President Donald Trump suggested that the government debt accumulated by bankrupt Puerto Rico would need to be wiped clean to help the island recover from the devastation caused by Hurricane Maria.

“We are going to work something out. We have to look at their whole debt structure,” President Trump said in a Fox News interview Tuesday.

“You know they owe a lot of money to your friends on Wall Street. We’re gonna have to wipe that out. That’s gonna 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.”

Puerto Rico is dealing with an immediate humanitarian disaster made worse by the long-term debt crisis that led it to declare a form of bankruptcy this year.

The commonwealth’s government for decades had been plagued by budget deficits caused by wasteful spending, and borrowed $74bn (£55bn). Much of that went to operations.

Trump surveyed the damage Tuesday afternoon during a visit to the island, where he met local officials and offered consolation to residents who’ve been without power and short of drinking water since the storm struck on 20 September.

An estimated 34 people were killed by the hurricane and about 93 per cent of homes there still lacked electricity as of Tuesday.

The White House and Puerto Rican Governor Ricardo Rossello didn’t immediately respond to emails and messages Tuesday night seeking a response to Trump’s comments on the island’s debt.

Moody’s Analytics estimated that the island sustained $95bn in hurricane-related damage. With little financial ability to recover from the storm on its own, the island’s government will rely heavily on aid from Washington to get back on its feet.

The White House is crafting a $29bn disaster-aid package it intends to send to Congress that would include $16bn to shore up the federal flood insurance program and $13bn in additional relief covering the entire hurricane and wildfire season, including major storms that hit Texas, Louisiana and Florida as well as Puerto Rico, according to a Republican lawmaker.

At a briefing with local officials in an airport hangar, Trump complained -- perhaps as a joke -- about the expense of the federal response to the storm. “I hate to tell you, Puerto Rico, but you’ve thrown our budget a little out of whack -- because we’ve spent a lot of money on Puerto Rico and that’s fine, we’ve saved a lot of lives,” President Trump said.

Puerto Rico began defaulting on its debts two years ago, seeking to avoid draconian budget cuts officials said would deal another blow to an already shrinking economy. With nearly half of its 3.4 million residents living in poverty, the government sought protection from creditors in May.

More Debt

With a population the size of Connecticut’s and an economy smaller than Nebraska’s, Puerto Rico has more debt than any US state government except California, New York and Massachusetts.

The debt, a result of generations of mismanagement, was enabled by Wall Street, which was enticed by the fact it was tax free everywhere in the US and risky enough to provide rich yields.

It is not clear how Puerto Rico’s debt could just be made to disappear outside of bankruptcy court.

Still, to "wipe out" $74bn in municipal debt, billions of which are guaranteed by the island’s constitution, would shake investor faith in a market long considered one of the safest of havens.

Lower rated municipal borrowers would almost certainly see their borrowing costs rise to account for the added risk.

Prices of the US territory’s bonds already had plunged to record lows.

The island’s benchmark general obligation 8 per cent bonds maturing in 2035 (callable in 2020) saw $2.5m trade at an all-time low of 44 cents on the dollar Tuesday, according to data compiled by Bloomberg. This is down from 56 cents at the beginning of September.

It was unclear how much, if any, commonwealth debt Goldman Sachs still holds in its mutual funds. As of July, significant tranches of its debt were held by companies including Aurelius Capital Management, Autonomy Capital (Jersey) and Franklin Mutual Advisers.

Immediate Steps

The commonwealth’s budget is under the control of a federally appointed oversight board. Created by Congress to wield broad sway over the territory’s finances, the panel approves the island’s budget and is meant to help make unpalatable decisions such as closing schools and cracking down on tax evasion.

Puerto Rico’s Fiscal Oversight Board wrote to lawmakers Tuesday asking for immediate steps to help with recovery costs that it said could rise even higher.

“The power grid has been down -- infrastructure, roads, telecom, water supply, hospitals - so getting major hurricanes back to back within two weeks has caused severe damage,” said Gerardo Portela Franco, who leads an agency established to act as the commonwealth’s fiscal agent in bankruptcy and made the $60bn initial cost estimate.

Jerome Garffer, a former board member of the insolvent Puerto Rico Electric Power Authority, said bondholders are "going to have to wait a while" as the territory recovers.

"If pre-Maria there were hardships, then post-Maria I think the paradigm has totally changed," Mr Garffer said late Tuesday night in San Juan. "Even though I am a finance guy, there are just other priorities that are more important right now then just paying the bondholders."

"At a time like this, there’s just absolutely no way."