Puerto Rico on Friday announced its default on a $1.9 billion debt payment, as expected, but also sketched out a dire fiscal picture that will require emergency measures for the rest of the year that just to maintain basic government services for millions of Puerto Ricans.
The huge payment due Friday included $1 billion worth of “guaranteed debt service obligations” that will go unpaid. Puerto Rico had warned of the default for months.
The only silver lining in the default is that legislation passed by Congress and signed by President Obama this week, known as the PROMESA Act, imposes a temporary moratorium on litigation from creditors. The bill also sets up a financial control board tasked with getting Puerto Rico’s finances in order.
Still, Puerto Rico’s Government Development Bank and the Fiscal Agency and Financial Advisory Authority warned Friday that even with the ability to default without fear of immediate legal repercussions, the situation is bleak.
“The fiscal situation of the Commonwealth on the last day of fiscal year 2016 is dire,” the two agencies said in a joint statement.
They said Puerto Rico ended June with about $200 million in cash in its operating account, and another $150 million in other funds that it could tap. Maintaining cash flow will mean “extraordinary liquidity measures” will be needed for at least the next six months.
Just to maintain essential services to citizens, Puerto Rico expects to take steps such as “delaying payments to vendors and special contributions to the Commonwealth’s retirement systems, extending internal financing to the Commonwealth from certain of its instrumentalities and delaying capital expenditures.”
And even after those measures are taken, Puerto Rico will “exhaust its liquidity balance in the next 30 to 60 days,” the agencies said.
On Thursday, Puerto Rico’s governor, Alejandro Garcia Padilla, said passage of the PROMESA Act by Congress gives him hope for an orderly restructuring of the island’s debt. He issued two executive orders on Thursday to suspend the payment of general obligation debt, and to block legal claims against debt-ridden agencies so they can continue to “provide the central government with the necessary resources for its operation.”
“With this action, this administration continues to take historic steps to ensure the residents of Puerto Rico continue to receive essential services while the Commonwealth continues to face a delicate financial situation,” the governor’s office said Thursday.
