Puerto Rico hit with lawsuits challenging board's power

Puerto Rico was hit with two lawsuits on Monday that for the first time challenge the constitutionality of a federal control board overseeing the island's finances and its power to start a bankruptcy-like court process for some of the United States territory's more than US$70 billion public debt.

One of the lawsuits was filed by US hedge fund Aurelius Capital Management, which holds more than US$470 million in Puerto Rico general obligation bonds, among other debt. It is the same hedge fund that was involved in a 15-year dispute over defaulted bonds issued by Argentina.

The second lawsuit was filed by the UTIER, a Puerto Rico union that represents about a third of the 9,550 employees at the island's Electric Power Authority.

BOARD HAS NO POWER

Both argue that the board's seven members were never approved by the US Senate and thus they have no power.

"Because the board is unconstitutional, its acts are void," Aurelius said in its lawsuit.

A spokesman for the board declined to comment on a pending legal matter.

Last year, the US Congress approved a law that created the board in response to the Puerto Rico government's financial crisis. The measure gives the island a way to restructure its debts since there are no federal or local laws allowing its municipalities or public agencies to declare bankruptcy.

Board members were chosen by the administration of then US President Barack Obama from a list submitted by congressional leaders of both parties - three members from the Democratic list and four from the Republican one.

The board recently announced it would go to court to restructure a portion of the island's public debt after negotiations with creditors fell apart amid multimillion-dollar defaults that have sparked a flurry of lawsuits. The board also has demanded more austerity measures for the government, including furloughs that will start September 1 and apply to all public employees, except police.

Puerto Rico Governor Ricardo Rossello has said he will not impose furloughs and will go to court if needed, seeking to block them.

"If they send me to jail, so be it," he told radio station WKAQ on Monday.

Puerto Rico has spent more than a decade in a recession that has left the government short of revenues and also prompted nearly a half million people to flee the island in search of jobs and a more affordable cost of living.

- AP