The latest chapter in Puerto Rico’s debt crisis saga occurred yesterday when legislators there passed a bill giving PR Governor Alejandro Garcia Padilla the power to temporarily suspend debt payments while the territory waits for help from Washington DC in dealing with its financial woes.
The bill allows Mr. Padilla to impose a moratorium on payments to keep government cash flowing for essential services, according to the Wall Street Journal.
It is the latest effort by the island to protect money it says is necessary for police and firefighters while awaiting action from the US Congress.
The moratorium powers would generally last through next January, when the debt suspended would again be due for payment, the WSJ reported.
“This legislation provides us with the tools to address the highest priority of needs — providing essential services to our people — without fear of retribution,” Mr. Padilla said yesterday. “This legislation also helps the Government Development Bank address its difficult situation in an orderly manner.”
Despite the fact that the legislation only allows for a temporary suspension of certain payments, interest rates on PR bonds spiked after the bill was passed.
“Puerto Rico general obligation bonds maturing in 2035 traded at an average of 64.563 cents on the dollar Wednesday, down from 68.830 cents Friday,” the WSJ reported.
The price for those bonds is near the record low of 64 cents reached last June after Mr. Padilla said his government couldn’t repay all of its $72 billion in outstanding obligations.
Because PR isn’t a state, its municipalities can’t file for bankruptcy protection under chapter nine of the federal code.
US President Obama has urged Congress to pass measures that would allow the territory some relief from its debt obligations.
Republicans in the US House of Representatives last week proposed a bill that would allow debt restructuring under the supervision of a federal control board, but so far no legislation has been put to a vote, according to the WSJ.
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