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A ‘Tough Decision’: Puerto Rican Governor Says Island Will Miss Debt Payment

Today’s missed payment, the largest one yet, comes after an August 2015 default on debts owed to the island’s creditors-many of whom are continental USA -based hedge funds and financial institutions-and a decade’s worth of financial recession.

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Garcia said Puerto Rico’s 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. It owes another $1.9 billion on July 1 that Garcia Padilla has said it can not pay.

The governor had been warning since previous year that the island’s overall public debt of more than $70 billion is unpayable.

Puerto Rico is facing an increasingly dire financial crisis as it tries to deal with a mounting $70 billion pile of debt.

Creditors have accused the government of exaggerating the crisis to avoid upcoming payments of more than US$1 billion due on July 1 that includes general obligation bonds, which are guaranteed by the United States constitution. Monday’s missed payment is significant both because of the sum of money is large and because the Government Development Bank, the island’s main bond issuer, is a respected financial entity.

“We have asked Congress in many occasions to give us the tools to restructure our financial liabilities”, he said.

House Speaker Paul Ryan (R., Wis.) has forcefully rallied Republicans to back the legislation, the product of unusually bipartisan discussions with the Treasury Department. Bills in the Senate and House have stalled. “And unfortunately we haven’t seen the kind of movement in the Republican-led Congress that we need to see to make a bailout of Puerto Rico less likely”.

Previously, a story revealed how bond insurers may be interested in helping Puerto Rico on this matter. As tax revenues fell, the government borrowed more and more to balance its budget. Similar boards were appointed to oversee NY and Detroit following their respective financial crises.

As a result of the declining economy and the debt crisis in Puerto Rico, tens of thousands of citizens have emigrated from the island Commonwealth. Most mutual funds in the USA have already rid themselves of Puerto Rico debt. “The island can not sustain the bonds that they have outstanding, they can not pay the bonds back”. The Centers for Disease Control and Prevention reported last week the first USA death related to the Zika virus, that of a Puerto Rican man in his 70s who died in late February.

What is Congress going to do? Here’s a breakdown of what has already happened to Puerto Rico and why it matters to individual investors.

“Congress has a Constitutional and financial responsibility to bring order to the chaos that is unfolding in the us territory”, Republican House Speaker Paul Ryan said last month.

But a group of conservative House Republicans say this amounts to a bailout and they want more controls put in place for the island.

And on Monday, the U.S. Conference of Catholic Bishops weighed in on behalf of Puerto Ricans.

Puerto Rico is also scheduled to pay a further $1.9bn in July and holds overall public debt of more than $70bn.

 Puerto Rico can not file for debt relief under chapter 9 of the federal US Bankruptcy Code because it applies only to municipalities on the mainland.

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Raul Figueroa, one of Puerto Rico’s most respected demographers, told EFE Tuesday that, according to a preliminary report, close to 70,000 people left the island in 2015, with most headed for the continental U.S. Instead, the House Natural Resources Committee drafted legislation of its own that stopped short of granting Chapter 9 protections, but did establish “oversight boards” to help manage the island’s finances and oversee negotiations with creditors.

Puerto Rico Defaults on $73 Billion in Debt at 5 PM