Gov. Alejandro Garcia Padilla (PPD-P.R.) announced on Sunday that Puerto Rico would not be able to make $370 million in debt payments due Monday.
Garcia said the US territory was not willing to sacrifice essential public services in order to pay the money it owes. Puerto Rico had been previously scheduled to pay on Monday $422 million in bond obligations.
“Faced with the inability to meet the demands of our creditors and the needs of our people, I had to make a choice,” Garcia said.
The money was owed by Puerto Rico’s Government Development Bank, mostly to “a variety of US hedge funds and mutual funds,” according to the Associated Press. Garcia said repayment on the previous schedule would have forced the territory to shutter schools and hospitals.
Congress has for months debated legislation that would give the US territory debt restructuring rights provided to states and municipalities—Chapter Nine bankruptcy.
Speaker of the House Paul Ryan (R-Wis.) has supported the initiative, but he has been unable to convince rank-and-file Republicans to back it.
The Center for Individual Freedom (CIF), a conservative non-profit has been running ads characterizing the bill as a “bailout,” despite the fact that it would not appropriate any taxpayer money to Puerto Rico.
“Many lawmakers were spooked” by the campaign, The Hill noted on Monday morning. The daily newspaper described CIF as “a dark money group that does not have to disclose its donors.”
On Sunday, Garcia said that “Puerto Rico needs Speaker Paul Ryan to exercise his leadership.”
Democrats, including high-ranking Obama administration officials, have criticized the draft legislation for a targeted deregulatory push—one that would weaken minimum wage laws, while leaving restrictive federal shipping laws untouched.
Shipping to Puerto Rico—like to all US territories—must be done only by American-owned and American-crewed boats, under the Jones Act. Critics say it significantly raises the cost of living on the island.
If laws governing Puerto Rico’s ability to declare bankruptcy go unchanged, the territory will likely default this summer on a much more significant bond payment. On July 1, the island’s government owes $1 billion to purchasers of general obligation bonds, “which are guaranteed by the constitution,” the AP noted. The wire service said Puerto Rico could “lose access to capital markets and make the situation worse” if it defaults on the payment.
Puerto Rico has more than $70 billion in outstanding public debt. In March, Treasury Secretary Jack Lew described the island’s government as being mired in “an immediate crisis.”
“I believe that the worst thing for the municipal bond market would be a disorderly unwinding in Puerto Rico, which is what will happen if Congress doesn’t act,” he said.
