Puerto Rico mulled ‘complete bankruptcy,’ faces US$72B public debt
Puerto Rico's Development Bank warns that the government may have to shut down if new measures to generate revenue are not taken
SAN JUAN, Puerto Rico—Puerto Rico’s governor confirmed Wednesday that his administration recently pursued a proposal to request that the U.S. Congress allow the island’s heavily indebted government to declare bankruptcy amid an economic crisis.
Gov. Alejandro Garcia Padilla’s public acknowledgement of the proposal comes as the U.S. territory struggles with $72 billion in public debt amid a nearly decade-long economic slump.
Garcia said he has since rejected the proposal in favour of the current push to get rules that would allow only Puerto Rico’s public agencies to file for bankruptcy under Chapter 9. A U.S. House committee is studying the issue amid growing concerns about the government’s ability to repay its debt.
Declaring complete bankruptcy for the whole island government would not have been good for Puerto Rico, Garcia said.
“It’s not something that’s being considered right now,” he said. “It would have been less than impossible to obtain approval for such a measure, but we have to be responsible and evaluate everything that’s on the table.”
Pedro Pierluisi, Puerto Rico’s representative in Congress, criticized Garcia for pursuing such a proposal in private.
“It’s an irresponsible move that greatly damages Puerto Rico’s image before Congress and the financial markets,” Pierluisi said.
Garcia returned last weekend from an official trip to Washington, where he met with U.S. legislators to talk about the Chapter 9 bankruptcy proposal and other issues.
Puerto Rico’s Government Development Bank, which oversees the island’s debt transactions, has warned that the government could have to shut down in the coming months if new measures to generate revenue are not taken.
Garcia recently signed a bill to increase the island’s sales tax from 7 per cent to 11.5 per cent and to create a new 4 per cent tax on professional services. The sales tax increase goes into effect July 1 and the new services tax on Oct. 1, with a transition to a value-added tax by April 1.
Legislators are now debating a proposed $9.8 billion budget that calls for $674 million in cuts and sets aside $1.5 billion to help pay off Puerto Rico’s debt. The budget has to be approved by June 30.