President Donald Trump’s budget chief said not to take literally the president’s suggestion that Puerto Rico’s debt would be “wiped out,” even as the territory’s bonds plunged to a record low on Wednesday: as low as 32 cents on the dollar.
The shares of companies that provide insurance for bond investors also fell Wednesday. The stocks were already struggling amid fears that Puerto Rico will have a difficult time repaying its debt following the damage it took from Hurricane Maria.
But they fell even further after President Donald Trump suggested Wednesday in an interview with Fox News that the federal government may “wipe out” the debt. MBIA Inc. fell 8.4 percent to close at $7.95. Ambac Financial Group lost 5.5 percent to $16.70 and Assured Guaranty dropped 2.9 percent to close at $37.58.
“I think what you heard the president say is that Puerto Rico is going to have to figure out a way to solve its debt problem,” Mick Mulvaney, director of the White House budget office, said in an interview Wednesday.
Puerto Rico is dealing with a disaster worsened by the long-term debt crisis that led it to declare a form of bankruptcy this year. The commonwealth’s government for decades has been plagued by budget deficits and has borrowed $74 billion.
After the president suggested that the debt must be erased, a benchmark general-obligation bond due in 2035 plunged 12 cents on the dollar Wednesday morning. The price later recouped part of its decline.
On Wednesday morning, Mulvaney tempered Trump’s comments in a Fox News interview after the president surveyed damage on the island.
“We are going to work something out” on Puerto Rico’s debt, Trump said.
“We have to look at their whole debt structure,” Trump said. “They owe a lot of money to your friends on Wall Street. 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.”
Mulvaney said Wednesday the administration is devising an aid package to send to Congress that will deal with rebuilding and repair in Puerto Rico.
Trump visited the island Tuesday, where he met local officials and offered consolation to residents who have been without power and short of drinking water since the storm struck on Sept. 20. At least 34 people were killed by the hurricane, and about 93 percent of homes there still lacked electricity Tuesday.