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Puerto Rico Defaults on $422-Million Debt Payment

By: Max Radwin - May 2, 2016, 10:02 am
Puerto Rico defaults: Officials did not want to cut even more public funding to meet the debt deadline. (wikimedia)
Puerto Rico officials did not want to cut even more public funding to meet the debt deadline. (Wikimedia)

EspañolPuerto Rico will have no choice but to default on its US $422 million payment to creditors, its governor Garcia Padilla announced during a television address Sunday, May 1.

The Government Development Bank — which was already running within emergency protocol — had until Monday, May 2 to pay back the debt it has been accumulating for over a decade, but failed to do so by a long shot.

The decision comes in response to having to choose between funding remaining public services, or paying off the island’s debts. Puerto Rico’s poverty rate has reached record highs, and Padilla said he did not want to see the island’s living conditions worsen any more by paying off debt at the expense of such public services.

“Faced with the inability to meet the demands of our creditors and the needs of our people, I had to make a choice,” Padilla said. “I decided that essential services for the 3.5 million American citizens in Puerto Rico came first.”

Puerto Rico owes another $1.9 billion of debt on July 1, 2016. With such due dates looming, island officials have been making huge cuts on public services in education and health — laying off hospital workers, for example — while also funneling money from pensions. None of this could prevent the island from sinking further and further into debt.

The Government Development Bank had been trying to reach an agreement with creditors, Bloomberg reported, in which they would get back 47 cents on the dollar of their original securities — an idea that ultimately fell through. Bloomberg also reported that the Bank and its creditors had agreed to negotiate outside of court.

The United States Senate worked to draft a bill that would have provided the island with a US $70-billion “bailout.” However, Republicans could not come to an agreement about whether the debt crisis bill would have impeded the island’s autonomy and Democrats disapproved of the bill’s potential impact on the minimum wage and pensions — all of which stalling negotiations past Republican Speaker Paul Ryan’s goal date of March 31.

“This was a painful decision,” Padilla said. “We would have preferred to have had a legal framework to restructure our debts in an orderly manner.”

According to Reuters, this default increases pressure on Congress to come to an agreement about the bill.

Padilla said he doesn’t necessarily want a bailout, but rather the “legal ability to restructure existing debt.”

Source: Business Insider

Max Radwin Max Radwin

Max is an editor with PanAm Post. He graduated from the University of Michigan in 2015 with a Major in English Literature and a minor in Spanish Language. He has written for Newsday, Al Jazeera and The Miami Herald, among others.