The Governor of the Commonwealth of Puerto Rico, Alejandro Garcia Padilla, is crying wolf amid an ongoing – and deepening – debt crisis.
The island’s taxpayers are on the hook to pay back a whopping $49.2 billion in debt.
Actually, Puerto Rico has about $73 billion in debt – but a big slice of the debt pie belongs to its troubled utility company, as well as other government entities.
Thus, the island’s obligated bond payments continue to swell.
Currently, around 36% of Puerto Rico’s revenue services its debt payments (versus 7% in the United States), but the island says it can’t afford to pay more than 15%.
In a meeting with lawmakers in Washington, Padilla said the island is in a “death spiral” and that “the U.S. faces a humanitarian crisis under its own flag if Congress does not act soon.”
Recently, Puerto Rico has been moving money from one pocket just to pay another, something Padilla blatantly admitted when he said that the government has “paid their creditors up to now with ‘fiscal gymnastics’ but we have no more tricks.”
Kicking the Can
Padilla, who has repeatedly stated that Puerto Rico can’t pay back all of the debt it owes to creditors, has now proposed cutting that debt by almost half, to $26.5 billion.
In its proposal, Puerto Rico asks creditors to voluntarily exchange their current bond for two new ones in a restructuring deal involving a 46% reduction of debt.
That means the $49.2 billion the island owes will be split into two tranches. The first $26.4 billion “base” bond will pay guaranteed interest while the $22.7 billion “growth” bond only pays out if it meets its revenue and growth threshold.
But Puerto Rico is so short of funds that it has already defaulted twice before, in August and early January, and now it’s trying to kick the can even further down the debt road.
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