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Puerto Rico set to default on most of a $422M bond debt repayment

By Andrew V. Pestano
Puerto Rico Gov. Alejandro Garcia Padilla, using powers appropriated in a recent law, ordered the commonwealth's Government Development Bank not to make most payments on a $422 million debt payment due Monday. Photo courtesy of Alejandro Garcia Padilla
Puerto Rico Gov. Alejandro Garcia Padilla, using powers appropriated in a recent law, ordered the commonwealth's Government Development Bank not to make most payments on a $422 million debt payment due Monday. Photo courtesy of Alejandro Garcia Padilla

SAN JUAN, Puerto Rico, May 2 (UPI) -- The Government Development Bank for Puerto Rico will default on most of a $422 million dept payment on Monday, potentially further escalating the commonwealth's financial debt crisis.

The missed bond repayments will add to the island's previous defaults. Puerto Rico Gov. Alejandro Garcia Padilla made the decision to suspend the payments under powers given to him in a law enacted in April.

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"Faced with the inability to meet the demands of our creditors and the needs of our people, I had to make a choice," Garcia Padilla said in a televised address on Sunday. "This was a painful decision. We would have preferred to have had a legal framework to restructure our debts in an orderly manner ... 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."

The powers were appropriated so Garcia Padilla would have more control on what payments can be made as to gain more time while Puerto Rico awaits action from the U.S. Congress. The commonwealth hopes Congress will allow it to restructure its debts, or more ambitiously, to extend the ability to declare Chapter 9 bankruptcy to Puerto Rico -- an unlikely scenario, as those who gave loans to Puerto Rico did so knowing bankruptcy was not an option.

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About 45 percent of Puerto Ricans live in poverty, where the median household income is $19,000. Garcia Padilla asked for Congress to grant Puerto Rico the ability to quickly restructure its debts.

"Only a congressionally approved restructuring process can provide a comprehensive solution," Garcia Padilla said. "We can't wait longer. We need this restructuring mechanism now."

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