By Jeffrey Sparshott
Federal Reserve Chairwoman Janet Yellen on Wednesday said the central bank "can't and shouldn't be involved in" Puerto Rico's municipal debt crisis, leaving any potential government intervention to Congress.
"I think it's appropriate for Congress to consider what's best to do in this case," Ms. Yellen told lawmakers during a hearing before the House Financial Services Committee.
While the Fed is staying out of the situation, it is watching developments closely for signals of wider-reaching effects as the commonwealth struggles to repay creditors.
"What we have been doing...is monitoring developments in Puerto Rico," Ms. Yellen said. "We are looking to see are there risks that are being transmitted to the broader municipal debt market and we're not seeing signs of contagion."
Ms. Yellen said she had no informed judgment on the best course of action for the island, though she maintained that it is best the Fed doesn't step in as a creditor to any state or municipality.
Puerto Rico, a U.S. territory, has about $72 billion in debt outstanding and is struggling with a weak economy and declining population. Gov. Alejandro Garcia Padilla said last month the commonwealth can't pay its debts and called for negotiations with bondholders.
U.S. lawmakers are weighing legislation that would grant the island's authorities the power to use chapter 9 of the U.S. bankruptcy code to restructure their huge debt loads. The option is available to municipalities in the 50 states--for example, Detroit used the tool in 2013--but is not available to Puerto Rico.
Related reading:
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Rep. Hensarling to Yellen: Ignoring Subpoena Is 'Inexcusable'
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(END) Dow Jones Newswires
July 15, 2015 15:00 ET (19:00 GMT)
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