Puerto Rico Will Default in January or May, Governor Says
Kasia Klimasinska kklimasinska Bloomberg.com
Puerto Rico will default on debt payments in January or May, Governor Alejandro Garcia Padilla said, after Congress failed to provide the Caribbean island with the help it was seeking to cope with an escalating debt crisis.
The lapse will probably come on Jan. 1, when its next bond payments are due, Garcia Padilla said during an appearance at the National Press Club in Washington. He said that’s because the island’s government may not have enough cash to pay essential services and creditors.
“If they make me choose between Puerto Ricans and creditors, I will choose Puerto Ricans, always,” he said. “There’s no money. I don’t have a printing machine.”
Puerto Rico and its agencies owe $70 billion, with $957 million of interest on that debt due Jan. 1, including $357 million on general obligations. The commonwealth this month narrowly averted a default on government-guaranteed debt for the first time, and Garcia Padilla said that it’s inevitable that Puerto Rico will have to restructure debt amassed from years of borrowing to pay its bills.
Already three agencies have said they’ll use reserve funds to make the Jan. 1 payments after the government this month began diverting revenue that repays those obligations.
Garcia Padilla, who won’t seek re-election and will leave office in January 2017, has urged Congress to allow some public corporations to file for bankruptcy, as cities on the U.S. mainland can. Bondholders have opposed extending bankruptcy protection to Puerto Rico because they were assured that couldn’t happen when they bought its securities.
U.S. lawmakers opted to not include such a provision in the $1.1 trillion spending bill it’s set to pass to avoid a government shutdown. Instead, the federal legislation increases Puerto Rico’s health funding by $900 million over a decade. It’s Congress’s first step in assisting the island and may be the last chance this year for the commonwealth to receive help from the federal government.
That additional federal funding won’t help Puerto Rico address its debt crisis, Garcia Padilla said.
“I am extremely disappointed,” he said. “Hedge funds proved more persuasive over Congress than the well-being of 3.5 million American citizens living in Puerto Rico.”
Asked about the probability of a Jan. 1 default during an interview after the speech, he said that’s something that will be determined soon. “There is a very high chance,” he said.