Puerto Rico’s governor issues ‘distress call’ to Congress

Puerto Rico will begin clawing back revenue from some bonds starting Tuesday “in order to maintain essential public services”, Gov. Alejandro Garcia Padilla told senators at the hearing.

Even if Puerto Rico is able to make the full payment on Tuesday, it faces about $1 billion due on January 1, when multiple bonds – including more than $300 million on general obligation debt, with payments constitutionally backed by Puerto Rico – come due.

Garcia signed an executive order that allows the island’s Treasury Department to retain certain revenues from several public agencies to pay off the island’s $72 billion public debt and ensure the continuity of essential services, including health, education and public safety.

Failure to make the payment would be an ominous turn for the territory. Some argue that Puerto Rico’s convoluted political status has hastened to its economic decline, because it receives less federal funding than US states and must get congressional approval for certain actions as it tries to manage its debt.

Puerto Rico’s debt has now tripled in just 15 years. “Puerto Rico can not keep this up longer”.

More important, it wants Congress to change laws barring it from declaring bankruptcy, insisting it’s the only way out of the fiscal trap Puerto Rico finds itself in.

Padilla on Tuesday said the economic problems facing Puerto Rico were insurmountable without Chapter 9 bankruptcy protections – which are now offered to US municipalities but not the island nation.

“Make no mistake, Puerto Rico’s liquidity position is severely constrained at this time despite the extraordinary measures the government has taken to improve it”, Melba Acosta Febo, president of the Government Development Bank for Puerto Rico, said in a statement Tuesday. “This is a distress call from a ship of 3.5 million American citizens that have been lost at sea”.

El gobernador de Puerto Rico Alejandro Javier García Padilla atestigua ante el Comité de Asuntos Jurídicos del Senado de Estados Unidos sobre los problemas fiscales de la isla, el 1 de diciembre del 2015. He hopes to secure bankruptcy for Puerto Rico, a legal and financial instrument not now available to USA territories.

He asked no questions of the governor after his testimony.

This time it made its payment, pushing off fears that bondholders would bring a lawsuit against Puerto Rico.

Puerto Rico has $72bn (£48bn) in outstanding debts.

Republicans have used the Puerto Rican debt crisis to scold the territory’s local government for perceived financial mismanagement.