Puerto Rico in troubled waters, stalls debt payments to provide essential services
The Puerto Rican government is facing such a crisis that the island may have to consider stalling payment of debts, as Government Development Bank (GDB) runs the risk of falling dangerously short of its reserves to sustain the island as a going concern.
The total debt obligations for the island would be around $2.4 billion, $422 million of which is owed by fiscal agent GDB on March 1 and $2 billion is payable to investors by the island and its agencies on July 1.There is also $805 million owed to general obligations.
Puerto Rico is weighing its limited options and may delay some payments as the funds are running deplorably low. Gubernatorial Chief of Staff Grace Santana stated, "A moratorium on payment of debt is under consideration," according to Bloomberg.
The 370-page report released on Tuesday categorically states that GDB is on the verge of running out of the bare minimum reserves needed to cover even the essential services. The island's retirement systems could also collapse. As per Yahoo News, the report, which is yet to be audited, also reflected government deficit of $49.2 billion, a $2.5 billion increase from the fiscal year 2013. The increase is partly because of higher operating expenses and greater liabilities, including bonds. A decrease in government's net position by $1.7 billion was noted at the same time.
The report, hence, includes the following lines by way of warning to make island inhabitants more aware of the looming future. The lines say, "If GDB were to be placed in receivership or if its liquidity falls below a level necessary to operate, ... the commonwealth and its instrumentalities may have limited access to their funds," possibly affecting "the provision of essential government services."
Already buried under the gigantic debt pressure, Puerto Rico currently faces 45% poverty rate and a shrinking population as more and more islanders flee to mainland US. CNBC reports that the desperate government has sought help from two fronts - its creditors, requesting voluntary cuts in repayments and the Congress, by way of legislation letting it cut debt. Both pleas were met with resistance as the mentioned parties doubt the government's transparency regarding financial disclosures.
Governor Alejandro Garcia Padilla criticized the Congressional decision of not extending any help at a time of crisis. "The risk of Congress not providing such framework, which costs nothing to U.S. taxpayers, is condemning Puerto Rico to a legal morass that will jeopardize essential services for U.S. citizens living in Puerto Rico, further accelerate outmigration to the U.S. mainland and severely impair creditors' ability to recover on their claims," he said in a statement.
At the same time, to quell the rising doubts and answer the questions, the Puerto Rican government released the report on Tuesday. While the unaudited report will provide more information to the islanders to evaluate the economic condition, it does not reveal GDB's financial statements or any information on the island's biggest pension. These two factors relate to a shortfall of $30 billion, which is central to the current crisis situation.
Join the Conversation