Puerto Rico governor: Island can't pay public debts

The governor is warning that Puerto Rico can't pay its $72 billion public debt, delivering another jolt to the recession-gripped U.S. island as well as a world financial system already worrying over Greece's

News 12 Staff

Jun 29, 2015, 3:53 PM

Updated 3,230 days ago

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Puerto Rico governor: Island can't pay public debts
The governor is warning that Puerto Rico can't pay its $72 billion public debt, delivering another jolt to the recession-gripped U.S. island as well as a world financial system already worrying over Greece's collapsing finances.
Gov. Alejandro Garcia Padilla is hoping to defer debt payments while negotiating with creditors, spokesman Jesus Manuel Ortiz said Sunday night.
The comments came as legislators debate a $9.8 billion budget that calls for $674 million in cuts and sets aside $1.5 billion to help pay off the debt. The budget has to be approved by Tuesday.
Ortiz confirmed comments by Padilla that appeared in a report in The New York Times published late Sunday, less than a day before Garcia planned to meet with legislators and then go on television to deliver a public address.
"There is no other option. I would love to have an easier option. This is not politics, this is math," Garcia is quoted as saying in the Times.
Puerto Rico's bonds were popular with U.S. mutual funds because they were tax-free, but hedge funds and distressed-debt buyers began stepping in to buy up debt as the island's economy worsened and its credit rating dropped.
Some legislators were taken aback by Garcia's comments, including Rep. Jenniffer Gonzalez, spokeswoman for the main opposition party.
"I think it's irresponsible," Gonzalez said. "He met privately with The New York Times last week, but he hasn't met with the leaders of this island."
Puerto Rico's constitution dictates that the debt has to be paid before any other financial obligation is met. If Garcia seeks to not pay the debt at all, it will require a referendum and a vote on a constitutional amendment, she said in a phone interview.
Puerto Rico's situation has drawn comparisons to Greece, where the government decreed this weekend that banks would be shuttered for six business days and restrictions imposed on cash withdrawals. The country's five-year financial crisis has sparked questions about its continued membership in the 19-nation shared euro currency and the European Union.
Puerto Rico's governor recently confirmed that he had considered having his government seek permission from the U.S. Congress to declare bankruptcy amid a nearly decade-long economic slump. His administration is currently pushing for the right for Puerto Rico's public agencies to file for bankruptcy under Chapter 9. Neither the agencies nor the island's government can file for bankruptcy under current U.S. rules.
Puerto Rico's public agencies owe a large portion of the debt, with the power company alone owing some $9 billion. The company is facing a restructuring as the government continues to negotiate with creditors as the deadline for a roughly $400 million payment nears.
Garcia has taken several measures to help generate more government revenue, including signing legislation raising the sales tax to 11.5 percent and creating a 4 percent tax on professional services. The sales tax increase goes into effect Wednesday and the new services tax on Oct. 1, to be followed by a transition to a value-added tax by April 1.


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