Moment of truth as Puerto Rico faces crucial debt payment

With 45 percent of its 3.5 million population in poverty, Puerto Rico is a meteorological paradise mired in economic purgatory. Richard Blumenthal, D-Conn., said it required “financial gymnastics” for Puerto Rico to clear Tuesday’s much smaller deadline. Puerto Rico and its debt crisis takes center stage in Congress as its governor testifies before a Senate panel about the USA commonwealth’s financial woes and the demands of creditors.

Puerto Rico faces a moment of truth on Tuesday, as the island owes a $355 million payment – a possible default which could trigger lawsuits, further spook investors and undermine the island’s efforts to climb out of $72 billion in debt. The most likely alternative is a default, which would result in economic chaos in which the USA government inevitably would have to intervene. 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. “This is a distress call”.

He warned that, even with Tuesday’s payment, the government is now being forced to choose between essential services for citizens and debt repayment.

Bondholders of certain highway bonds and other debt subject to the revenue redistribution don’t have a lot of recourse because bond documents state that Puerto Rico can take those collections to repay general obligations, said Daniel Hanson, an analyst at Height Securities, a Washington-based broker dealer. The flagging economy and continued financial stress has in recent years prompted the biggest migration of Puerto Ricans to the mainland since the 1950s.

“Those are numbers you see after an armed conflict or a disaster”, he said. However he stated the island is running out of money. Economists say Puerto Rico must boost its tourism sector and modernize its infrastructure. Senate Judiciary Committee member Sen.

Pedro Pierluisi, Puerto Rico’s delegate to Congress, told senators at the hearing that the federal government’s policies toward the territory are “inequitable and incoherent” and have made it impossible for the island to prosper.

“Rather than engaging in a consensual process that has been offered by creditors, Governor Garcia Padilla has embarked on a warpath toward total debt avoidance”, said Matthew Kandrach, vice president of the conservative group 60 Plus Association, which advocates for seniors from a free-market, limited-government perspective.