Island commonwealth faces close to $1bn in interest payments in 2016 but governor says it will do ‘all it can’ to avoid shutting down government services

Puerto Rico
People watch as Puerto Rico’s governor, Alejandro Garcia Padilla, addresses the nation in a televised speech. Photograph: Alvin Baez/Reuters

Puerto Rico has run out of time and money and will default on $37m of its debt repayments on 1 January, Governor Alejandro Padilla confirmed on Wednesday.

The troubled commonwealth is at loggerheads with investors over plans to restructure $70bn in debts that have triggered a financial crisis on the islandleading to mass migration, school closures and escalating unemployment and poverty.

The island began defaulting on payments in August and faces close to $1bn in interest payments in 2016. Padilla said Puerto Rico would pay $354m of its obligations but will default on $35.9m of Puerto Rico Infrastructure Financing Authority debt and $1.4m of Public Finance Corp bonds, Padilla said. He also warned that the island did not have the cash to pay $400m due in May in Government Development Bank bonds.

Padilla said the island’s government would do “all [it] can to avoid” the shutdown of vital government services.

Puerto Rico’s unemployment rate is 12.5%, more than twice the US national average, and 45% of its population now lives below the poverty line. Padilla has warned its crushing debts have sent the commonwealth into a “death spiral”.

Unlike mainland municipalities, notably Detroit, the commonwealth is legally barred from declaring bankruptcy. Padilla has pushed, unsuccessfully, for Congress to change the law and allow Puerto Rico to declare bankruptcy.

“The consequences of a default without any legal framework to restructure our liabilities are so disastrous that for the past six months we have been executing emergency measures to continue meeting our obligations with our creditors and avoid a disruption of essential services to our citizens,” Padilla said in earlier this month. “These emergency measures are unsustainable.”

The US treasury secretary, Jacob Lew, said this week it was inevitable for Puerto Rico to default on its debts. “Look, they’re effectively in default” already, he said in an appearance on Fox Business Network. “They’ve already been taking money out of pension funds to pay current bills. They’ve been shifting money from one creditor to pay for another creditor. That’s effectively default. You don’t have to wait until you miss a coupon payment to say you’re in default.”

A Treasury spokesman said: “Today’s announcement that Puerto Rico will miss additional payments demonstrates the gravity of the commonwealth’s fiscal crisis and the need for Congress to act now. Puerto Rico is at a dead end, shifting funds from one creditor to pay another and diverting money from already-depleted pension funds to pay both current bills and debt service.

“This increasingly urgent situation demands swift Congressional action to give Puerto Rico access to an orderly restructuring regime paired with independent oversight. Congressional leaders have committed to act, and the administration remains committed to working with Congress to address this crisis and put Puerto Rico on a sustainable path forward that protects the 3.5 million Americans who live in the commonwealth.”

[Source:-the gurdian]

By Adam