Puerto Rico Governor Alejandro Garcia Padilla announced at a Senate Judiciary Committee hearing in Washington that the island’s government will “claw-back” revenues designated to pay certain debts to instead pay for government services. We have no cash left.
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“We have begun to default on our debt in an effort to attempt to repay bonds issued with the full faith and credit of the Commonwealth and secure sufficient resources to protect the life, health, safety and welfare of the people of Puerto Rico”, he said.
“Starting today, the commonwealth of Puerto Rico will have to claw back revenues pledged to certain bond issues in order to maintain essential public services”, Garcia Padilla said before the committee. As Puerto Rican officials and Democrats push for assistance, primarily through granting Puerto Rico access to the bankruptcy code in a similar fashion to states, Republicans are showing little interest in that course.
In August, Puerto Rico paid only $628,000 of a $58 million payment due on its Public Finance Corp bonds.
The commonwealth wants Congress to make changes aimed at strengthening its economy over the long term, such as an exempting it from the Jones Act, which requires goods traveling between US ports to be transported on U.S.-flagged ships.
Of the payment owed on Tuesday, $273 million is protected by Puerto Rico’s constitution – so-called general obligation, or GO, debt – so defaulting would likely trigger lawsuits. Electricity costs more than twice the national average per kilowatt-hour in Puerto Rico.
“This is a distress call”, he said. The agencies targeted include the heavily indebted Highway and Transportation Authority, the Infrastructure Financing Authority and the Metropolitan Bus Authority. The White House says a financial control board would be set up for Puerto Rico similar to one established for Washington, D.C., two decades ago.
He asked no questions of the governor after his testimony.
The country is in the midst of a financial crisis as record numbers of Puerto Ricans are moving to the U.S. “We are simply requesting rule of law”, he said. It also anticipated that a default on the guaranteed debt could prompt legal action on behalf of general obligation bond creditors.
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The Obama administration has said that Puerto Rico’s economic woes could turn into a humanitarian crisis unless Congress adopts a blueprint for dealing with the island’s debt.
