Puerto Rico’s governor says default ‘looms large’

Puerto Rico Justice Secretary Cesar Miranda acknowledged that some might view Puerto Rico’s move as a technical default since the government is diverting money meant for future bond payments. The government has been withholding payments to suppliers and tax rebates to preserve cash flow.

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.

“To date, we have not seen any recent audited financial statements from Puerto Rico”, Hatch said Monday on the Senate floor.

People sit in a restaurant while listening to an address by Governor Alejandro Garcia Padilla during a televised speech in San Juan, Puerto Rico, June 29.

Garcia Padilla had warned over the past week that the island’s government might not be able to make the debt payment due Tuesday.

The payment on bonds issued by the GDB is crucial as Puerto Rico tries to stretch its liquidity into 2016 to provide more time to restructure debt. This economic crisis has forced hundreds of thousands of Puerto Ricans to flee the island for the US Mainland over the past decade, with scores of families abandoning their homeland each month.

“The imminence of a default when presented with the alternative between paying creditors and providing essential government services looms large”, Garcia Padilla said. Those factors combined to create an economic situation that the government can’t resolve on its own since the government cannot take advantage of the Chapter 9 bankruptcy protections USA municipalities can use.

Sen. Chuck Grassley (R-Iowa), who chairs the panel, criticized Puerto Rico for years of fiscal mismanagement that has led to its current state, and said the island has not been sufficiently forthcoming with Congress on the state of its finances.

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.

Tuesday’s hearing was the fifth so far this year in which various congressional committees have taken testimony on what has caused Puerto Rico’s financial distress and what might be done about it. The Senate Judiciary Committee has jurisdiction over the federal bankruptcy law. The island’s Public Finance Corporation already missed a $58 million bond payment in August, its first ever.