SAN JUAN – Puerto Rican Gov. Alejandro Garcia Padilla signed a bill Wednesday that freezes the recession-mired Caribbean island’s debt payments until January 2017.
He recalled that a group of former International Monetary Fund economists had conducted a thorough study of the U.S. commonwealth’s finances a year ago and concluded that a generalized debt restructuring, including of constitutionally guaranteed general obligation, or GO, bonds, was needed to combat its “fiscal and humanitarian crisis.”
The new law is “further proof of our moral and legal commitment to, above all, protect the people we represent and serve,” the governor said.
“Puerto Rico is insolvent and the situation requires a serious effort to find a solution. This administration remains committed to working with all parties involved to find a solution that’s beneficial to all,” Garcia Padilla said.
The law establishes a moratorium on all debt payments, which includes GO bonds issued by the island’s central government, as well as debt issued by the Government Development Bank and other public agencies.
It also allows for the restructuring and even liquidation of the GDB, the Puerto Rican government’s financing arm.
The GDB must make a $422 million debt payment on May 1 and an additional $700 million payment in June, while its current liquidity stands at less than $600 million.
Puerto Rico’s public debt burden is in excess of $70 billion. Garcia Padilla’s administration has long said that amount is unpayable and is looking to the U.S. Congress to approve a restructuring plan.
Puerto Rico has been in recession for a decade, and 45 percent of the island’s population is currently below the poverty line by mainland U.S. standards.
An average of 166 people leave the island every day in search of better prospects, an outmigration that has led a 10 percent reduction in the commonwealth’s population over the past decade.
The governor acknowledged Wednesday that the new law could trigger legal action similar to a suit filed Monday by a group of hedge funds holding much of the GDB’s debt.
They filed a complaint in U.S. federal court in San Juan in a bid to block certain preferential asset transfers amid expectations the GDB would miss the May 1 debt payment, which would be the first major default by an entity on the U.S. commonwealth.