Puerto Rico misses debt payment
Puerto Rico officially defaulted on a government payment Monday, as the commonwealth announced it was not making a full payment on an owed debt.
Struggling to keep up with a massive debt load under dwindling government revenues, the commonwealth made official what had long been cautioned: The island cannot pay back all the money it owes under current circumstances.
{mosads}Puerto Rico’s Government Development Bank said in a statement Monday that it did not make a full $58 million payment on bonds issued by the Public Finance Corporation. The commonwealth paid a small amount of interest owed on the debt — just $628,000.
“This was a decision that reflects the serious concerns about the Commonwealth’s liquidity in combination with the balance of obligations to our creditors and the equally important obligations to the people of Puerto Rico to ensure the essential services they deserve are maintained,” said Melba Acosta Febo, the bank’s president.
Acosta Febo said the commonwealth was able to make the interest payment by using leftover appropriated funds from a prior year. The default is the first time in Puerto Rico’s history that it has failed to pay back money owed on time.
The missed payment is the latest step in a long path of fiscal troubles for the commonwealth, which is struggling under a $72 billion debt load — by far the nation’s highest. Puerto Rico’s governor announced in July that it would be impossible for the commonwealth to pay back all the money owed without extreme cuts to public services.
The island was hit hard by the financial crisis, and in turn its dwindling population further reduced tax revenues. Faced with a grim fiscal picture, Puerto Rico has turned to Congress for an assist, pushing lawmakers to change the bankruptcy code to ensure that the commonwealth can declare bankruptcy.
However, that request has run into some opposition, particularly from Republicans, who argue that doing so would excuse long-term fiscal mismanagement and punish investors who bought Puerto Rican debt when the rules of the road were different. Legislation to change the code has been introduced in Congress by Democrats in both chambers, but has not advanced beyond that point.
Investors holding Puerto Rican debt are intensely opposed to the bankruptcy option, arguing there is more the commonwealth can do to cut costs and remain current on its debt obligations.
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