PUERTO RICO: 'There is no US precedent for anything of this scale or scope'
Gov. Alejandro Garcia Padilla is hoping to defer debt payments while negotiating with creditors, spokesman Jesus Manuel Ortiz said Sunday night.
"There is no other option. I would love to have an easier option. This is not politics, this is math," Garcia said, according to the New York Times.
The comments came as legislators debate a $9.8 billion budget that calls for $674 million in cuts and sets aside $1.5 billion to help pay off the debt. The budget has to be approved by Tuesday.
Puerto Rico's bonds were popular with U.S. mutual funds because they were tax-free, but hedge funds and distressed-debt buyers began stepping in to buy up debt as the island's economy worsened and its credit rating dropped.
"Analysts believe the central government will run out of cash as soon as July, which could lead to a government shutdown, employee furloughs and other emergency measures," according to the Wall Street Journal.
"This is going to be painful for the next two to three years," Rep. Pedro Pierluisi, Puerto Rico's Democratic representative in the US House, told the WSJ.
Meanwhile, some legislators were taken aback by Garcia's comments, including Rep. Jenniffer Gonzalez, spokeswoman for the main opposition party.
"I think it's irresponsible," Gonzalez told the AP. "He met privately with The New York Times last week, but he hasn't met with the leaders of this island."
Puerto Rico's constitution dictates that the debt has to be paid before any other financial obligation is met. If Garcia seeks to not pay the debt at all, it will require a referendum and a vote on a constitutional amendment, she said in a phone interview.
Just months ago, Puerto Rico was considering borrowing up to $2.9 billion. But more recently, Garcia Padilla commissioned a study of the country's current situation by former officials at the IMF and World Bank, according to the New York Times, which obtained a confidential copy.
"There is no U.S. precedent for anything of this scale or scope," according to the aforementioned report.
This report also "seems aimed at the Obama administration and Congress, both of which have taken a largely hands-off approach to Puerto Rico's fiscal problems. United States Treasury officials, however, have been advising the island's government in recent months amid the worsening fiscal situation," according to the NYT.
Puerto Rico's public agencies owe a large portion of the debt, with the power company alone owing some $9 billion. The company is facing a restructuring as the government continues to negotiate with creditors as the deadline for a roughly $400 million payment nears.
Garcia has taken several measures to help generate more government revenue, including signing legislation raising the sales tax to 11.5 percent and creating a 4 percent tax on professional services. The sales tax increase goes into effect Wednesday and the new services tax on Oct. 1, to be followed by a transition to a value-added tax by April 1.