop an immediate response to the debt crisis and a long-term plan to boost the island’s economy.
“The people of Puerto Rico need the United States of America to immediately assume its legal, political and moral responsibility,” Gutiérrez wrote in an open letter to the president published in Spanish on Univision’s website. “They do not need a bailout or a temporary patch that leads to greater indebtedness. They need a mutually agreed upon path to move forward towards self-sufficiency charted in good faith.”
—Michelle Kaske contributed to this report.