By Amanda Becker
IOWA CITY, IOWA (Reuters) - U.S. Democratic presidential candidate Hillary Clinton said Tuesday that Puerto Rico's public entities should be able to use U.S. bankruptcy laws to restructure some $72 billion in debt.
Like U.S. states, Puerto Rico, a commonwealth, cannot file for bankruptcy protection. Unlike U.S. states, Puerto Rico's public entities, including municipalities, are not covered by U.S. Chapter 9 bankruptcy laws.
Puerto Rico's non-voting delegate in the U.S. Congress has called for legislation that would allow Puerto Rico to access the same bankruptcy laws available to other municipalities, as has Puerto Rico's Governor Alejandro Garcia Padilla.
The U.S. Court of Appeals for the First Circuit late Monday affirmed a lower court decision to strike down Puerto Rican legislation aimed at granting local municipalities the right to enter bankruptcy, but said excluding the U.S. territory's public entities from federal bankruptcy law was unconstitutional.
"Congress and the Obama administration need to partner with Puerto Rico by providing real support and tools so that Puerto Rico can do the hard work it will take to get on a path toward stability and prosperity," Clinton said in a statement provided to Reuters.
"As a first step, Congress should provide Puerto Rico the same authority that states already have to enable severely distressed government entities, including municipalities and public corporations, to restructure their debts under Chapter 9 of the Bankruptcy Code," Clinton added.
The White House said last week that there is "no one in the administration" that is "contemplating a federal bailout of Puerto Rico" but that the U.S. Congress should "take a look at" whether Puerto Rico's government-owned corporations should be able to access Chapter 9 bankruptcy protection.
Congressional Republicans largely oppose such a step. Republican presidential candidate Jeb Bush said in April that he thinks Puerto Rico's public agencies should have the ability to use U.S. bankruptcy laws.
"We're not talking about a bailout, we're talking about a fair shot at success," Clinton said Tuesday.
Clinton said in the statement that the "inconsistent and incoherent" application of U.S. federal law to Puerto Rico contributed to its economic situation, noting high utility rates and unemployment have led to an economy that has shrunk for eight of the last nine years.
"One troubling example of this treatment is the lack of equity in federal funding for Puerto Rico under Medicaid and Medicare," Clinton said of health insurance programs sponsored by the U.S. government.
Clinton, also a former first lady, is the front runner for the Democratic nomination ahead of the general election in November 2016.
(Reporting by Amanda Becker in Iowa; additional reporting by Megan Davies in New York; Editing by Nick Macfie)