ROBERT SIEGEL, HOST:
President Trump has surprised a lot of people with some comments on Puerto Rico's debt crisis. The U.S. territory owes some $73 billion to bondholders, money that it's been unable to pay. In an interview on Fox News last night, the president seemed to suggest that the bondholders aren't going to get their money back.
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PRESIDENT DONALD TRUMP: But we're going to work something out. We have to look at their whole debt structure. You know, they owe a lot of money to your friends on Wall Street, and we're going to have to wipe that out. That's going to have to be, you know - you can say goodbye to that. I don't know if it's Goldman Sachs, but whoever it is, you can wave goodbye to that.
SIEGEL: Those remarks sent the price of Puerto Rico's bonds tumbling. And this morning, the White House appeared to walk back the president's comments. This is Budget Director Mick Mulvaney on CNN this morning.
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MICK MULVANEY: I talked to the president about this at some length yesterday as we flew home on Air Force One. And what we're focusing on right now is what you and I just talked about, which is the primary focus of the federal effort is to make sure the island is safe and that we're rebuilding the island.
SIEGEL: To help us understand what the administration is saying, we turn to NPR's Jim Zarroli. Hi, Jim.
JIM ZARROLI, BYLINE: Hi, Robert.
SIEGEL: President says we're going to have to wipe out Puerto Rico's debts. Wave goodbye to that if you're holding a bond from Puerto Rico. Is the president really saying that Puerto Rico can't pay its debts and accepting the obvious?
ZARROLI: Yeah, well, I think it's not really clear what the president was saying, and I think a lot of people in the bond market today were sort of scratching their heads and trying to figure it out. I mean if the president is saying Puerto Rico owes a lot more than it can pay right now, that's not news. Even before the hurricane hit, I mean, no one thought that Puerto Rico was going to be able to pay back everything it owed anytime soon.
Congress passed a bill last year setting up an oversight board which is supposed to be negotiating with bondholders. The process has been, you know, a legal mess. And of course, you know, now Puerto Rico faces this huge rebuilding effort, so it's going to take even longer to pay back even part of what it owes. I mean, we're talking years.
SIEGEL: But when the president says Puerto Rico's debts may have to be wiped away, does he or someone in his cabinet have the authority to wipe away Puerto Rico's debts?
ZARROLI: You know, I think the consensus today was he really doesn't have that authority. This is already in federal bankruptcy court, and everyone thinks it's going to be there a long time. You know, right now they can't even agree on the composition of the oversight board that's supposed to be representing the Puerto Rican government. And it's really up to the court to sort out, you know, who's going to get what money back and how much the bondholders are likely to get. Now, Congress could come in and work out some kind of legislative solution. But it really hasn't been able to do that in any lasting way, so it's hard to see what it could do now.
SIEGEL: How did Puerto Rico get to this point? How did it get so much in debt and so much more in debt than it's able to pay?
ZARROLI: Yeah, it was the old-fashioned way. It borrowed too much money over too long a period. A lot of people bought its bonds. Some of them were hedge funds and mutual funds on the mainland. If you have money in a mutual fund, your mutual fund may have a bit of money invested in Puerto Rican bonds. A lot of other investors were just, you know, retirees, small-time investors.
Meanwhile, Puerto Rico has been in a recession for a long time. Its population base has shrunk. It can't pay what it owes. It's really clear that the bondholders are going to have to accept a lot less money than they were hoping for. That's been clear for a while. And they have been fighting in court of course to get as much money as they can, but they're clearly going to have to take a big loss.
SIEGEL: I want to run this scenario past you, Jim. Congress is expected to spend a lot of money on hurricane recovery and rebuilding Puerto Rico. Can we imagine an outcome where the federal government is sending money to Puerto Rico and then Puerto Rico turns around and has to use some of that money to send off to the hedge funds and other bankers that are holding their debts?
ZARROLI: Well, I think Congress and the White House have certainly tried very hard to make it look like they're not forgiving Puerto Rico's debts. They don't want to do that. They don't want to be sending money down there - money that's going to go back to pay the bondholders.
But they will almost certainly have to spend a lot of money helping Puerto Rico. You know, conditions are very dire. The infrastructure was already hurting even before, and now it has to be rebuilt. And in the meantime, you know, Congress wants Puerto Rico to keep paying what it owes. So you know, we're going to see a situation where money - some money is going in and some money is coming out.
SIEGEL: That's NPR's Jim Zarroli. Jim, thanks.
ZARROLI: You're welcome.
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