SAN JUAN, Puerto Rico (AP) – Gov. Alejandro Garcia Padilla said that Puerto Rico’s government did not make almost $370 million in bond payments due Monday after a failure to restructure or find a political solution to the us territory’s spiraling public debt crisis.
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Puerto Rico Gov. Alejandro Javier Garcia Padilla said on Sunday, May 1, 2016, that negotiators for the US territory¿s government have failed to reach a last-minute deal to avoid a third default and that he has issued an executive order to withhold payment.
Island officials spent the weekend trying to negotiate a settlement that would have avoided the default but apparently came up short.
The announcement comes after the USA government failed to agree on a restructuring of Puerto Rico’s debt or a financial rescue package.
“Let me be very clear, this was a painful decision”, Garcia said in a speech.
Padilla criticised the US Congress for its inaction in helping the island restructure its debts.
“This is where Puerto Rico’s unwinding begins”, Gov. Padilla said Sunday night.
Who gets hurt? According to Bloomberg, the larger share of those holding Puerto Rico municipal funds are fixed-income investors – pensions, retirement trusts, and the like.
“The island has been suffering through more than a decade of economic stagnation and population decline, and García has called the debts unpayable”. It’s not the first time that the island will default on a payment, but it is so far the largest, most notable, and most concerning development since a dismal report last summer about the territory’s economic standing.
Garcia said the Puerto Rican government could not make the payment without sacrificing basic necessities for the island’s 3.5 million residents, including keeping schools and public hospitals open. That made its bonds attractive to investors outside of Puerto Rico. “This is the beginning of the real crisis”.
The commonwealth is expected to miss its upcoming $422 million bond payment for its Government Development Bank. The investor “haircut” could extend beyond the $900 million in loans to include other debt instruments.
Congress has been working on a law that will give Puerto Rico some room to restructure without tying taxpayers in the U.S. to its debt woes.
Compounding the problem is Puerto Rico’s dwindling workforce. The bonds that Puerto Rico plans to default on May 1 are considered middle priority bonds, issued by a struggling entity known as the Government Development Bank.
Congress has focused on a July 1 deadline, when the commonwealth and its agencies are likely to default on another $2 billion of principal and interest, including $800 million for general obligation bonds, generally the safest. “May 1 is still significant”.
But how to address the crisis remains a divisive matter on Capitol Hill. The Koch-backed American Future Fund also placed ads with Politico and the Wall Street Journal that attacked Garcia Padilla.
But in order to do so, the U.S. territory needs Congress to act, and Congress will not, for partisan political reasons, the governor said.
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A bill was introduced into the Natural Resources Committee by Rep. Sean P. Duffy (R-Wi.) created to help the territory. But Puerto Rico is not getting any money as part of the deal, he said. We haven’t been offered a bailout. “We do not want a bailout”.
