The executive order issued by Puerto Rico’s governor, Alejandro Garcia Padilla, comes just one day before the US territory was due to make $1.9 billion worth of debt payments on July 1, including some $780 million in constitutionally-backed, general obligation bonds.
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Garcia Padilla authorized the suspension of general obligation payments under a previously enacted local debt moratorium law that has already been challenged by a creditor lawsuit filed in U.S. District Court in Manhattan.
However, questions still remain about whether the law will stop Puerto Rico from defaulting on part of the payment due Friday.
“It’s not in and of itself going to be sufficient to solve all the problems that Puerto Rico faces, but it is an important first step on the path of creating more stability and better services and greater prosperity long term for the people of Puerto Rico”, Obama told reporters when signing the bill Thursday in the Oval Office.
Ryan hailed the bill’s passage in the Senate, saying it addresses Puerto Rico’s fiscal crisis while “protecting American taxpayers from a bailout of the territory”.
Of the thirteen agencies that have payments scheduled for tomorrow, at least one, Puerto Rico Electric Power Authority, or PREPA, will make its full principal and interest payment of $417.5 million from available funds due Friday, according to S&P Global Ratings.
With the prospect of an orderly resolution brought about by the federal government, Puerto Rico bond prices have rebounded from lows. PROMESA also strengthens the financial oversight board’s ability to audit Puerto Rico’s government and assist the island with the management of public finances. “Puerto Rico can not endure any more austerity”.
Obama signed the bill Thursday afternoon.
While the market had anticipated Friday’s default, it affects the credibility of a territory grappling with $70 billion in public debt, economist Jose Villamil warned.
He said that because of the USA commonwealths inability to restructure its debt hospitals and ambulance services had become unable to operate, basic services had been suspended and government workers had not been paid.
“We must act now to prevent matters from getting worse”, said Senate Majority Leader Mitch McConnell. Puerto Rico has been waiting for months for Congress to function as its recession aggravated.
The bill will provide the island’s government some breathing room and allow it to pay workers and suppliers on time as well as maintain essential services, Villamil said. People are literally fleeing the island in search of jobs in the mainland U.S. The island has lost about 10 percent of its population in the past decade. “Today, Puerto Ricans were given the chance they deserve to fight for their future”, said governor, who did not run for re-election and steps down in January.
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Markets have been expecting a default as Garcia Padilla has long said he would choose government services over debt payments if there was not enough money to pay both.
