Puerto Rico’s financial crisis puts the squeeze on Congress
Potential default of $422M looms Monday
The confrontation between debt-swamped Puerto Rico and its creditors is intensifying as the U.S. territory will default on payments due Monday, deepening the island’s financial crisis and placing additional pressure on Congress to intervene.
The debt crisis threatens to resuscitate moribund ideological debates over the propriety of federal bailouts and the impact of fiscal mismanagement on the lives of real people faced with insufficient services.
Puerto Rico Gov. Alejandro García Padilla said Sunday in a televised address that he had ordered the island’s Government Development Bank not to make certain payments owed Monday, stacking another round of missed payments on previous defaults.
“This was a painful decision. We would have preferred to have had a legal framework to restructure our debts in an orderly manner,” García Padilla said. “But faced with the inability to meet the demands of our creditors and the needs of our people, I had to make a choice. I decided that essential services for the 3.5 million American citizens in Puerto Rico came first.”
Puerto Rico was expected to default on about $422 million in bonds Monday, plunging the U.S. territory deeper into arrears, Moody’s Investor Service said last week in a report.
Municipal Market Analytics analyst Matt Fabian said Sunday that it’s clear the island can’t pay its debts in full. “Frankly the risk in Puerto Rico is that bonds aren’t cut enough initially to create a sustainable base,” he said.
The island’s lawmakers recently enacted a debt moratorium bill designed to ease the legal implications of defaults, but bondholders are furious and could mount a legal challenge. The governor cited that law as justification for his action Sunday.