Trump Pledges to 'Wipe Out' Puerto Rico Debt. There's a 'But'

It's not clear whether the federal government can do that
By John Johnson,  Newser Staff
Posted Oct 4, 2017 7:13 AM CDT
Trump Pledges to 'Wipe Out' Puerto Rico Debt. There's a 'But'
President Trump and first lady Melania Trump at the Luis Muniz Air National Guard Base in San Juan, Puerto Rico.   (AP Photo/Ramon Espinosa)

President Trump generated headlines with his comments in Puerto Rico on Wednesday, but his most surprising remark seems to have come afterward in an interview with Fox News. “You know, they owe a lot of money to your friends on Wall Street, and we’re going to have to wipe that out," he said. "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.” So can the US simply "wipe out" about $70 billion in debt? The president apparently means having Puerto Rico work with the US government to have the debt forgiven, explains the New York Times, which adds that "it is far from clear" whether that's possible. It's also news to the investors who hold the debt, a group that includes middle-class Americans who saw it a retirement investment or have it in a mutual fund.

"For the most part, Main Street America owns this debt," the founder of research firm Puerto Rico Clearinghouse tells CNN. "It's not as though these are vultures circling around the island." She estimates that only about 25% of the territory's debt is held by hedge funds. One arcane part of the issue is that most of the debt is in the form of municipal bonds, which are generally governed by state laws, or territory laws in this case, explains Mary Williams Walsh in the Times—meaning the IRS can't simply make it disappear. One of the biggest creditors is Franklin Advisers and OppenheimerFunds with a combined $10.3 billion in Puerto Rican debt, per CNBC, and officials there did not return the network's request for comment. Other investors were "taken aback and unwilling to comment" just yet, per the Times. (Puerto Rico filed a form of bankruptcy in May.)

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