Puerto Rico warns of cash crunch when debt moratorium ends
Puerto Rico's government warned in a liquidity report made public on Wednesday that it will run out of money in less than three months as the United States territory pushes to restructure nearly US$70 billion in public debt.
The report notes that the island could be up to US$3 billion in the red as it faces a US$1.3-billion debt payment in February, when a temporary debt moratorium imposed earlier this year expires, and another US$934 million in bond payments due from March through June.
Puerto Rico has already defaulted on nearly US$1.4 billion worth of bond payments since August 2015, angering creditors who have filed multiple lawsuits and accuse the government of exaggerating its situation.
Government officials warned on Wednesday that if the moratorium is not extended, the island will run out of cash to provide essential services. The report also warned that the island's pension system, which is underfunded by more than US$40 billion, will run out of cash in 2018 unless the government takes steps such as increasing contributions.
"Puerto Rico's economic crisis and insolvency is not a secret," said Victor Suarez, the island's secretary of state.
The government released the report two days before a federal control board, charged with overseeing the island's finances, meets in Puerto Rico for the first time. Additional details released later Wednesday state that the local government is creating a registry of all those who own Puerto Rico bonds, identifying so far 350,000 owners that hold 68 per cent of the island's debt. At least US$6 billion of that debt is held by Puerto Rico residents.
Governor Alejandro Garcia Padilla has been urging the board to authorise a debt restructuring so Puerto Rico can re-enter the markets and pull itself out from a decade-long economic crisis that is only deepening. His administration has declared a state of emergency at several government agencies and implemented austerity measures, including deferring payments to the island's police and agriculture departments, among others.
Garcia announced late Wednesday that he would hold an extraordinary session on Thursday to debate several bills, including one that would address the pension system's deficit.
The report was released on the same day that Ricardo Rossello, Puerto Rico's governor-elect, met with bondholders and credit rating agencies in New York.
Rossello has pledged to improve Puerto Rico's credit rating and re-enter the markets after agencies downgraded the island's debt to junk status.
Puerto Rico bonds rallied after voters last week chose Rossello as their new governor. He has said his main priority is to make Puerto Rico the 51st state.