Newspaper article International New York Times

More Pain for Puerto Rico ; Unless Congress Enacts Rescue, Island Is Likely to Default on Larger Debts

Newspaper article International New York Times

More Pain for Puerto Rico ; Unless Congress Enacts Rescue, Island Is Likely to Default on Larger Debts

Article excerpt

The island will probably default on even larger and more consequential payments due on July 1 unless the United States Congress enacts rescue legislation.

Gov. Alejandro Garcia Padilla of Puerto Rico has ordered a debt moratorium, blocking a $422 million payment that was due on Monday.

The missed payment is the biggest yet in a continuing series of defaults by the struggling United States commonwealth, and a warning that Puerto Rico will probably default on even larger and more consequential payments due on July 1, unless Congress enacts rescue legislation before then.

On that date, nearly $2 billion is due, roughly $800 million of which consists of general-obligation bonds that carry an explicit guarantee by the Puerto Rican Constitution. Missing a major payment on such debt would not only set off a wave of creditor lawsuits, but it could also cast a shadow over America's $3.7 trillion municipal bond market, which for decades has been an essential source of financing for public works.

"This was a painful decision," the governor said in a televised speech on Sunday, in which he struck a nationalistic tone and said he had to invoke his emergency powers under Puerto Rican law because help from Washington was not forthcoming.

"We would have preferred to have had a legal framework to restructure our debts in an orderly manner," he said.

Federal law bars Puerto Rico from restructuring under Chapter 9, the part of the bankruptcy code that insolvent cities and other local governments can use. Lawmakers in the House of Representatives, under the direction of Speaker Paul D. Ryan, have been trying to draft a special law to give Puerto Rico legal powers to abrogate debt, something normally available only in bankruptcy.

But the bill is contentious and important provisions are still being negotiated.

The governor said the process was too slow. In his speech he blamed unnamed "opponents of the people of Puerto Rico," who, he said, "have unleashed a brutal campaign of racial discrimination and lies against us," convincing some members of Congress that Puerto Rico needed austerity rather than debt relief. …

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