San Juan, October 23 (teleSUR-RHC)-- The U.S. Congress is considering a White House plan to address the territory of Puerto Rico’s debt crisis by creating a federal oversight body to handle the restructuring of some of the island’s $72 million debt.

Because Puerto Rico is a U.S. territory, it does not have the right that U.S. states have to renegotiate its debt. Instead it must negotiate with each individual bondholder.

Puerto Rican governor Alejandro Garcia Padilla urged Congress in a hearing on Thursday to grant his country Chapter 9 bankruptcy rights, currently reserved for U.S. municipalities, which would allow it to renegotiate a repayment plan with its creditors in court. However, while presidential candidates Hillary Clinton and Jeb Bush have both offered rhetorical support for the proposal, bondholders have lobbied against granting bankruptcy rights, claiming that debt restructuring would discourage reform and, importantly, decrease payments to bondholders.

About one in five U.S. bond mutual funds own Puerto Rican debt, according to Morningstar, and the territory's bond default in August was the largest in U.S. history. Much of its debt has been bought by hedge funds.
   
Bondholder pressure has already influenced the economy of the territory, most notably through tough austerity measures imposed despite a decade-long recession. In an attempt to attract more U.S. capital, a string of Puerto Rican governments have enacted neoliberal policies, including more favorable conditions for investment, higher taxes and tuition rates and a whittled public sector. About 300,000 Puerto Ricans have fled to the continental United States in the last decade.

The White House has proposed a federal oversight body to keep watch over the island’s finances to ensure its compliance with demanded reforms as part of any debt restructuring.
      
"Only Congress has the authority to provide Puerto Rico with the tools required to lay the foundation for the Commonwealth’s recovery, and Congress must act," read the Wednesday statement from U.S. Treasury Secretary Jacob J. Lew, NEC Director Jeff Zients, and Health and Human Services Secretary Sylvia Mathews Burwel.

Maria Cantwell, a Democratic Senator from the state of Washington, introduced the White House’s proposal on Thursday at a hearing of the Senate Energy and Natural Resources Committee, which overseas Puerto Rico and other U.S. territories. A "balance of changes in federal policy with structural reforms" is essential, read a statement about the hearing. Other committees will also weigh in on the plan before it is brought to Congress.