The Governor said the territory is facing a situation where it must decide between defaulting- failing to make the payments on its debt- or cutting public services.
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The commonwealth has been speculated to default on all or part of its US$355 million notes issued by the USA territory’s Government Development Bank, due December 1. That is why, 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.
Today, however, the GDB has what the NY newspaper dubbed “tremendous powers” and is charged with advising the island’s government on transactions; vetting and restructuring bond deals; holding public money in trust; borrowing funds for government agencies; lending money to those agencies; and financing private enterprise, the publication enumerated.
Stephen Spencer, managing director of Houlihan Lokey in Minneapolis, Minnesota, said the comparison to bankruptcies in other municipalities, notably Detroit, distressed him.
He did not say how much money would be diverted or where that money is coming from.
Failure to make the payment would be an ominous turn for the territory.
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.
This time it made its payment, pushing off fears that bondholders would bring a lawsuit against Puerto Rico.
But he said the island is running out of cash.
He asked no questions of the governor after his testimony.
“If Congress does not provide Puerto Rico the authority to restructure all its liabilities, a humanitarian crisis will envelop the 3.5 American citizens on the island”. With a almost $1 billion payment due on January 1 and with others to follow, it will only be a matter of time before Puerto Rico misses large payments on its $73 billion in outstanding debt, officials said.
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After the hearing, critics of Puerto Rico’s pleas for the bankruptcy filing authority planned to hold a news conference with their opposition to letting Puerto Rico off the hook on the bonds.
