Garcia Padilla unveiled the claw back on Tuesday during testimony at a U.S. Senate hearing where he said the island is running out of cash and will focus on providing essential services.
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The island was facing a December 1 deadline to make a $355 million debt service payment, the vast majority of which was to make payments on bonds issued by the territory’s Government Development Bank.
Puerto Rico and its agencies owe $957 million of interest on January 1, including the $357 million on general obligations.
Puerto Rico is negotiating with bondholders over restructuring the commonwealth’s debt, which exceeds $70 billion, and paid only a fraction of around $58 million due in August.
If Puerto Rico defaults on debt guaranteed by the commonwealth, the chance of it making another GO bond payment due on January 1 “would drop precipitously”, Miller added.
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.
And Puerto Rico’s victory might be short lived.
“Those bonds in many ways have reflected the expectation that they would at some point in time have to claw back some of those revenues”, Hayes said. He also pointed out that an exodus of professionals to the USA mainland is shrinking the tax base. For example, it pays Christmas bonuses to public employees, yet officials have said in the past month that it is unclear when and if the government will meet that payment, given the cashflow situation.
The Senate Judiciary Committee met Tuesday to discuss whether Puerto Rico should receive Chapter 9 bankruptcy protection, something USA municipalities are eligible for.
If the government had missed Tuesday’s payment it could have sparked law suits from creditors. “Congress can not tell Puerto Rico to drop dead”, Sen.
Over the past decade, Puerto Rico’s government has laid off 30,000 employees, closed almost 200 schools, raised taxes and reformed pension funds, Gov. Alejandro García Padilla told the Senate panel.
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Melba Acosta, president of the Development Bank, said the majority of agencies whose revenue is being diverted would still have enough funds left to honor other upcoming debt payments. “I have to see which is best for Puerto Ricans”. Moreover, they argue, many investors would have eschewed investing in Puerto Rico if they knew the territory would retroactively be granted bankruptcy protection.
