Tuesday, 1 December 2015

Puerto Rico Meets Debt Deadline but Warns of Tight Finances

Puerto Rico met its deadline for repaying $354 million in debt, the island’s development bank announced Tuesday, avoiding what some feared would be its first major default.

But it was unclear how long the payments would continue or whether the Commonwealth would meet other looming deadlines between now and Jan. 1.

The announcement of the repayments came as Gov. Alejandro García Padilla and other officials were testifying before the Senate Judiciary Committee, which is considering whether to give the island bankruptcy protection. The governor reiterated that Puerto Rico had run completely out of cash, and that as of Tuesday it was going to “claw back” certain revenues dedicated to paying debts, and use the money instead to provide government services and service general obligation bonds.

In his opening statement to the committee, the governor did not specify which types of debts would go unpaid as a result.

The statement from the development bank seemed to reflect the governor’s intentions.

“Today’s debt service payments reflect our commitment to honor our obligations notwithstanding the extreme fiscal challenges we face in an effort to facilitate a voluntary restructuring process with our creditors,” said the bank’s president, Melba Acosta Febo. “However, make no mistake, Puerto Rico’s liquidity position is severely constrained at this time despite the extraordinary measures the government has taken to improve it.”

The statement also said the governor had signed an executive order allowing the island “to begin redirecting certain revenues in light of recently revised revenue estimates and its deteriorating liquidity situation.”

“We have taken this difficult step in the trust that Congress will act soon,” Mr. García Padilla added, speaking slowly and clearly so his meaning would not be misunderstood. “But do not be misled. We have no resources left. Puerto Rico cannot keep this up longer.”

Tuesday’s hearing was the fifth so far this year in which various Congressional committees have taken testimony on what has caused Puerto Rico’s financial distress and what might be done about it. The Senate Judiciary Committee has jurisdiction over the federal bankruptcy law.

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