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puerto rico debts

Puerto Rico has suspended a $422 million debt payment due on May 2 after talks to ease the state’s crisis ended without a deal, Governor Alejandro Garcia Padilla has announced.

In a TV address, the governor said he had issued an executive order suspending payments.

Alejandro Garcia Padilla described it as a “painful decision”, but had been warning since last year that the island’s public debt of more than $70 billion was unpayable.

The US Congress has tried without success to agree a solution.

Photo Reuters

Photo Reuters

The governor said: “Let me be very clear, this was a painful decision.

“We would have preferred to have had a legal framework to restructure our debts in an orderly manner.”

Alejandro Garcia Padilla acknowledged before the weekend that if the payment was not made, it was likely to spark legal action from creditors. A further debt payment of $1.9 billion is due in July.

Puerto Rico officials have held talks with groups holding some of its $4 billion in bonds to try to restructure the debt.

Some creditors have argued that the territory has exaggerated its crisis and that economic reforms would improve the island’s finances.

Congress is in recess until the week of May 9.

“If Congress fails to authorize a mechanism to restructure our debt, the 3.5 million American citizens who live in Puerto Rico will continue to suffer,” Governor Alejandro Garcia Padilla said.

Puerto Rico government has confirmed that it failed to make a debt payment at the weekend, in the latest sign of the economic crisis in the US territory.

It said it did not have the funds available to pay more than $50 million due on bonds.

The ratings agency Moody’s said it viewed the development as a default.

Puerto Rico’s governor said in June that the island’s debts of more than $70 billion were unpayable and that its finances needed restructuring.

The US commonwealth paid only $628,000 of a $58 million payment due on its Public Finance Corp (PFC) bonds, Government Development Bank President Melba Acosta Febo said in a statement on August 3.

Photo Reuters

Photo Reuters

Melba Acosta Febo said the reason was because the legislature did not appropriate sufficient funds.

The government said on July 31 that although it would not complete the full payment, it should not be considered a default under a technical definition of the phrase. But that argument has been discounted by Moody’s and other financial institutions.

Puerto Rico has $72 billion of public debt. That makes it by far the most indebted territory or state per capita in the United States.

Unemployment is at almost 14% – more than double the national average – and over the last decade there has been little or no growth, resulting in the economy teetering on the brink of oblivion.

Puerto Rico has been losing 1% (around 30,000 people) a year to Florida and other parts of the US. And it is mainly the economically active young who are leaving.

The government has rejected recommendations made by some economists from the International Monetary Fund (IMF) that employers should pay less than the federal minimum wage of $7.25 per hour.

There is also resistance to cutting the bloated public sector, which accounts for almost 20% of the workforce.