SAN JUAN, Puerto Rico—Puerto Rico entered a new financial era Friday following a historic default as it prepares for the implementation of a federal oversight board that will have control over the island’s dire finances and provide room to ease a crushing debt burden.
The government paid roughly half of $2 billion in due debt, but said it did not have the money to pay $779 million worth of general obligation bonds that are given top priority by the island’s constitution. Gov. Alejandro Garcia Padilla signed an executive order Thursday declaring a moratorium on a portion of that debt.
“Even if I had shut down the government, we wouldn’t have had enough money to make the payment,” Garcia said at a news conference Friday.
A bill to help the island restructure its debt, signed Thursday by President Barack Obama, means that “Puerto Rico will now govern itself like an adult country, responsibly, spending only what it can afford,” the governor said. “Today, the island starts belonging to us again, and not to Wall Street.”
Puerto Rico has only $200 million in cash in the operating account from which it was supposed to pay the general obligation bond debt, according to the Government Development Bank, which oversees the island’s debt transactions and is operating under a state of emergency that permits withdrawals only for essential public services.
The bank on Friday warned the government will implement what it called “extraordinary liquidity measures” in the next six months, including delaying payments to vendors and special contributions to the struggling retirement systems, so that it can continue providing essential services. Despite those measures, revenues in the operating account are expected to drop below some $95 million later this year, an amount that the bank referred to as “dangerously low.”
