Investing.com -- Janet Yellen rebuffed any speculation that the Federal Reserve could provide emergency lending to Puerto Rico on Tuesday, telling Congress that any bailout to the debt-ridden commonwealth appears to be outside the U.S. central bank's authority.
"This is inherently a matter for Congress and is not something that's appropriate for the Federal Reserve," Yellen said in testimony before the Senate Banking Committee.
Yellen fielded questions related to the Puerto Rican debt crisis from Sen. David Vitter (R, Louisiana) on Tuesday, in advance of a potential $2 billion default by the island on July 1, which would amount to the largest in the territory's history. Vitter made reference to a provision in Section 13 (3) of the Federal Reserve Act, which grants the U.S. central bank Emergency Lending Authority to buy municipal bonds in exigent circumstances. Yellen's comments came weeks after she wrote in a letter that programs designed to assist Puerto Rico should be left to Congress and the White House.
While U.S. president Barack Obama and the Republican-led Congress agreed to terms on a deal to restructure Puerto Rico's $70 billion debt load in mid-May, the Supreme Court struck down the commonwealth's plan to reshuffle $20 billion in debt last week. Earlier last month, Puerto Rico failed to repay a principal repayment of $422 million, marking the third time the island defaulted on a bond payment to creditors. Puerto Rico governor Alejandro Garcia Padilla has yet to implement a temporary debt moratorium.
"We have very limited authority to buy municipal debt and the authority to buy eligible debt," Yellen said on Tuesday. "I do not think it would be helpful to Puerto Rico."
In New York, a group of bondholders filed suit against Puerto Rico on Tuesday, seeking to invalidate the emergency law passed by Congress. The lawsuit also claims that the island currently has $12.5 billion outstanding in general obligation bonds. Meanwhile, Senate Democratic leader Harry Reid told reporters that amendments were required for a Puerto Rican debt bill Senate Majority Leader Mitch McConnell hopes to bring to a vote next week.