The government of Puerto Rico on Tuesday dodged default on a key portion of its debt, but warned that the U.S. territory faces a “deteriorating liquidity situation” that may require “sacrifices” from creditors.
The Government Development Bank for Puerto Rico announced it paid the full $355 million in principal and interest payments that were due Tuesday. Much of this was “general obligation” debt, and a default on that debt may have triggered more financial instability.
But while the debt crisis was avoided for now, the bank warned that it was taking new steps to ensure future debt payments could be made.
“[T]he governor of Puerto Rico signed executive order No. OE-2015-46, which provides that the commonwealth will begin to redirect certain revenues in light of recently revised revenue estimates and its deteriorating liquidity situation,” the bank said.
“Pursuant to the executive order, certain available revenues that have been budgeted to pay debt service on the debt of certain public corporations may be redirected, pursuant to constitutional requirements, to pay ‘public debt,'” it added.
Bank President Melba Acosta Febo warned that Puerto Rico remains in a precarious situation.
“[M]ake no mistake, Puerto Rico’s liquidity position is severely constrained at this time despite the extraordinary measures the government has taken to improve it,” Febo said.
Febo also warned that creditors may have to make “sacrifices in the weeks and months ahead.
“[T]he commonwealth’s overall fiscal positions remains tenuous,” Febo said. “In the following weeks, we will continue to have discussions with our creditors about supporting the creation of a sustainable path forward for the commonwealth.”
Puerto Rico has asked the U.S. Congress to pass legislation allowing the island territory to seek relief under U.S. bankruptcy laws. Febo said that without this change, the chances of finding a successful outcome “will diminish greatly.”
Puerto Rico is about $72 billion in debt, and has faced severe hardships trying to pay it back as its economy has floundered and people have left the territory.
